Ocean Shore Holding 10-Q 2014 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedMarch 31, 2014

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to ___________________ 

Commission file number:0-53856

OCEAN SHORE HOLDING CO.

(Exact name of registrant as specified in its charter)

New Jersey	80-0282446
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1001 Asbury Avenue, Ocean City, New Jersey	08226
(Address of principal executive offices)	(Zip Code)

(609) 399-0012

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx No¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

Large Accelerated Filer¨	Accelerated Filerx
Non-accelerated Filer¨	Smaller Reporting Company¨
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes¨ Nox

Indicate the number of shares outstanding of each of the Issuer’s classes of common stock as of the latest practicable date:

At May 2, 2014, the registrant had 6,757,072 shares of $0.01 par value common stock outstanding.

OCEAN SHORE HOLDING CO.

FORM 10-Q

INDEX

		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements	1
	Unaudited Condensed Consolidated Statements of Financial Condition at March 31, 2014 and December 31, 2013	1
	Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2014 and 2013	2
	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013	3
	Notes to Unaudited Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34
SIGNATURES		35

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	March 31,			December 31,
ASSETS	2014			2013
	(Dollars in thousands)
Cash and amounts due from depository institutions	$	9,185		$	9,509
Interest-earning bank balances		73,279		$	78,110
Cash and cash equivalents		82,464			87,619
Investment securities held to maturity
(estimated fair value—$1,536 at March 31, 2014; $3,402 at December 31, 2013)		1,428			3,312
Investment securities available for sale
(amortized cost— $126,756 at March 31, 2014; $129,776 at December 31, 2013)		123,341			125,389
Loans—net of allowance for loan losses of $4,214 at March 31, 2014 and $4,199 at December 31, 2013		757,639			744,802
Accrued interest receivable:
Loans		2,409			2,391
Investment securities		201			142
Federal Home Loan Bank stock—at cost		6,320			6,320
Office properties and equipment—net		13,240			13,143
Prepaid expenses and other assets		2,538			3,062
Real estate owned		340			498
Cash surrender value of life insurance		23,352			23,196
Net deferred tax asset		4,521			4,919
Goodwill		4,630			4,630
Other intangible assets		609			625
TOTAL ASSETS	$	1,023,032		$	1,020,048
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Non-interest bearing deposits	$	100,135		$	96,750
Interest bearing deposits		683,299			683,897
Advances from Federal Home Loan Bank		110,000			110,000
Junior subordinated debentures		10,309			10,309
Advances from borrowers for taxes and insurance		3,968			3,702
Accrued interest payable		793			1,024
Other liabilities		8,334			8,143
Total liabilities		916,839			913,825
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized, no shares issued		-			-
Common stock, $.01 par value, 25,000,000 shares authorized, 7,307,590 shares issued;  shares outstanding: 6,757,072 at March 31, 2014; 6,903,352 at December 31, 2013		73			73
Additional paid-in capital		65,571			65,401
Retained earnings - partially restricted		53,463			52,287
Treasury stock—at cost: 550,518 at March 31, 2014; 404,238 at December 31, 2013		(7,354	)		(5,304	)
Common stock acquired by employee benefits plans		(2,896	)		(2,981	)
Deferred compensation plans trust		(600	)		(586	)
Accumulated other comprehensive loss		(2,063	)		(2,667	)
Total stockholders’ equity		106,194			106,223
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,023,032		$	1,020,048

See notes to unaudited condensed consolidated financial statements.

1

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Three Months Ended March 31,
	2014		2013
	(Dollars in thousands, except per share data)
INTEREST AND DIVIDEND INCOME:
Taxable interest and fees on loans	$	8,183	$	8,037
Taxable interest on mortgage-backed securities		352		292
Non-taxable interest on municipal securities		3		19
Taxable interest and dividends on other investment securities		333		382
Total interest and dividend income		8,871		8,730
INTEREST EXPENSE:
Deposits		644		838
Borrowings		1,267		1,413
Total interest expense		1,911		2,251
NET INTEREST INCOME		6,960		6,479
PROVISION FOR LOAN LOSSES		88		202
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		6,872		6,277
OTHER INCOME:
Service charges		447		528
Cash surrender value of life insurance		156		163
Other		403		411
Total other income		1,006		1,102
OTHER EXPENSE:
Salaries and employee benefits		3,247		3,190
Occupancy and equipment		1,287		1,244
Federal insurance premiums		137		130
Advertising		89		103
Professional services		265		309
Real estate owned activity		13		21
Charitable contributions		38		38
Other operating expenses		370		435
Total other expenses		5,446		5,470
INCOME BEFORE INCOME TAXES		2,432		1,909
INCOME TAX EXPENSE		845		729
NET INCOME	$	1,587	$	1,180
Other comprehensive income, net of tax:
Unrealized gain (loss) on available for sale securities		604		(21	)
Unrealized gain (loss) on post retirement life benefit		-		(46	)
TOTAL COMPREHENSIVE INCOME	$	2,191	$	1,113
Earnings per share, basic:	$	0.25	$	0.18
Earnings per share, diluted:	$	0.24	$	0.18

See notes to unaudited condensed consolidated financial statements.

2

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three MonthsEnded March 31,
	2014			2013
	(Dollars in thousands)
OPERATING ACTIVITIES:
Net income	$	1,587		$	1,180
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		282			359
Provision for loan losses		88			202
Stock based compensation expense		247			218
Cash surrender value of life insurance		(156	)		(163	)
Changes in assets and liabilities which provided (used) cash:
Accrued interest receivable		(77	)		(52	)
Prepaid expenses and other assets		524			10
Accrued interest payable		(231	)		(363	)
Other liabilities		191			342
Net cash provided by operating activities		2,455			1,733
INVESTING ACTIVITIES:
Principal collected on:
Investment securities available for sale		3,003			1,662
Investment securities held to maturity		50			73
Loans originated, net of repayments		(12,980	)		(6,103	)
Purchases of:
Investment securities held to maturity		(494	)		(2,328	)
Investment securities available for sale		-			(25,763	)
Office properties and equipment		(334	)		(80	)
Proceeds from sale of:
Real estate owned		239			314
Proceeds from maturities and calls of:
Investment securities held to maturity		2,328			3,588
Investment securities available for sale		-			10,032
Cash used for acquisition, net of cash acquired
Net cash (used in) investing activities		(8,188	)		(18,605	)
FINANCING ACTIVITIES:
Increase in deposits		2,778			6,907
Dividends paid		(411	)		(420	)
Purchase of shares by deferred compensation plans trust		(14	)		(16	)
Purchase of treasury stock		(2,050	)		—
Stock options exercised		9			417
Increase in advances from borrowers for taxes and insurance		266			142
Net cash provided by financing activities		578			7,030
NET DECREASE IN CASH AND CASH EQUIVALENTS		(5,155	)		(9,842	)
CASH AND CASH EQUIVALENTS—Beginning of period		87,619			163,422
CASH AND CASH EQUIVALENTS—End of period	$	82,464		$	153,580
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION—Cash paid during the period for:
Interest	$	2,134		$	2,605
Income Taxes	$	—		$	752
SUPPLEMENTAL DISCLOSURES OF NON-CASH ITEMS
Transfers of loans to real estate owned	$	81		$	382

See notes to unaudited condensed consolidated financial statements.

3

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All dollar amounts presented in the tables, except share and per share amounts, are in thousands)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Financial Statement Presentation- The unaudited condensed consolidated financial statements include the accounts of Ocean Shore Holding Co. (the “Company”) and its subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements were prepared in accordance with instructions to Form 10-Q, pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC) for interim information, and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations, changes in stockholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the condensed consolidated financial statements have been included. These financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2013. The results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2014 or any other period. The Company has evaluated subsequent events through the date of the issuance of its financial statements.

Use of Estimates in the Preparation of Financial Statements - The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expenses during the reporting period. The most significant estimates and assumptions relate to the allowance for loan losses, other-than-temporary impairment on investment securities, goodwill and intangible impairment, deferred income taxes and the fair value measurements of financial instruments. Actual results could differ from those estimates under different assumptions and conditions, and the differences may be material to the consolidated financial statements.

New Accounting Pronouncements –In July 2013, the Financial Accounting Standards Board (“FASB”) issued ASU 2013-11, an update to ASC 740,Income Taxes: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists: a consensus of the FASB Emerging Issues Task Force. This ASU provides explicit guidance on the presentation of unrecognized tax benefits, particularly the manner in which an entity would settle, at the reporting date, any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The provisions of this update are effective January 1, 2014 for the Company and should be applied prospectively; however retrospective application is also permissible. The adoption of this accounting guidance did not have a material impact on the Company’s consolidated financial statements.

4

In January 2014, the FASB issued ASU 2014-04,Receivables — Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure — a consensus of the FASB Emerging Issues Task Force, on January 17, 2014. This ASU clarifies when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. The amended guidance clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. In addition, the amended guidance requires interim and annual disclosures of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amended guidance may be applied prospectively or through a modified retrospective approach and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014, with early adoption permitted. The adoption of the amended guidance is currently being evaluated by the Company, but is not expected to have a significant impact on the Company's consolidated financial statements.

2. INVESTMENT SECURITIES

Investment securities are summarized as follows:

	March 31, 2014
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gain		Loss			Value
	(Dollars in thousands)
Held to Maturity
Debt Securities - Municipal	$	494	$	-	$	-		$	494
US Treasury and government sponsored entity mortgage-backed securities		934		108		-			1,042
Totals	$	1,428	$	108	$	-		$	1,536
Available for Sale
Debt securities:
Corporate	$	11,567	$	157	$	(853	)	$	10,871
U.S. Treasury and federal agencies		35,035		-		(1,351	)		33,684
Equity securities		3		29		-			32
US treasury and government sponsored entity mortgage-backed securities		80,121		392		(1,759	)		78,754
Totals	$	126,726	$	578		(3,963	)	$	123,341

5

	December 31, 2013
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gain		Loss			Value
	(Dollars in thousands)
Held to Maturity
Debt Securities - Municipal	$	2,328	$	-	$	-		$	2,328
US Treasury and government sponsored entity mortgage-backed securities		984		90		-			1,074
Totals	$	3,312	$	90	$	-		$	3,402
Available for Sale
Debt securities:
Corporate	$	11,551	$	155	$	(909	)	$	10,797
US Treasury and federal agencies		35,035		-		(2,132	)		32,903
Equity securities		3		27		-			30
US Treasury and government sponsored entity mortgage-backed securities		83,187		392		(1,920	)		81,659
Totals	$	129,776	$	574		(4,961	)	$	125,389

The following table provides the gross unrealized losses and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position at March 31, 2014 and December 31, 2013:

	March 31, 2014
	Less Than 12 Months					12 Months or Longer					Total
			Gross					Gross					Gross
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss
	(Dollars in thousands)
Debt securities -
U.S. Treasury	$	9,801	$	(234	)	$	23,883	$	(1,117	)	$	33,684	$	(1,351	)
Corporate		-		-			3,852		(853	)		3,852		(853	)
US treasury and government sponsored entity mortgage-backed securities		72,388		(1,757	)		147		(2	)		72,535		(1,759	)
Equity securities		-		-			-		-			-		-
Totals	$	82,189	$	(1,991	)	$	27,882		(1,972	)		110,071	$	(3,963	)

	December 31, 2013
	Less Than 12 Months					12 Months or Longer					Total
			Gross					Gross					Gross
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss
	(Dollars in thousands)
Debt securities -
U.S. Treasury	$	27,221	$	(1,814	)	$	5,682	$	(318	)	$	32,903	$	(2,132	)
Corporate		-		-			3,796		(909	)		3,796		(909	)
US treasury and government sponsored entity mortgage-backed securities		74,803		(1,917	)		474		(3	)		75,277		(1,920	)
Equity securities		-		-			-		-			-		-
Totals	$	102,024	$	(3,731	)	$	9,952		(1,230	)		111,976	$	(4,961	)

6

Management has reviewed its investment securities as of March 31, 2014 and has determined that all declines in fair value below amortized cost are temporary.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. The OTTI assessment is a subjective process requiring the use of judgments and assumptions. During the securities-level assessments, consideration is given to (1) the intent not to sell and probability that the Company will not be required to sell the security before recovery of its cost basis to allow for any anticipated recovery in fair value, (2) the financial condition and near-term prospects of the issuer, as well as company news and current events, and (3) the ability to collect the future expected cash flows. Key assumptions utilized to forecast expected cash flows may include loss severity, expected cumulative loss percentage, cumulative loss percentage to date, weighted average FICO and weighted average loan-to-value ("LTV"), rating or scoring, credit ratings and market spreads, as applicable.

The Company assesses and recognizes OTTI in accordance with applicable accounting standards. Under these standards, if the Company determines that a security in an unrealized loss position is designated to be sold or it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis, the impairment of such security is concluded to be other than temporary and the entire amount of the unrealized loss will be recorded in earnings. If the Company has not made a decision to sell the security and it is not more likely than not that it will be required to sell the security prior to the recovery of the amortized cost basis but the Company concludes that the entire amortized cost basis of the security will not be recovered, while the OTTI is concluded to exists, the Company only recognizes currently in earnings the amount of decline in value attributable to credit deterioration, with the remaining component of OTTI presented in other comprehensive income.

Two pooled trust preferred collateralized debt obligations (“CDOs”) backed by bank trust capital securities have been determined to be other-than-temporarily impaired in 2009 and 2008, due solely to credit related factors. The Company continues to own these investments at March 31, 2014. These securities have Fitch credit ratings below investment grade at March 31, 2014. The underlying collateral consists of the bank trust capital securities of over 50 institutions. Each of the securities is in the mezzanine levels of credit subordination and defaults experienced in the pool for each security has significantly exceeded thresholds contemplated in the structure at the time of origination at the time of impairment and at March 31, 2014.

Corporate Debt Securities - The Company’s investments in corporate debt securities consist of corporate debt securities issued by large financial institutions and single issuer and pooled trust preferred/collateralized debt obligations backed by bank trust preferred capital securities.

At March 31, 2014, one debt security and two single issuer trust preferred securities had been in a continuous unrealized loss position for 12 months or longer with an aggregate depreciation of 18.1% from the Company’s amortized cost basis. The decline is primarily attributable to depressed pricing of two private placement single issuer trust preferred securities. The unrealized loss on these debt securities relates principally to the increased credit spread and rising interest rate environment in the financial markets for these types of investments. These securities were performing in accordance with their contractual terms as of March 31, 2014, and had paid all contractual cash flows since the Company’s initial investment. Management believes these unrealized losses are notother-than-temporary based upon the Company’s analysis that the securities will perform in accordance with their terms and the Company’s intent not to sell these investments for a period of time sufficient to allow for the anticipated recovery of fair value, which may be maturity.  The Company expects recovery of fair value including all contractual principal and interest payments related to those investments.

7

United States Treasury and Government Sponsored Enterprise Mortgage-backed Securities - The Company’s investments in United States government sponsored enterprise notes consist of debt obligations of the Federal Home Loan Bank (“FHLB”), Federal Home Loan Mortgage Corporation (“FHLMC”), and Federal National Mortgage Association (“FNMA”). At March 31, 2014, four U.S. Treasury security and two agency mortgage-backed securities had been in a continuous unrealized loss position for 12 months or longer with an aggregate depreciation of 4.5% from the Company’s amortized cost basis due to lower prices resulting from a rising interest rate environment. These securities were performing in accordance with their contractual terms as of March 31, 2014, and had paid all contractual cash flows since the Company’s initial investment. Management believes these unrealized losses are notother-than-temporary based upon the Company’s analysis that the securities will perform in accordance with their terms and the Company’s intent not to sell these investments for a period of time sufficient to allow for the anticipated recovery of fair value, which may be maturity.  The Company expects recovery of fair value including all contractual principal and interest payments related to those investments.

The amortized cost and estimated fair value of debt securities available for sale and held to maturity at March 31, 2014 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

	March 31, 2014
	Held to Maturity				Available for Sale Securities
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
	(Dollars in thousands)
Due within 1 year	$	494	$	494	$	1,000	$	1,000
Due after 1 year through 5 years		-		-		5,896		6,052
Due after 5 years through 10 years		-		-		15,000		14,679
Due after 10 years		-		-		24,706		22,822
Total	$	494	$	494	$	46,602	$	44,553

Not reflected in the table above, are equity securities and mortgage-backed securities. Equity securities do not have stated contractual maturities while mortgage-backed securities may have expected maturities different than those contractually stated as borrowers may have the right to call or prepay obligations with or without prepayment penalties. Equity securities had a cost of $3 thousandand a fair value of $32 thousand as of March 31, 2014. Mortgage-backed securities had a cost of $80.1 million and a fair value of $78.8 million as of March 31, 2014.

8

3. LOANS RECEIVABLE─NET

Loans receivable consist of the following:

	March 31, 2014			December 31, 2013
	(Dollars in thousands)
Real estate - mortgage:
One-to-four family residential	$	554,487		$	545,812
Commercial and multi-family		92,056			90,855
Total real estate-mortgage		646,543			636,667
Real estate - construction:
Residential		30,353			25,113
Commercial		938			2,510
Total real estate - construction		31,291			27,623
Commercial		23,553			23,445
Consumer:
Home equity		56,655			57,367
Other consumer loans		463			628
Total consumer loans		57,118			57,995
Total loans		758,505			745,730
Net deferred loan cost		3,348			3,271
Allowance for loan losses		(4,214	)		(4,199	)
Net total loans	$	757,639		$	744,802

Changes in the allowance for loan losses are as follows:

	Three months ended March 31,
	2014			2013
	(Dollars in thousands)
Balance, beginning of period	$	4,199		$	3,997
Provision for loan loss		88			202
Charge-offs		(74	)		(70	)
Recoveries		1			13
Balance, end of period	$	4,214		$	4,142

The provision for loan losses charged to expense is based upon past loan loss experiences and an evaluation of losses in the current loan portfolio, including the evaluation of impaired loans. The Company established a provision for loan losses of $88 thousand for the three months ended March 31, 2014 as compared to $202 thousand for the comparable period in 2013. The increase in the allowance for loan losses of $15 thousand at March 31, 2014 from December 31, 2013 resulted from a decrease in general reserves required of $139 thousand offset in part by an increase of $154 thousand in specific reserves on impaired loans in 2014. The Company experienced total net charge-off activity for 2014 of $73 thousand compared to $57 thousand for 2013.

9

Non-performing assets segregated by class of loans are as follows:

	March 31, 2014		December 31, 2013
	(Dollars in thousands)
Real estate
One-to-four family residential	$	2,568	$	3,618
Commercial and multi-family		354		463
Real estate – construction		-		-
Commercial		-		-
Consumer		661		674
Non-accrual loans		3,583		4,755
Troubled debt restructuring, non-accrual		936		316
Total non-performing loans		4,519		5,071
Real estate owned		340		498
Total non-performing assets	$	4,859	$	5,569

The reserve for delinquent interest on loans totaled $274 thousand and $262 thousand, at March 31, 2014 and December 31, 2013, respectively.

A rollforward of the Company’s nonaccretable and accretable yield on loans accounted for under ASU 310-30,Loans and Debts Securities Acquired with Deteriorated Credit Quality, is shown below for the three month periods ended March 31, 2014 and 2013:

	Contractual Receivable Amount			Nonaccretable (Yield)/Premium			Accretable (Yield)/Premium			Carrying Amount
	(Dollars in thousands)
Balance at January 1, 2014	$	50,837		$	(3,099	)	$	746		$	48,484
Principal reductions		(1,375	)		—			—			(1,375	)
Charge-offs, net		(189	)		189			—			—
Amortization of loan premium		—			—			(51	)		(51	)
Balance at March 31, 2014	$	49,273		$	(2,910	)	$	695		$	47,058
Balance at January 1, 2013	$	63,690		$	(3,423	)	$	983		$	61,250
Principal reductions		(5,027	)		—			—			(5,027	)
Charge-offs, net		(88	)		88			—			—
Amortization of loan premium		—			—			(43	)		(43	)
Balance at March 31, 2013	$	58,575		$	(3,335	)	$	940		$	56,180

An age analysis of past due loans, segregated by class of loans, as of March 31, 2014 and December 31, 2013 are as follows:

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable
	(Dollars in thousands)
March 31, 2014
Real Estate
1-4 Family Residential	$	1,853	$	1,517	$	2,568	$	5,938	$	548,549	$	554,487
Commercial and Multi-Family		110		-		354		464		91,592		92,056
Construction		-		-		-		-		31,291		31,291
Commercial		-		-		-		-		23,553		23,553
Consumer		200		-		661		861		56,257		57,118
Total	$	2,163	$	1,517	$	3,583	$	7,263	$	751,242	$	758,505
December 31, 2013
Real Estate
1-4 Family Residential	$	1,271	$	-	$	3,427	$	4,698	$	541,114	$	545,812
Commercial and Multi-Family		-		-		763		763		90,092		90,855
Construction		-		-		-		-		27,623		27,623
Commercial		-		-		-		-		23,445		23,445
Consumer		266		50		647		963		57,032		57,995
Total	$	1,537	$	50	$	4,837	$	6,424	$	739,306	$	745,730

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Impaired loans are set forth the in the following table. No interest income was recognized on impaired loans subsequent to their classification as impaired.

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
	(Dollars in thousands)
March 31, 2014
With no related allowance recorded
Real Estate
1-4 Family Residential	$	3,479	$	3,516	$	-	$	139
Commercial and Multi-Family		354		354		-		354
Construction		-		-		-		-
Commercial		-		-		-		-
Consumer		658		658		-		60
With an allowance recorded
Real Estate
1-4 Family Residential		4,255		4,300		468		387
Commercial and Multi-Family		-		-		-		-
Construction		-		-		-		-
Commercial		717		717		45		359
Consumer		251		263		58		63
Total
Real Estate
1-4 Family Residential		7,734		7,816		468		215
Commercial and Multi-Family		354		354		-		354
Construction		-		-		-		-
Commercial		717		717		45		359
Consumer		909		921		58		61
December 31, 2013
With no related allowance recorded
Real Estate
1-4 Family Residential	$	2,707	$	2,744	$	-	$	193
Commercial and Multi-Family		463		463		-		463
Construction		-		-		-		-
Commercial		-		-		-		-
Consumer		674		674		-		61
With an allowance recorded
Real Estate
1-4 Family Residential		3,127		3,166		396		284
Commercial and Multi-Family		-		-		-		-
Commercial		-		-		-		-
Consumer		121		121		21		121
Total
Real Estate
1-4 Family Residential		5,834		5,910		396		233
Commercial and Multi-Family		463		463		-		463
Construction		-		-		-		-
Commercial		-		-		-		-
Consumer		795		795		21		66

11

Included in the Company’s loan portfolio are modified commercial loans. Per FASB ASC 310-40, Troubled Debt Restructuring (“TDR”), a modification is one in which the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider, such as providing for a below market interest rate and/or forgiving principal or previously accrued interest; this modification may stem from an agreement or be imposed by law or a court, and may involve a multiple note structure. Generally, prior to the modification, the loans that are modified as a TDR are already classified as non-performing. These loans may only be returned to performing (i.e. accrual status) after considering the borrower’s sustained repayment performance for a reasonable amount of time, generally six months; this sustained repayment performance may include the period of time just prior to the restructuring. As of March 31, 2014, the Company entered into twelve TDR agreements with a total carrying value of $3.7 million of which two were not performing totaling $192 thousand. The company granted concessions in the form of a reduction in interest rate to these borrowers.

Included in impaired loans at March 31, 2014 were 12 TDRs, which had a specific reserve of $372 thousand. The following table presents an analysis of the Company’s TDR agreements existing as of March 31, 2014 and December 31, 2013, respectively.

	As of March 31, 2014						As of December 31, 2013
			Outstanding Recorded Investment						Outstanding Recorded Investment
	Number of Contracts		Pre- Modification		Post- Modification		Number of Contracts		Pre- Modification		Post- Modification
			(Dollars in thousands)						(Dollars in thousands)
1-4 Family Residential		8	$	3,210	$	3,210		6	$	2,216	$	2,216
Consumer		3		244		244		1		121		121
Commercial		1		217		217
Total		12		3,671		3,671		7	$	2,337	$	2,337

Federal regulations require us to review and classify our assets on a regular basis. In addition, federal banking regulators have the authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. “Substandard assets” must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful assets” have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified as “loss” is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. The regulations also provide for a “special mention” category, described as assets which do not currently expose us to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving our close attention. When we classify an asset as substandard or doubtful we establish a specific allowance for loan losses. If we classify an asset as loss, we charge off an amount equal to 100% of the portion of the asset classified loss.

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The following table presents classified loans by class of loans as of March 31, 2014 and December 31, 2013.

	Real Estate
	1-4 Family Residential				Commercial and Multi-Family				Construction				Commercial				Consumer
	3/31/2014		12/31/2013		3/31/2014		12/31/2013		3/31/2014		12/31/2013		3/31/2014		12/31/2013		3/31/2014		12/31/2013
	(Dollars in thousands)
Grade:
Special Mention	$	5,557	$	3,692	$	541	$	629	$	-	$	-	$	-	$	90	$	972	$	1,040
Substandard		7,763		7,612		3,382		3,645		-		-		750		665		1,110		900
Doubtful and Loss		-		-		-		-		-		-		-		-		-		-
Total	$	13,320	$	11,304	$	3,923	$	4,274	$	-	$	-	$	750	$	755	$	2,082	$	1,940

The following table presents the credit risk profile of loans based on payment activity as of March 31, 2014 and December 31, 2013.

	Real Estate
	1-4 Family Residential				Commercial and Multi-Family				Construction				Commercial				Consumer
	3/31/2014		12/31/2013		3/31/2014		12/31/2013		3/31/2014		12/31/2013		3/31/2014		12/31/2013		3/31/2014		12/31/2013
	(Dollars in thousands
Performing	$	551,040	$	541,878	$	91,702	$	90,392	$	31,291	$	27,623	$	23,553	$	23,445	$	56,400	$	57,321
Non-Performing		3,447		3,934		354		463		-		-		-		-		718		674
Total	$	554,487	$	545,812	$	92,056	$	90,855	$	31,291	$	27,623	$	23,553	$	23,445	$	57,118	$	57,995

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The following table details activity in the allowance for possible loan losses by portfolio segment for the periods ended March 31, 2014 and December 31, 2013. Allocation of a portion of the allowance to one category does not preclude its availability to absorb losses in other categories.

	Real Estate
	1-4 Family Residential			Commercial and Multi-Family			Construction			Commercial			Consumer			Total
	(Dollars in thousands)
March 31, 2014
Allowance for credit losses:
Beginning Balance	$	2,981		$	551		$	85		$	230		$	352		$	4,199
Charge-offs		(62	)		-			-			-			(12	)		(74	)
Recoveries		1			-			-			-			-			1
Provision for loan losses		51			58			3			(40	)		16			88
Ending balance	$	2,971		$	609		$	88		$	190		$	356		$	4,214
Ending balance: individually evaluated for impairment	$	468			-			-		$	45		$	58		$	571
Ending balance: collectively evaluated for impairment	$	2,503		$	609		$	88		$	145		$	298		$	3,643
Loan Receivables:
Ending balance	$	554,487		$	92,056		$	31,291		$	23,553		$	57,118		$	758,505
Ending balance: individually evaluated for impairment	$	7,734		$	354			-		$	717		$	909		$	9,714
Ending balance: collectively evaluated for impairment	$	546,753		$	91,702		$	31,291		$	22,836		$	56,209		$	748,791
December 31, 2013
Allowance for credit losses:
Beginning Balance	$	2,585		$	509		$	187		$	286		$	430		$	3,997
Charge-offs		(393	)		(79	)		-			(75	)		(20	)		(567	)
Recoveries		-			-			-			-			12			12
Provision for loan losses		789			121			(102	)		19			(70	)		757
Ending balance	$	2,981		$	551		$	85		$	230		$	352			4,199
Ending balance: individually evaluated for impairment	$	396		$	-		$	-		$	-		$	21			417
Ending balance: collectively evaluated for impairment	$	2,585		$	551		$	85		$	230		$	331			3,782
Loan Receivables:
Ending balance	$	545,812		$	90,855		$	27,623		$	23,455		$	57,995		$	745,730
Ending balance: individually evaluated for impairment	$	5,559		$	-		$	-		$	463		$	795		$	6,817
Ending balance: collectively evaluated for impairment	$	540,253		$	90,855		$	27,623		$	22,982		$	57,200		$	738,913

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4. DEPOSITS

Deposits consist of the following major classifications:

	March 31, 2014						December 31, 2013
				Weighted					Weighted
			��	Average					Average
	Amount			Interest Rate			Amount		Interest Rate
	(Dollars in thousands)
NOW and other demand deposit accounts	$	423,120			0.13	%	$	419,608		0.12	%
Passbook savings and club accounts		170,570			0.20	%		170,660		0.20	%
Subtotal		593,690						590,268
Certificates with original maturities:
Within one year		63,081			0.35	%		68,941		0.41	%
One to three years		101,317			0.99	%		95,397		1.39	%
Three years and beyond		25,346			1.91	%		26,041		2.56	%
Total certificates		189,744						190,379
Total	$	783,434					$	780,647

The aggregate amount of certificate accounts in denominations of $100 thousand or more at March 31, 2014 and December 31, 2013 amounted to $69.7 million and $68.8 million, respectively. Currently, deposits in excess of $250 thousand are generally not federally insured.

Municipal demand deposit accounts in denominations of $100 thousandor more at March 31, 2014 and December 31, 2013 amounted to $167.9 million and $164.2 million, respectively.

5. EARNINGS PER SHARE

Basic net income per share is based upon the weighted average number of common shares outstanding, net of any treasury shares, while diluted net income per share is based upon the weighted average number of common shares outstanding, net of any treasury shares, after consideration of the potential dilutive effect of common stock equivalents, based upon the treasury stock method using an average market price for the period, and impact of unallocated Employee Stock Ownership Plan (“ESOP”) shares.

The calculated basic and dilutive EPS are as follows:

	Three Months Ended March 31,
	2014		2013
	(Dollars in thousands, except per share data)
Numerator – Net Income	$	1,587	$	1,180
Denominators:
Basic average shares outstanding		6,412,342		6,491,786
Effect of dilutive common stock equivalents		110,469		110,612
Diluted average shares outstanding		6,522,024		6,602,398
Earnings per share:
Basic	$	0.25	$	0.18
Diluted	$	0.24	$	0.18

At March 31, 2014 and 2013, there were 633,319 and 539,395 outstanding anti-dilutive options, respectively, and 82,300 and 59,400 outstanding dilutive non-vested shares, respectively.

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6. STOCK-BASED COMPENSATION

Stock-based compensation is accounted for in accordance with FASB ASC 718, Compensation – Stock Compensation. The Company establishes fair value for its equity awards to determine their cost. The Company recognizes the related expense for employees over the appropriate vesting period, or when applicable, service period. However, consistent with the stock compensation topic of the FASB Accounting Standards Codification, the amount of stock-based compensation recognized at any date must at least equal the portion of the grant date value of the award that is vested at that date and as a result it may be necessary to recognize the expense using a ratable method. In accordance with FASB ASC 505-50,Equity-Based Payments to Non-Employees, the compensation expense for non-employees is recognized on the grant date, or when applicable, the service period.

The Company’s 2005 and 2010 Equity-Based Incentive Plans (the “Equity Plans”) authorizes the issuance of shares of common stock pursuant to awards that may be granted in the form of stock options to purchase common stock (“options”) and awards of shares of common stock (“stock awards”). The purpose of the Equity Plans is to attract and retain personnel for positions of substantial responsibility and to provide additional incentive to certain officers, directors, advisory directors, employees and other persons to promote the success of the Company. Under the Equity Plan, options expire ten years after the date of grant, unless terminated earlier under the option terms. A committee of non-employee directors has the authority to determine the conditions upon which the options granted will vest. Options are granted at the then fair market value of the Company’s stock.

A summary of the status of the Company’s stock options under the Equity Plans as of March 31, 2014 and 2013 and changes during the three months ended March 31, 2014 and 2013 are presented below:

	Three Months Ended March 31, 2014				Three Months Ended March 31, 2013
	Number of shares		Weighted average exercise price		Number of shares		Weighted average exercise price
Outstanding at the beginning of the period		680,200	$	12.14		649,313	$	11.95
Granted		—		—		—		—
Exercised		720		11.53		33,613		12.41
Forfeited		—		—		—		—
Outstanding at the end of the period		679,480	$	12.14		615,700	$	11.92
Exercisable at the end of the period		474,118	$	12.24		413,913	$	12.47
Stock options vested or expected to vest (1)		426,706	$	12.24		372,522	$	12.47

(1) Includes vested shares and nonvested shares after a forfeiture rate, which is based upon historical data, is applied.

The following table summarizes all stock options outstanding under the Equity Plan as of March 31, 2014:

	Options Outstanding
Date Issued	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
August 10, 2005		270,729	$	13.19		1.4 years
November 21, 2006		17,586	$	14.78		2.6 years
November 20, 2007		19,919	$	11.32		3.6 years
August 18, 2010		223,428	$	10.21		6.4 years
March 15, 2011		13,600	$	12.06		7.0 years
August 17, 2011		50,418	$	11.53		7.4 years
November 19, 2012		17,500	$	13.10		8.6 years
November 19, 2013		66,300	$	14.14		9.6 years
Total		679,480	$	12.14		4.7 years

The compensation expense recognized for the three months ended March 31, 2014 was $46 thousand as compared to $38 thousand for the three months ended March 31, 2013.

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At March 31, 2014, there was $562 thousand of total unrecognized compensation cost related to options granted under the stock option plans. That cost is expected to be recognized over a weighted average period of 3.4years.

Summary of Non-vested Stock Award Activity:

	Three Months ended March 31, 2014				Three Months ended March 31, 2013
	Number of shares		Weighted avg grant date fair value		Number of shares		Weighted avg grant date fair  value
Beginning of period		83,290	$	10.99		60,390	$	10.33
Issued		—		—		—		—
Forfeited		—		—		—		—
Vested		990	$	12.06		990	$	12.06
Outstanding at March 31, 2013		82,300	$	12.29		59,400	$	10.30

The compensation expense recognized for the three months ended March 31, 2014 was $81 thousand as compared to $51 thousand for the three months ended March 31, 2013.

As of March 31, 2014, there was $834 thousand of total unrecognized compensation costs related to nonvested stock awards. That cost is expected to be recognized over a weighted average period of 3.4 years.

7. INCOME TAXES

Income tax expense was $845 thousand for an effective tax rate of 34.7% for the three months ended March 31, 2014 compared to $729 thousand for an effective tax rate of 38.2% for the same period in 2013. The decrease in the effective tax rate was primarily based upon a reduction in state income tax expense as a result of forming a subsidiary real estate investment trust in the second quarter of 2013.

Periodic reviews of the carrying amount of deferred tax assets are made to determine if the establishment of a valuation allowance is necessary. If based on the available evidence in future periods, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized, a deferred tax valuation allowance would be established. Consideration is given to all positive and negative evidence related to the realization of the deferred tax assets.

Items considered in this evaluation include historical financial performance, expectation of future earnings, the ability to carry back losses to recoup taxes previously paid, length of statutory carryforward periods, experience with operating loss and tax credit carryforwards not expiring unused, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences. The evaluation is based on current tax laws as well as expectations of future performance. At March 31, 2014 and December 31, 2013, no valuation allowance has been recorded for any portfolio of the outstanding deferred tax asset.

The Company recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for income taxes in the consolidated income statement. As of March 31, 2014, the tax years ended December 31, 2010 through 2013 were subject to examination by the Internal Revenue Service, while the tax years ended December 31, 2009 through 2013 were subject to New Jersey examination.

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8. STOCKHOLDERS’ EQUITY

During the first quarter of 2014, the Board of Directors of the Company declared a cash dividend of $0.06 per share, which was paid on February 28, 2014 to stockholders of record as of the close of business on February 7, 2014.

On November 20, 2013, the Company announced that its Board of Directors authorized a stock repurchase program under which the Company will repurchase up to 210,000 shares of the Company’s outstanding common stock, or approximately 3% of outstanding shares. The repurchase program was conducted through open market purchases and was completed on March 13, 2014 at a weighted average cost of $13.95. During the March 2014 quarter, the Company repurchased a total of 147,000 shares at a weighted average cost of $13.94.

No reclassification adjustments were recognized in Accumulated Other Comprehensive Income during the three months ended March 31, 2014 and 2013. A summary of the changes in components of Accumulated Other Comprehensive Income for the three months ended March 31, 2014 and 2013 are presented below:

	Unrealized Gain (Loss) on Available for Sale Securities			Loss on Post Retirement Life Benefit			Accumulated Other Comprehensive Income
	(Dollars in thousands)
Beginning balance - 01/01/2014	$	(2,657	)	$	(10	)	$	(2,667	)
Current period change		1,002			-			1,002
Tax benefit		(398	)		-			(398	)
Ending balance – 03/31/2014	$	(2,053	)	$	(10	)	$	(2,063	)
Beginning balance – 01/01/2013	$	104		$	(148	)	$	(44	)
Current period change		(35	)		(46	)		(81	)
Tax benefit		14			-			14
Ending balance – 03/31/2013	$	83		$	(194	)	$	(111	)

9. FAIR VALUE MEASUREMENTS

The Company accounts for fair value measurement in accordance with FASB ASC 820,Fair Value Measurements and Disclosures.  FASB ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  FASB ASC 820 does not require any new fair value measurements. The definition of fair value retains the exchange price notion in earlier definitions of fair value. FASB ASC 820 clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability. The definition focuses on the price that would be received to sell the asset or paid to transfer the liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price). FASB ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement.  FASB ASC 820 also clarifies the application of fair value measurement in a market that is not active.

FASB ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

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Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

In addition, the Company is to disclose the fair value measurements for financial assets on both a recurring and non-recurring basis.

The following tables presents assets that are measured at fair value on a recurring basis by major product category and fair value hierarchy as of March 31, 2014 and December 31, 2013:

	Category Used for Fair Value Measurement
March 31, 2014	Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets:
Securities available for sale:
U.S. government sponsored entity mortgage-backed securities	$	-	$	78,754	$	-
U.S. Treasury and federal agencies
State and municipal obligations		-		33,684		-
Corporate securities		-		10,871		-
Equity securities		32		-		-
Totals	$	32	$	123,309	$	-

	Category Used for Fair Value Measurement
December 31, 2013	Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets:
Securities available for sale:
U.S. government sponsored entity mortgage-backed securities	$	-	$	81,659	$	-
U.S. Treasury and federal agencies
State and municipal obligations		-		32,903		-
Corporate securities		-		10,797		-
Equity securities		30		-		-
Totals	$	30	$	125,359	$	-

In accordance with the fair value measurement and disclosures topic of the FASB Accounting Standards Codification management assessed whether the volume and level of activity for certain assets have significantly decreased when compared with normal market conditions. The Company concluded that there was not a significant decrease in the volume and level of activity with respect to certain investments included in the corporate debt securities and classified as level 2 in accordance with the framework for fair value measurements. Fair value for such securities is obtained from third party broker quotes. The Company evaluated these values to determine that the quoted price is based on current information that reflects orderly transactions or a valuation technique that reflects market participant assumptions by benchmarking the valuation results and assumptions used against similar securities that are more actively traded in order to assess the reasonableness of the estimated fair values. The fair market value estimates we assign to these securities assume liquidation in an orderly fashion and not under distressed circumstances.

Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The Company measures impaired loans, FHLB stock and loans or bank properties transferred into other real estate owned at fair value on a non-recurring basis.

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Summary of Non-Recurring Fair Value Measurements

			Category Used for Fair Value Measurement						Total (Losses) Gains
	Total		Level 1		Level 2		Level 3
	(Dollars in thousands)
March 31, 2014
Assets:
Impaired loans	$	4,316	$	-	$	1,686	$	2,630	$	(236	)
Real estate owned		81		-		81		-		(36	)
March 31, 2013
Assets:
Impaired loans	$	2,976	$	-	$	2,776	$	200	$	(64	)
Real estate owned		382		-		382		-		-

Impaired Loans

The Company considers a loan to be impaired when it becomes probable that the Company will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement. Under FASB ASC 310, collateral dependent impaired loans are valued based on the fair value of the collateral, which is based on appraisals, less cost to sell. These adjustments are based upon observable inputs, and therefore, the fair value measurement has been categorized as a level 2 measurement. In some cases, adjustments are made to the appraised values for various factors, including age of the appraisal, age of the comparables included in the appraisal, and known changes in the market and in the collateral. These adjustments are based upon unobservable inputs, and therefore, the fair value measurement has been categorized as a Level 3 measurement.  At March 31, 2014, total loans remeasured at fair value were $4.3 million. Such loans were carried at the value of $4.5 million immediately prior to remeasurement, resulting in the recognition of impairment through earnings for the life of the loans in the amount of $236 thousand. At March 31, 2013, total loans remeasured at fair value were $3.0 million. Such loans were carried at the value of $3.1 million immediately prior to remeasurement, resulting in the recognition of impairment through earnings for the life of the loans in the amount of $64 thousand.

Real Estate Owned

Once an asset is determined to be uncollectible, the underlying collateral is repossessed and reclassified to foreclosed real estate and repossessed assets. These assets are carried at lower of cost or fair value of the collateral, less cost to sell. These adjustments are based upon observable inputs, and therefore, the fair value measurement has been categorized as a Level 2 measurement. In some cases, adjustments are made to the appraised values for various factors, including age of the appraisal, age of the comparables included in the appraisal, and known changes in the market and in the collateral. These adjustments are based upon unobservable inputs, and therefore, the fair value measurement has been categorized as a Level 3 measurement. Total real estate owned remeasured at fair value for the three months ended March 31, 2014 was $81 thousand. This property was carried at a value of $117 thousand immediately prior to remeasurement, resulting in recognition of impairment through earnings of $36 thousand.

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Fair Value of Financial Instruments

In accordance with FASB ASC 825-10-50-10, the Company is required to disclose the fair value of financial instruments. The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a distressed sale. Fair value is best determined using observable market prices; however, for many of the Company’s financial instruments, no quoted market prices are readily available. In instances where quoted market prices are not readily available, fair value is determined using present value or other techniques appropriate for the particular instrument. These techniques involve some degree of judgment and, as a result, are not necessarily indicative of the amounts the Company would realize in a current market exchange. Different assumptions or estimation techniques may have a material effect on the estimated fair value. The following table summarizes these results:

			Category Used For Fair Value
March 31, 2014	Carrying Amount		Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	82,464	$	82,464	$	-	$	-
Investment securities:
Held to maturity		1,428		-		1,536		-
Available for sale		123,341		32		123,309		-
Loans receivable, net		757,639		-		756,480		-
Federal Home Loan Bank stock		6,320		-		6,320		-
Liabilities:
NOW and other demand deposit accounts		423,120		-		406,166		-
Passbook savings and club accounts		170,570		-		163,967		-
Certificates		189,744		-		185,434		-
Advances from Federal Home Loan Bank		110,000		-		119,492		-
Junior subordinated debenture		10,309		-		9,484		-

			Category Used For Fair Value
December 31, 2013	Carrying Amount		Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	87,619	$	87,619	$	-	$	-
Investment securities:
Held to maturity		3,312		-		3,402		-
Available for sale		125,389		30		125,359		-
Loans receivable, net		744,802		-		744,333		-
Federal Home Loan Bank stock		6,320		-		6,320		-
Liabilities:
NOW and other demand deposit accounts		419,608		-		436,163		-
Passbook savings and club accounts		170,661		-		178,939		-
Certificates		190,379		-		189,821		-
Advances from Federal Home Loan Bank		110,000		-		118,787		-
Junior subordinated debenture		10,309		-		9,278		-

Cash and Cash Equivalents—For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.

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Investment and Mortgage-Backed Securities—For investment securities, fair values are based on a combination of quoted prices for identical assets in active markets, quoted prices for similar assets in markets that are either actively or not actively traded and pricing models, discounted cash flow methodologies, or similar techniques that may contain unobservable inputs that are supported by little or no market activity and require significant judgment. For investment securities that do not actively trade in the marketplace, (primarily our investment in trust preferred securities of non-publicly traded companies) fair value is obtained from third party broker quotes. The Company evaluates prices from a third party pricing service, third party broker quotes, and from another independent third party valuation source to determine their estimated fair value. These quotes are benchmarked against similar securities that are more actively traded in order to assess the reasonableness of the estimated fair values. The fair market value estimates we assign to these securities assume liquidation in an orderly fashion and not under distressed circumstances. For securities classified as available for sale, the changes in fair value are reflected in the carrying value of the asset and are shown as a separate component of stockholders’ equity.

Loans Receivable - Net—The fair value of loans receivable is estimated based on the present value using discounted cash flows based on estimated market discount rates at which similar loans would be made to borrowers and reflect similar credit ratings and interest rate risk for the same remaining maturities.

FHLB Stock—Although FHLB stock is an equity interest in an FHLB, it is carried at cost because it does not have a readily determinable fair value as its ownership is restricted and it lacks a market. While certain conditions are noted that required management to evaluate the stock for impairment, it is currently probable that the Company will realize its cost basis. Management concluded that no impairment existed as of March 31, 2014. The estimated fair value approximates the carrying amount.

NOW and Other Demand Deposit, Passbook Savings and Club, and Certificates Accounts—The fair value of NOW and other demand deposit accounts and passbook savings and club accounts is the amount payable on demand at the reporting date. The fair value of certificates is estimated by discounting future cash flows using interest rates currently offered on certificates with similar remaining maturities.

Advances from FHLB—The fair value was estimated by determining the cost or benefit for early termination of each individual borrowing.

Junior Subordinated Debenture—The fair value was estimated by discounting approximate cash flows of the borrowings by yields estimating the fair value of similar issues.

Commitments to Extend Credit and Letters of Credit—The majority of the Bank’s commitments to extend credit and letters of credit carry current market interest rates if converted to loans. Because commitments to extend credit and letters of credit are generally unassignable by either the Bank or the borrower, they only have value to the Bank and the borrower. The estimated fair value approximates the recorded deferred fee amounts, which are not significant.

The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2014 and December 31, 2013. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since March 31, 2014 and December 31, 2013, and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

10. GOODWILL AND INTANGIBLE ASSETS

Goodwill totaled $4.6 million at March 31, 2014 as compared to $4.6 million at December 31, 2013. The Company completed its annual goodwill impairment test as of August 1, 2013 and concluded that goodwill was not impaired. At March 31, 2014, no triggering events have occurred from the date of the impairment test that would have impaired goodwill.

The core deposit intangible totaled $609 thousand at March 31, 2014 as compared to $625 thousand at December 31, 2013. The core deposit intangible is being amortized over its estimated useful life of approximately 15 years from August 1, 2011.

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11. REAL ESTATE OWNED

Summary of Real Estate Owned (“REO”):

	2014									2013
	Residential			Commercial						Residential			Commercial
	Property			Property			Total			Property			Property		Total
	(Dollars in thousands)									(Dollars in thousands)
Balance, January 1,	$	295		$	203		$	498		$	412		$	494	$	906
Transfers into Real Estate Owned		81			–			81			–			382		382
Sales of Real Estate Owned		(78	)		(161	)		(239	)		(314	)		–		(314	)
Balance, March 31,	$	298		$	42		$	340		$	98		$	876	$	974

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT

This Quarterly Report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts, but rather are statements based on Ocean Shore Holding’s current expectations regarding its business strategies and their intended results and its future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions.

Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. These factors include, but are not limited to, general economic conditions, changes in the interest rate environment, legislative or regulatory changes that may adversely affect our business, changes in accounting policies and practices, changes in competition and demand for financial services, adverse changes in the securities markets and changes in the quality or composition of the Company’s loan or investment portfolios. Additional factors that may affect our results are discussed in our Annual Report on Form 10-K for the year ended December 31, 2013 under “Item 1A. Risk Factors.” These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Ocean Shore Holding assumes no obligation to update any forward-looking statements.

GENERAL

Ocean Shore Holding Co. (“Ocean Shore Holding” or the “Company”) is the holding company for Ocean City Home Bank (the “Bank”). The Company’s assets consist of its investment in Ocean City Home Bank and its liquid investments. The Company is primarily engaged in the business of directing, planning, and coordinating the business activities of the Bank.

Ocean City Home Bank is a federally chartered savings bank. The Bank operates as a community-oriented financial institution offering a wide range of financial services to consumers and businesses in our market area. The Bank attracts deposits from the general public, small businesses and municipalities and uses those funds to originate a variety of consumer and commercial loans, which we hold primarily for investment.

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2014 AND DECEMBER 31, 2013

Total assets of the Company increased $3.0 million to $1,023.0 million at March 31, 2014 from $1,020.0 million at December 31, 2013. Loans receivable, net, increased $3.8 million, investment and mortgage-backed securities decreased $3.9 million and cash and cash equivalents decreasedby $5.2 million. Asset growth was funded by an increase in deposits of $2.8 million while borrowings were unchanged at $120.3 million.

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Investments

Investments and mortgage-backed securities decreased $3.9 million to $124.8 million at March 31, 2014 from $128.7 million at December 31, 2013. The decrease was primarily the result of repayments, calls and maturities of $5.4 million offset by purchases of $494 thousand of municipal investments and an increase in the available for sale valuation of $1.0 million.

Loans

Loans receivable, net, increased $12.8 million to $757.6 million at March 31, 2014 from $744.8 million at December 31, 2013. Loan originations and other advances totaled $37.4 million for the three months ended March 31, 2014 compared to $43.2 million originated in the three months ended March 31, 2013. Real estate mortgage loan originations totaled $22.5 million, real estate and commercial construction loan originations totaled $7.8 million, consumer loan originations totaled $3.6 million and commercial loan originations totaled $3.5 million for the first quarter of 2014. Origination activity was offset by $24.6 million of normal loan payments and payoffs, compared to payments and payoffs of $37.6 million in the same period of the prior year.

The following table summarizes changes in the loan portfolio in the three months ended March 31, 2014.

	March 31, 2014			December 31, 2013			$ change			% change
	(Dollars in thousands)
Real estate – mortgage:
One-to-four-family residential	$	554,487		$	545,812		$	8,675			1.6	%
Commercial and multi-family		92,056			90,855			1,201			1.3
Total real estate – mortgage		646,543			636,667			9,876			1.6
Real estate – construction:
Residential		30,353			25,113			5,240			20.9
Commercial		938			2,510			(1,572	)		(62.6	)
Total real estate – construction		31,291			27,623			3,668			13.3
Commercial		23,553			23,445			108			0.5
Consumer
Home equity		56,655			57,367			(712	)		(1.2	)
Other consumer loans		463			628			(165	)		(26.3	)
Total consumer loans		57,118			57,995			(877	)		(1.5	)
Total loans		758,505			745,730			12,775			1.7
Net deferred loan cost		3,348			3,271			77			2.4
Allowance for loan losses		(4,214	)		(4,199	)		(15	)		0.4
Net total loans	$	757,639			744,802		$	12,837			1.7	%

Non-Performing Assets

Non-performing assets totaled $4.9 million, or 0.47% of total assets, at March 31, 2014 compared to $5.6 million or 0.55% of total assets at December 31, 2013. The decrease from December 31, 2013 was the result of decreases in non-performing loans of $1.0 million and real estate owned of $158 thousand offset by an increase in TDR non-accrual loans of $620 thousand. Non-performing assets consisted of fourteen residential mortgages totaling $2.6 million, one commercial mortgage totaling $354 thousand, nine consumer equity loans totaling $661 thousand, two TDR non-accrual loans totaling $936 thousand and four real estate owned properties totaling $340 thousand. Real estate owned decreased by one property while the total balance decreased $158 thousand at March 31, 2014 to $340 thousand from $498 thousand at December 31, 2013.

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The allowance for loan losses increased $15 thousand to $4.2 million, or 0.56% of total net loans, from $4.1 million at December 31, 2013, or 0.58% of total net loans. The increase in the allowance for loan losses resulted from net charge-offs of $73 thousand offset by an additional to the allowance of $88 thousand. Net charge-offs totaled $73 thousand in 2014 compared to $57 thousand for the same period in 2013. The allowance levels were maintained to reflect a reserve level deemed appropriate by management in light of factors such as the level of non-performing loans, growth in the loan portfolio and the current economic conditions. The loss factors used to calculate the allowance were unchanged in March 2014 from December 2013. At March 31, 2014, the specific allowance on loans individually evaluated for impairment was $571 thousand and pooled allowance on the remainder of the loan portfolio was $3.6 million as compared to specific allowance on loans individually evaluated for impairment of $417 thousand and pooled allowance on the reminder of the loan portfolio of $3.8 million at December 31, 2013.

	Three months Ended March 31,
	2014			2013
	(Dollars in thousands)
Allowance for loan losses:
Allowance at beginning of period	$	4,199		$	3,997
Provision for loan losses		88			202
Recoveries		1			12
Charge-offs		(74	)		(69	)
Net (charge-offs) recoveries		(73	)		(57	)
Allowance at end of period	$	4,214		$	4,142
Allowance for loan losses as a percent of total loans		0.56	%		0.58	%
Allowance for loan losses as a percent of non-performing loans		93.3	%		76.7	%

	March 31, 2014			December 31, 2013
	(Dollars in thousands)
Nonaccrual loans:
Real estate - residential	$	2,568		$	3,618
Real estate - commercial		354			463
Real estate - construction		─			─
Commercial		─			─
Consumer		661			674
Total		3,583			4,755
Troubled debt restructurings - nonaccrual		936			316
Total nonaccrual loans		4,519			5,071
Real estate owned		340			498
Total non-performing assets	$	4,859			5,569
Total non-performing loans to total loans		0.60	%		0.68	%
Total non-performing loans to total assets		0.44	%		0.50	%
Total non-performing assets to total assets		0.47	%		0.55	%

Deposits

Deposits increased by $2.8 million, or 0.4%, to $783.4 million at March 31, 2014 from $780.6 million at December 31, 2013. Interest bearing demand deposits increased $128 thousand, non-interest bearing checking increased $3.4 million, savings accounts decreased by $91 thousand and certificates of depositdecreased by $635 thousand. The Company continued its focus on attracting core deposits, which increased $3.4 million to $594 million.

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The following table summarizes changes in deposits in the three months ended March 31, 2014.

	March 31,		December 31,
	2014		2013		$ change			% change
	(Dollars in thousands)
Non-interest-bearing demand deposits	$	100,135	$	96,750	$	3,385			3.5	%
Interest-bearing demand deposits		322,985		322,857		128			0.0
Savings accounts		170,570		170,661		(91	)		(0.1	)
Time deposits		189,744		190,379		(635	)		(0.3	)
Total	$	783,434	$	780,647	$	2,787			0.4	%

Borrowings

Federal Home Loan Bank advances were unchanged at $110.0 million at March 31, 2014 from December 31, 2013. Other borrowings were unchangedat $10.3 million at March 31, 2014 compared to December 31, 2013.

Stockholders’ Equity

Stockholders’ equity decreased $30 thousand to $106.2 million at March 31, 2014, primarily as a result of $1.6 million of net income, proceeds from exercises of stock options of $10 thousand, an increase in other comprehensive income of $604 thousand and decreases in contra benefit plans of $152 thousand offset by dividends paid of $411 thousand and share repurchases of $2.0 million.

The Company completed its previously announced repurchase of up to 210,000 shares of the Company’s outstanding common stock, or approximately 3% of outstanding shares. The repurchase program was conducted through open market purchases and was completed on March 13, 2014 at a weighted average cost of $13.95. During the March 2014 quarter, the Company repurchased a total of 147,000 shares at a weighted average cost of $13.94.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

Net income was $1.6 million for the three months ended March 31, 2014 as compared to $1.2 million for the three months ended March 31, 2013. The increase of $407 thousand, or 34.5%, in 2014 from 2013 was due primarily to an increase in net interest income and decreases in provision for loan losses and operating expenses offset by a decrease in other income and an increase in income tax expense.

	Three Months Ended March 31,
	2014			2013
	(Dollars in thousands, except per share data)
Net income	$	1,587		$	1,180
Basic earnings per share	$	0.25		$	0.18
Diluted earnings per share	$	0.24		$	0.18
Return on average assets (annualized)		0.62	%		0.45	%
Return on average equity (annualized)		5.95	%		4.46	%

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Net Interest Income

The following table summarizes changes in interest income and interest expense for the three-month periods ended March 31, 2014 and 2013.

	Three Months Ended March 31,
	2014		2013		$ change			% change
	(Dollars in thousands)
INTEREST INCOME:
Loans	$	8,183	$	8,037	$	146			1.8	%
Investment securities		688		693		(5	)		(0.7	)
Total interest income		8,871		8,730		141			1.6
INTEREST EXPENSE:
Deposits		644		838		(194	)		(23.2	)
Borrowings		1,267		1,413		(146	)		(10.3	)
Total interest expense		1,911		2,251		(340	)		(15.1	)
Net interest income	$	6,960	$	6,479	$	481			7.4	%

Interest income increasedby $141 thousand, or 1.6%, for the quarter ended March 31, 2014 compared to the quarter ended March 31, 2013. Increases in the average balance of loans and investments, offset by lower yields in both categories, was responsible for the increase in interest income.

Interest expensedecreasedby $340 thousand, or 15.1%, for the quarter ended March 31, 2014 over the same period last year due to decreases in the average balance of interest-bearing deposits and borrowings as well as the cost of those interest bearing liabilities.

The interest rate spread and net interest margin of the Company were 3.11% and 3.17% respectively, for the three months ended March 31, 2014, compared to 3.19% and 3.16% for the same period in 2013. The increase in the net interest margin of 1 basis point resulted from a decrease in the rate earned on interest-earning assets of 21 basis points offset by a decrease in the average rate paid on interest-bearing liabilities of 13 basis points. The decrease in rate on interest-earnings assets resulted from a decrease in the average rate on loans of 21 basis points, a decrease in the average rate on investments of 20 basis points offset by increases in the average balance of loans of $46.9 million and in the average balance of investments of $9.8 million. The decrease in cost of interest-bearing liabilities resulted from a decrease in the average rate paid on interest-bearing deposits of 10 basis points and a decrease in the average rate paid on borrowings of 30 basis points and by decreases in the average balance of interest-bearing deposits of $21.0 million and the average balance of borrowings of $5.2 million.

The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. The yields and costs are annualized for presentation purposes. For purposes of this table, average balances have been calculated using the average daily balances and nonaccrual loans are only included in average balances. Loan fees are included in interest income on loans and are insignificant. Interest income on loans and investment securities has not been calculated on a tax equivalent basis because the impact would be insignificant.

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Average Balance Tables

	Three Months Ended March 31, 2014								Three Months Ended March 31, 2013
	Average Balance			Interest and Dividends		Yield/ Cost			Average Balance			Interest and Dividends		Yield/ Cost
	(Dollars in thousands)								(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	750,205		$	8,183		4.36	%	$	703,317		$	8,037		4.57	%
Investment securities		126,813			688		2.17	%		117,042			693		2.37	%
Total interest-earning assets		877,018			8,871		4.05	%		820,359			8,730		4.26	%
Noninterest-earning assets		152,687								240,284
Total assets	$	1,029,705							$	1,060,643
Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	336,875		$	126		0.15	%	$	333,367		$	134		0.16	%
Savings accounts		169,970			84		0.20	%		170,955			84		0.20	%
Certificates of deposit		189,139			434		0.92	%		212,641			620		1.17	%
Total interest-bearing deposits		695,984			644		0.37	%		716,963			838		0.47	%
FHLB advances		110,000			1,044		3.80	%		110,000			1,078		3.92	%
Subordinated debt		10,309			223		8.67	%		15,464			335		8.67	%
Total borrowings		120,309			1,267		4.21	%		125,464			1,413		4.51	%
Total interest-bearing liabilities		816,293			1,911		0.94	%		842,427			2,251		1.07	%
Noninterest-bearing demand accounts		95,452								100,513
Other liabilities		11,214								11,745
Total liabilities		925,959								954,685
Stockholders’ equity		106,746								105,958
Total liabilities and stockholders’ equity	$	1,029,705							$	1,060,643
Net interest income				$	6,960							$	6,479
Interest rate spread							3.11	%							3.19	%
Net interest margin							3.17	%							3.16	%
Average interest-earning assets to average interest-bearing liabilities		107.44	%							97.38	%

Provision for Loan Losses

We review the level of the allowance for loan losses on a quarterly basis and establish the provision for loan losses based on the volume and types of lending, delinquency levels, loss experience, the amount of classified loans, economic conditions and other factors related to the collectability of the loan portfolio. The provision for loan losses was $88 thousand in the three months ended March 31, 2014 compared to $202 thousand in the three months ended March 31, 2013. The provision was primarily to maintain a reserve level deemed appropriate by management in light of factors such as the level of non-performing loans and the current economic environment.

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Other Income

The following table summarizes other income for the three months ended March 31, 2014 and 2013 and the changes between the periods.

	Three Months Ended March 31,
	2014		2013		% Change
	(Dollars in thousands)
OTHER INCOME:
Service charges	$	447	$	528		(15.3	)%
Cash surrender value of life insurance		156		163		(4.3	)
Other		403		411		(1.9	)
Total other income	$	1,006	$	1,102		(8.7	)%

Other income decreased$96 thousand, or 8.7%, to $1.0 million for the three-month period ended March 31, 2014 from the same period in 2013. The decrease in service charges income of $81 thousand resulted from lower service charges collected on deposit accounts. The decrease in cash surrender value of life insurance income of $7 thousand resulted from lower yields on earned on the insurance. Other income decreased $8 thousand primarily from decreases in commissions received and other income.

Other Expense

The following table summarizes other expense for the three months ended March 31, 2014 and 2013 and the changes between periods.

	Three Months Ended March 31,
	2014		2013		% Change
	(Dollars in thousands)
OTHER EXPENSE:
Salaries and employee benefits	$	3,247	$	3,190		1.8	%
Occupancy and equipment		1,287		1,244		3.5
Federal insurance premiums		137		130		5.4
Advertising		89		103		(13.6	)
Professional services		265		309		(14.2	)
Real estate owned expense		13		21		(38.1	)
Other operating expense		408		473		(13.7	)
Total other expense	$	5,446	$	5,470		(0.4	)%

Other expenses decreased $24 thousand, or 0.4%, to $5.4 million for the three-month period ended March 31, 2014 from the same period in 2013. Increases in salaries and benefits, occupancy and equipment and FDIC insurance expenses of $107 thousand were offset by decreases in advertising, professional services, real estate owned and other expenses of $131 thousand for the first quarter of 2014.

Income Taxes

Income taxes increased $116 thousand to $845 thousand for an effective tax rate of 34.7% for the three months ended March 31, 2014, compared to $729 thousand for an effective tax rate of 38.2% from the same period in 2013. Taxes increased primarily as a result of an increase in income before income taxes offset by a lower effective tax rate resulting. The decrease in the effective tax rate was primarily based upon a reduction in state income tax resulting from the formation of a subsidiary real estate investment trust in the second quarter of 2013.

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Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of investment securities and borrowings from the Federal Home Loan Bank of New York. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management policy.

Our most liquid assets are cash and cash equivalents and interest-bearing deposits. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At March 31, 2014, cash and cash equivalents totaled $82.5 million. Securities classified as available-for-sale whose market value exceeds our cost, which provide additional sources of liquidity, totaled $13.3 million at March 31, 2014. In addition, at March 31, 2014, we had the ability to borrow a total of approximately $300.1 million from the Federal Home Loan Bank of New York.

At March 31, 2014, we had $71.0 million in loan commitments outstanding, which included $25.8 million in undisbursed loans, $29.7 million in unused home equity lines of credit and $15.5 million in commercial lines and letters of credit. Certificates of deposit due within one year of March 31, 2014 totaled $124.9 million, or 65.8% of certificates of deposit. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

At March 31, 2014, the Bank exceeded all of its regulatory capital requirements with Tier 1 leverage capital of $101.4 million, or 10.02% of total adjusted assets, which is above the required level of $40.4 million or 4.0%; Tier 1 risk-based capital of $101.4 million, or 18.97% of total adjusted assets which is above the required level of $21.4 million or 4.0%; and total risk-based capital of $105.0 million, or 19.66% of risk-weighted assets, which is above the required level of $42.7 million or 8.0%. The Bank is considered a “well-capitalized” institution under the applicable prompt corrective action regulations

MARKET RISK MANAGEMENT

Net Interest Income Simulation Analysis

We analyze our interest rate sensitivity position to manage the risk associated with interest rate movements through the use of interest income simulation. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest sensitive.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period.

Simulation analysis is only an estimate of our interest rate risk exposure at a particular point in time. We continually review the potential effect changes in interest rates could have on the repayment of rate sensitive assets and funding requirements of rate sensitive liabilities.

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The following table reflects changes in estimated net interest income only for the Company:

	At December 31, 2013 Percentage Change in Estimated Net Interest Income Over
	12 Months			24 Months
200 basis point increase in rates		8.14	%		9.69	%
100 basis point decrease in rates		(1.92	)		(3.38	)

 N/M – not measurable

The 200 and 100 basis point change in rates in the above table is assumed to occur evenly over the following 12 and 24-month periods. Based on the scenario above, net interest income would bepositively affected (within our internal guidelines) in the 12-month and 24-month periods if rates rose by 200 basis points and negatively affected (within our internal guidelines) in the 12-month and 24-month periods if rates decreased by 100 basis points.

Economic Value of Equity Analysis

In addition to a net interest income simulation analysis, we use an interest rate sensitivity analysis to review our level of interest rate risk. This analysis measures interest rate risk by computing changes in economic value of equity of our cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. Economic value of equity (EVE) represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. This analysis assesses the risk of loss in market risk sensitive instruments in the event of a sudden and sustained 50 to 300 basis point increase or a sustained 50 to 100 basis point decrease in market interest rates with no effect given to any steps that we might take to counter the effect of that interest rate movement. We measure interest rate risk by modeling the changes in net portfolio value over a variety of interest rate scenarios. The following table presents the change in our net portfolio value at December 31, 2013 that would occur in the event of an immediate change in interest rates based on management’s assumptions, with no effect given to any steps that we might take to counteract that change.

	Economic Value of Equity (Dollars in Thousands)								Economic Value of Equity as % of Portfolio Value of Assets
Basis Point (“bp”) Change in Rates	$ Amount		$ Change			% Change			EVE Ratio			Change
300 bp		91,569		(45,026	)		(33.0	)		9.83	%		(353	)bp
200		106,625		(29,970	)		(21.9	)		11.08			(228	)
100		120,906		(15,690	)		(11.5	)		12.18			(118	)
50		127,958		(8,638	)		(6.3	)		12.70			(66	)
0		136,595		-			-			13.37			-
(50)		141,222		4,627			3.4			13.65			28
(100)		145,293		8,698			6.4			13.92			55

The Company uses certain assumptions in assessing its interest rate risk. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates, and the market values of certain assets under differing interest rate scenarios, among others. As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table.

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OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit.

For the three months ended March 31, 2014 and 2013, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The information required by this item is included in Item 2 of this report under “Market Risk Management.”

Item 4. Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

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Item 1A. Risk Factors

There have been no material changes in the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information regarding the Company’s stock repurchases during the three months ended March 31, 2014:

Period	(a) Total number of Shares (or Units) Purchased		(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or  units) Purchased as Part of  Publicly Announced Plans or  Programs (1)		(d) Maximum Number (or Appropriate Dollar Value) of Shares (or units) that  May Yet Be Purchased Under the Plans or Programs
Month #1 January 1, 2014 through January 31, 2014		54,000	$	13.80		54,000		93,000
Month #2 February 1, 2014 through February 28, 2014		63,600		13.95		63,600		29,400
Month #3 March 1, 2014 through March 31, 2014		29,400		14.19		29,400		-
Total		147,000		13.94		147,000

_______________________

(1) On November 20, 2013, the Company’s Board of Directors approved the repurchase of up to 210,000 shares of the Company’s common stock. This repurchase plan was completed on March 13, 2014 at a cost of $13.95 per share.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

  10.1 Ocean City Home Bank Supplemental Salary Continuation Agreement by and between Ocean City Home Bank and Steven E. Brady ⁽¹⁾

  31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

  31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

  32.0 Section 1350 Certification of Chief Executive Officer and Chief Financial Office.

101.0 The following materials from the Ocean Shore Holding Co. Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Financial Condition, (ii) the Condensed Consolidated Statements of Income and Comprehensive Income, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) related notes.

(1) Incorporated by reference to Exhibit 10.1 to Form 8-K filed on January 31, 2014, SEC File No. 000-53856.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	OCEAN SHORE HOLDING CO.
	(Registrant)
Date: May 12, 2014	/s/ Steven E. Brady
	Steven E. Brady
	President and Chief Executive Officer
Date: May 12, 2014	/s/ Donald F. Morgenweck
	Donald F. Morgenweck
	Chief Financial Officer and Senior Vice President

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