Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2016

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. Yes x 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). Yes x 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 Filer x
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 ¨ No x

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

At November 1, 2016, the registrant had 6,522,587 shares of $0.01 par value common stock outstanding.

OCEAN SHORE HOLDING CO.

FORM 10-Q

INDEX

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Unaudited Condensed Consolidated Statements of Financial Condition at September 30, 2016 and December 31, 2015	1

	Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2016 and 2015	2

	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015	3

	Notes to Unaudited Condensed Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4.	Controls and Procedures	38

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults upon Senior Securities	39

Item 4.	Mine Safety Disclosures	39

Item 5.	Other Information	39

Item 6.	Exhibits	39

SIGNATURES		40

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	September 30,			December 31,
	2016			2015
	(Dollars in thousands)
ASSETS
Cash and amounts due from depository institutions	$	8,055		$	7,496
Interest-earning bank balances		137,414			80,214

Cash and cash equivalents		145,469			87,710

Investment securities held to maturity (estimated fair value—$875 at September 30, 2016; $1,137 at December 31, 2015)		822			1,084
Investment securities available for sale (amortized cost—$101,576 at September 30, 2016; $113,944 at December 31, 2015)		100,366			111,908
Loans—net of allowance for loan losses of $3,307 at September 30, 2016 and $3,190 at December 31, 2015		792,945			783,948
Accrued interest receivable:
Loans		2,388			2,330
Investment securities		14			21
Federal Home Loan Bank stock—at cost		5,875			5,864
Office properties and equipment—net		11,938			12,359
Prepaid expenses and other assets		1,896			2,242
Real estate owned		1,007			1,814
Cash surrender value of life insurance		24,926			24,457
Net deferred tax asset		4,234			4,572
Goodwill		4,630			4,630
Other intangible assets		365			440
TOTAL ASSETS	$	1,096,875		$	1,043,379

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:
Non-interest bearing deposits	$	201,312		$	190,614
Interest bearing deposits		655,838			621,419
Advances from Federal Home Loan Bank		105,000			105,000
Advances from borrowers for taxes and insurance		4,913			4,591
Accrued interest payable		492			589
Other liabilities		11,079			9,377

Total liabilities	$	978,634		$	931,590

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued		—			—
Common stock, $.01 par value, 25,000,000 shares authorized, 7,307,590 shares issued; 6,512,806 shares outstanding at September 30, 2016; 6,403,058 shares outstanding at December 31, 2015		73			73
Additional paid-in capital		66,591			66,397
Retained earnings - partially restricted		66,583			62,480
Treasury stock—at cost: 794,784 shares at September 30, 2016; 904,532 shares at December 31, 2015		(11,154	)		(12,694	)
Common stock acquired by employee benefits plans		(2,041	)		(2,297	)
Deferred compensation plans trust		(920	)		(783	)
Accumulated other comprehensive loss		(891	)		(1,387	)

Total stockholders’ equity		118,241			111,789

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,096,875		$	1,043,379

See notes to unaudited condensed consolidated financial statements.

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016			2015		2016		2015
	(Dollars in thousands, except per share data)
INTEREST AND DIVIDEND INCOME:
Taxable interest and fees on loans	$	8,027		$	8,168	$	24,370	$	24,517
Taxable interest on mortgage-backed securities		465			346		1,317		1,041
Non-taxable interest on municipal securities		1			1		3		3
Taxable interest and dividends on other investment securities		247			262		724		767

Total interest and dividend income		8,740			8,777		26,414		26,328

INTEREST EXPENSE:
Interest on deposits		669			642		1,988		1,872
Interest on borrowings		809			1,043		2,517		3,216

Total interest expense		1,478			1,685		4,505		5,088

NET INTEREST INCOME		7,262			7,092		21,909		21,240

PROVISION FOR LOAN LOSSES		150			165		463		496

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		7,112			6,927		21,446		20,744

OTHER INCOME:
Service charges		463			487		1,350		1,498
Cash surrender value of life insurance		158			159		469		469
Gain on call of securities		-			3		37		3
Other		441			473		1,281		1,334

Total other income		1,062			1,122		3,137		3,304

OTHER EXPENSE:
Salaries and employee benefits		3,341			3,173		9,994		9,640
Occupancy and equipment		1,150			1,282		3,573		3,779
Federal insurance premiums		140			136		429		415
Advertising		89			97		281		323
Professional services		459			273		1,060		821
Real estate owned (income)expense		50			84		98		38
Charitable contributions		44			38		131		113
Other operating expenses		407			453		1,193		1,221

Total other expenses		5,680			5,536		16,759		16,350

INCOME BEFORE INCOME TAXES		2,494			2,513		7,824		7,698

INCOME TAX EXPENSE		793			844		2,591		2,577

NET INCOME	$	1,701		$	1,669	$	5,233	$	5,121
Other comprehensive income, net of tax:
Unrealized (loss)gain on available for sale securities		(142	)		485		488		618
Unrealized gain(loss) on post retirement life benefit		3			5		9		16

COMPREHENSIVE INCOME	$	1,562		$	2,159	$	5,730	$	5,755

Earnings per share, basic:	$	0.27		$	0.28	$	0.85	$	0.86
Earnings per share, diluted:	$	0.27		$	0.27	$	0.84	$	0.84

See notes to unaudited condensed consolidated financial statements.

OCEAN SHORE HOLDING CO. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended September 30,
	2016			2015
	(Dollars in thousands)
OPERATING ACTIVITIES:
Net income	$	5,233		$	5,121
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		629			662
Provision for loan losses		463			496
Stock based compensation expense		712			727
Gain on sale/ call of AFS securities		(37	)		(3	)
Premium paid on partial retirement of junior subordinated debt		-			94
Cash surrender value of life insurance		(469	)		(469	)
(Gain)loss on disposal of office property and equipment, and REO		(13	)		1
Changes in assets and liabilities which provided (used) cash:
Accrued interest receivable		(51	)		(157	)
Prepaid expenses and other assets		346			1,934
Accrued interest payable		(97	)		(282	)
Other liabilities		1,711			(1	)
Net cash provided by operating activities		8,427			8,123
INVESTING ACTIVITIES:
Principal collected on:
Investment securities available for sale		13,179			8,906
Investment securities held to maturity		60			175
Loans originated, net of repayments		(10,166	)		(13,841	)
Purchases of:
Federal Home Loan Bank stock		(11	)		(50	)
Investment securities held to maturity		(375	)		(402	)
Investment securities available for sale		(14,977	)		(10,111	)
Office properties and equipment		(216	)		(289	)
Proceeds from maturities and calls of:
Investment securities held to maturity		577			494
Investment securities available for sale		14,037			4,996
Real estate owned		1,775			779
Net cash used in investing activities		3,883			(9,343	)
FINANCING ACTIVITIES:
Increase in deposits		45,117			44,932
Dividends paid		(1,130	)		(1,145	)
Partial retirement of junior subordinated debt		—			(7,311	)
Exercise of incentive stock options		1,277			3,244
Purchase of treasury stock		—			(3,557	)
Purchase of shares by deferred compensation plans trust		(137	)		(134	)
Increase in advances from borrowers for taxes and insurance		322			398
Net cash provided by (used in ) financing activities		45,449			36,427
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		57,759			35,207
CASH AND CASH EQUIVALENTS—Beginning of period		87,710			80,307
CASH AND CASH EQUIVALENTS—End of period	$	145,469		$	115,514
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION—Cash paid during the period for:
Interest	$	4,527		$	5,300
Income Taxes	$	2,375		$	3,580
SUPPLEMENTAL DISCLOSURES OF NON-CASH ITEMS
Transfers of loans to real estate owned	$	1,045		$	2,033

See notes to unaudited condensed consolidated financial statements.

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)

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, 2015. The results for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016 or any other period. The Company has evaluated subsequent events through the date of the issuance of its financial statements.

On July 12, 2016, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with OceanFirst Financial Corp. (“OceanFirst”), the parent company of OceanFirst Bank, and Masters Merger Sub Corp. (“Merger Sub”), a wholly-owned subsidiary of OceanFirst. Pursuant to the terms and subject to the conditions of the Merger Agreement, Merger Sub will merge (the “First-Step Merger”) with and into Ocean Shore, with Ocean Shore as the surviving entity, and immediately following the effective time of the First-Step Merger, Ocean Shore will merge with and into OceanFirst, with OceanFirst as the surviving entity (together with the First-Step Merger, the “Integrated Mergers”). It is anticipated that immediately following the consummation of the Integrated Mergers, Ocean City Home Bank, a federal savings bank, will merge with and into OceanFirst Bank, a federal savings bank, with OceanFirst Bank as the surviving bank. See footnote 12 for more information on business combination.

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 May 2014, the FASB issued ASU 2014-09, which created Accounting Standard Codification (“ASC”) ASC 606 "Revenue from Contracts with Customers," superseding the revenue recognition requirements in ASC 605. This ASU requires an entity to recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment includes a five-step process to assist an entity in achieving the main principle(s) of revenue recognition under ASC 605. The amendment will be effective for the Company for the first annual period ending after December 15, 2016, including interim periods within that reporting period, and should be applied on a prospective basis. Early adoption of the guidance is not permitted. The Company is currently evaluating the impact of this ASU on its financial position, results of operations and disclosures.

In August 2014, the FASB also issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern . This ASU requires management to perform an assessment of going concern and provides specific guidance on when and how to assess or disclose going concern uncertainties. The new standard also defines terms used in the evaluation of going concern, such as "substantial doubt." Following application, the Company will be required to perform assessments at each annual and interim period, provide an assessment period of one year from the issuance date, and make disclosures in certain circumstances in which substantial doubt is identified. The amendment will be effective for the Company for the first reporting period ending after December 15, 2016. Earlier application is permitted. The Company does not expect this ASU to have an impact on its financial position, result of operations, or disclosures.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This amendment requires that 1) equity investments, except those accounted for under the equity method of accounting or result in consolidation of the investee, be measured at fair value with changes in the fair value being recorded in net income, unless those equity investments do not have readily determinable fair values in which case they will be measured at cost less impairment, if any, plus the effect of changes resulting from observable price transactions in orderly transactions or for the identical or similar investment of the same issuer, 2) simplifies the impairment assessment of equity instruments that do not have readily determinable fair values, 3) eliminates the requirement to disclose methods and assumptions used to estimate fair value of instruments measured at amortized cost on the balance sheet, 4) requires public entities to use "exit price" when measuring the fair value of financial instruments, 5) requires entities to separately present in other comprehensive income the portion of the total change in fair value of a liability resulting from instrument-specific credit risk when the fair value option has been elected for that liability, 6) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes, and 7) clarifies that an entity should evaluate the need for a valuation allowance on its deferred tax asset related to its available-for-sale securities in combination with its other deferred tax assets. This amendment will be effective for the Company for the first reporting period beginning after December 15, 2017, with earlier adoption permitted by public entities on a limited basis. Adoption of the amendment must be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, except for amendments related to equity instruments that do not have readily determinable fair values which should be applied prospectively. Earlier application is permitted. The Company is in the process of evaluating the impacts of the adoption of this ASU on its financial position, results of operations and disclosures.

In March 2016, the FASB issued ASU 2016-09, “ Compensation - Stock Compensation (Topic 718)”. The ASU simplifies various aspects relating to share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, accounting for forfeitures, and classification on the statement of cash flows. The amendment will be effective for the Company for the first reporting period beginning after December 15, 2016. Earlier adoption is permitted. If early adopted, an entity must adopt all of the amendments in the same period. Depending on the area of change, the amendment will be applied either prospectively, retrospectively or by using a modified retrospective approach. The Company is in the process of evaluating the impacts of the adoption of this ASU on its financial position, results of operations and disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments. This ASU requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. The ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. The amendment will be effective for the Company for the first reporting period beginning after December 15, 2019. Early adoption is permitted. The Company is currently in the process of evaluating the impacts of the adoption of this ASU on its financial position, results of operation and disclosures.

INVESTMENT SECURITIES

Investment securities are summarized as follows:

	September 30, 2016
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gain		Loss			Value
	(Dollars in thousands)
Held to Maturity
Debt Securities - Municipal	$	375	$	—	$	—		$	375
U.S. Treasury and government sponsored entity mortgage-backed securities		447		53		—			500
Totals	$	822	$	53	$	—		$	875

Available for Sale
Debt securities:
Corporate	$	5,685	$	4	$	(937	)	$	4,752
U.S. Treasury and federal agencies		33		—		—			33
Equity securities		3		2		—			5
U.S. treasury and government sponsored entity mortgage-backed securities		95,855		328		(607	)		95,576
Totals	$	101,576	$	334	$	(1,544	)	$	100,366

	December 31, 2015
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gain		Loss			Value
	(Dollars in thousands)
Held to Maturity
Debt Securities - Municipal	$	577	$	—	$	—		$	577
U.S. Treasury and government sponsored entity mortgage-backed securities		507		53		—			560
Totals	$	1,084	$	53	$	—		$	1,137

Available for Sale
Debt securities:
Corporate	$	9,660	$	26	$	(842	)	$	8,844
U.S. Treasury and federal agencies		10,033		7		—			10,040
Equity securities		3		39		—			42
U.S. Treasury and government sponsored entity mortgage-backed securities		94,248		223		(1,489	)		92,982
Totals	$	113,944	$	295	$	(2,331	)	$	111,908

As of September 30, 2016 and December 31, 2015, the Company had investment securities available for sale with an estimated fair value of $99.7 million and $97.9 million, respectively, pledged as collateral to secure public fund deposits.

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 September 30, 2016 and December 31, 2015:

	September 30, 2016
	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 -Corporate	$	—	$	—		$	2,751	$	(937	)	$	2,751	$	(937	)
U.S. treasury and government sponsored entity mortgage- backed securities		18,940		(33	)		37,869		(574	)		56,809		(607	)
Totals	$	18,940	$	(33	)	$	40,620	$	(1,511	)	$	59,560	$	(1,544	)

	December 31, 2015
	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 – Corporate	$	—	$	—		$	2,843	$	(842	)	$	2,843	$	(842	)
U.S. Treasury and government sponsored entity mortgage- backed securities		20,704		(217	)		51,821		(1,272	)		72,525		(1,489	)
Totals	$	20,704	$	(217	)	$	54,664	$	(2,114	)	$	75,368	$	(2,331	)

Management has reviewed its investment securities as of September 30, 2016 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 the 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 does not expect 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.

Corporate Debt Securities - The Company’s investments in the preceding table 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 September 30, 2016, two single issuer trust preferred securities have been in a continuous unrealized loss position for 12 months or longer. Those securities have an aggregate depreciation of 25.4% from the Company’s amortized cost basis. The initial decline of these securities was primarily attributable to depressed market pricing of non-rated issues of trust preferred securities observed during the financial downturn. The unrealized loss position continued to improve, and the current decline of these debt securities is principally attributable to the rising interest rate environment and depressed pricing on lower yielding investments with prolonged maturities, which had an impact for these types of investments. These securities were performing in accordance with their contractual terms as of September 30, 2016, and had paid all contractual cash flows since the Company’s initial investment. Management believes these unrealized losses are not other-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 when market conditions have stabilized and that the Company will receive all contractual principal and interest payments related to those investments.

United States Treasury, US Federal Agencies and Government Sponsored Enterprise Mortgage-backed Securities - The Company’s investments in the preceding table 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 September 30, 2016 the Company had 11 agency mortgage-backed securities with unrealized losses for 12 months or longer. Those securities had aggregate depreciation of 1.5% from the Company’s amortized cost basis. These securities were performing in accordance with their contractual terms as of September 30, 2016, and had paid all contractual cash flows since the Company’s initial investment and that the Company expects to receive all contractual principal and interest payments related to those investments. Management believes these unrealized losses are not other-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 amortized cost and estimated fair value of debt securities available for sale and held to maturity at September 30, 2016 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2016
	Held to Maturity				Available for Sale Securities
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
	(Dollars in thousands)
Due within 1 year	$	375	$	375	$	1,996	$	2,000
Due after 1 year through 5 years		—		—		33		33
Due after 5 years through 10 years		—		—		—		—
Due after 10 years		—		—		3,688		2,751
Total	$	375	$	375	$	5,717	$	4,784

Equity securities had a cost of $3 thousand and a fair value of $5 thousand as of September 30, 2016. Mortgage-backed securities had a cost of $96.3 million and a fair value of $96.1 million as of September 30, 2016.

LOANS RECEIVABLE – NET

Loans receivable consist of the following:

	September 30, 2016			December 31, 2015
	(Dollars in thousands)
Real estate - mortgage:
One-to-four family residential	$	615,851		$	607,807
Commercial and multi-family		85,314			84,075
Total real estate-mortgage		701,165			691,882
Real estate - construction:
Residential		18,174			14,960
Commercial		4,855			3,595
Total real estate - construction		23,029			18,555
Commercial		18,277			21,383
Consumer:
Home equity		49,291			51,001
Other consumer loans		274			431
Total consumer loans		49,565			51,432
Total loans		792,036			783,252
Net deferred loan cost		4,216			3,886
Allowance for loan losses		(3,307	)		(3,190	)
Net total loans	$	792,945		$	783,948

The Bank originates loans to customers primarily in its local market area. The ultimate repayment of these loans is dependent to a certain degree on the local economy and real estate market. The intent of management is to hold loans originated and purchased to maturity.

Changes in the allowance for loan losses are as follows:

	Nine months Ended September 30,
	2016			2015
	(Dollars in thousands)
Balance, beginning of period	$	3,190		$	3,760
Provision for loan loss		463			496
Charge-offs		(348	)		(1,140	)
Recoveries		2			—
Balance, end of period	$	3,307		$	3,116

The provision for loan losses charged to expense is based upon past loan loss experiences, a series of qualitative factors, and an evaluation of losses in the current loan portfolio, including the specific evaluation of impaired loans. Values assigned to the qualitative factors and those developed from historic loss experience provide a dynamic basis for the calculation of reserve factors for both pass–rated loans (general pooled allowance) and the criticized and classified loans that continue to perform.

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

	September 30, 2016		December 31, 2015
	(Dollars in thousands)
Real estate
One-to-four family residential	$	2,969	$	2,597
Commercial and multi-family		835		1,580
Real estate – construction		143		143
Commercial		153		41
Consumer		198		601
Non-accrual loans		4,298		4,962
Troubled debt restructuring, non-accrual		961		708
Total non-performing loans		5,259		5,670
Real estate owned		1,007		1,814
Total non-performing assets	$	6,266	$	7,484

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 nine month periods ended September 30, 2016 and 2015:

	Contractual Receivable Amount			Nonaccretable (Yield)/Premium			Accretable (Yield)/Premium			Carrying Amount
	(Dollars in thousands)
Balance at January 1, 2016	$	38,621		$	(2,423	)	$	426		$	36,624
Principal reductions		(4,609	)		—			—			(4,609	)
Charge-offs, net		(1,495	)		1,495			—			—
Accretion of loan discount (premium)		—			—			(80	)		(80	)
Transfer between nonaccretable and accretable yield		—			—			—			—
Settlement adjustments		—			—			—			—
Balance at September 30, 2016	$	32,517		$	(928	)	$	346		$	31,935

	Contractual Receivable Amount			Nonaccretable (Yield)/Premium			Accretable (Yield)/Premium			Carrying Amount
	(Dollars in thousands)
Balance at January 1, 2015	$	44,216		$	(2,540	)	$	542		$	42,218
Principal reductions		(4,211	)		—			—			(4,211	)
Charge-offs, net		(64	)		64			—			—
Accretion of loan discount (premium)		—			—			(87	)		(87	)
Transfer between nonaccretable and accretable yield		—			—			—			—
Settlement adjustments		—			—			—			—
Balance at September 30, 2015	$	39,941		$	(2,476	)	$	455		$	37,920

An age analysis of past due loans, segregated by class of loans, as of September 30, 2016 and December 31, 2015 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)
September 30, 2016
Real estate
1-4 family residential	$	760	$	—	$	3,338	$	4,098	$	611,753	$	615,851
Commercial and multi-family		—		—		835		835		84,479		85,314
Construction		—		—		143		143		22,886		23,029
Commercial		—		—		153		153		18,124		18,277
Consumer		134		83		197		414		49,151		49,565
Total	$	894	$	83	$	4,666	$	5,643	$	786,393	$	792,036

December 31, 2015
Real estate
1-4 family residential	$	1,483	$	—	$	2,968	$	4,451	$	603,356	$	607,807
Commercial and multi-family		—		—		1,580		1,580		82,495		84,075
Construction		—		—		143		143		18,412		18,555
Commercial		—		—		41		41		21,342		21,383
Consumer		93		21		601		715		50,717		51,432
Total	$	1,576	$	21	$	5,333	$	6,930	$	776,322	$	783,252

Impaired loans are set forth 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)
September 30, 2016
With no related allowance recorded
Real Estate
1-4 Family Residential	$	5,309	$	5,477	$	—	$	147
Commercial and Multi-Family		800		800		—		160
Construction		143		143		—		143
Commercial		41		41		—		41
Consumer		868		868		—		54
With an allowance recorded
Real Estate
1-4 Family Residential		3,751		3,941		677		268
Commercial and Multi-Family		285		310		140		285
Construction		—		—		—		—
Commercial		275		275		61		92
Consumer		274		319		51		68
Total
Real Estate
1-4 Family Residential	$	9,060	$	9,418	$	677	$	181
Commercial and Multi-Family		1,085		1,110		140		181
Construction		143		143		—		144
Commercial		316		316		61		79
Consumer		1,142		1,187		51		57

December 31, 2015
With no related allowance recorded
Real Estate
1-4 Family Residential	$	6,103	$	6,320	$	—	$	153
Commercial and Multi-Family		1,545		1,545		—		257
Construction		143		143		—		143
Commercial		41		41		—		41
Consumer		1,187		1,187		—		66
With an allowance recorded
Real Estate
1-4 Family Residential	$	3,758	$	3,868	$	599	$	268
Commercial and Multi-Family		285		310		23		285
Commercial		—		—		—		—
Consumer		179		179		4		179
Total		434		479		179		72
Real Estate
1-4 Family Residential	$	9,861	$	10,188	$	599	$	183
Commercial and Multi-Family		1,830		1,855		23		261
Construction		143		143		—		143
Commercial		220		220		4		110
Consumer		1,621		1,666		179		68

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 which 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 September 30, 2016, the Company entered into 21 TDR agreements with a total carrying value of $4.8 million, of which three were not performing totaling $961 thousand as compared to 18 TDR agreements with a total carrying value of $4.2 million of which five were not performing totaling $660 thousand as of September 30, 2015. The Company entered into one new TDR agreement totaling $592 thousand during the three and nine month periods ending September 30, 2016 as compared to two and eight new TDR agreements during the three and nine month periods ending September 30, 2015 totaling $321 thousand and $1.2 million, respectively.

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 as loss.

The following table presents classified loans by class of loans as of September 30, 2016 and December 31, 2015.

	Real Estate
	1-4 Family Residential				Commercial and Multi-Family				Construction				Commercial				Consumer
	9/30/2016		12/31/2015		9/30/2016		12/31/2015		9/30/2016		12/31/2015		9/30/2016		12/31/2015		9/30/2016		12/31/2015
	(Dollars in thousands)
Grade:
Special Mention	$	4,042	$	3,182	$	671	$	321	$	—	$	—	$	—	$	—	$	1,048	$	807
Substandard		7,160		7,916		3,312		3,989		143		143		543		557		760		1,272
Doubtful and Loss		—		—		—		—		—		—		113		—		—		—
Total	$	11,202	$	11,098	$	3,983	$	4,310	$	143	$	143	$	656	$	557	$	1,808	$	2,079

The following table presents the credit risk profile of loans based on payment activity as of September 30, 2016 and December 31, 2015.

	Real Estate
	1-4 Family Residential				Commercial and Multi-Family				Construction				Commercial				Consumer
	9/30/2016		12/31/2015		9/30/2016		12/31/2015		9/30/2016		12/31/2015		9/30/2016		12/31/2015		9/30/2016		12/31/2015
	(Dollars in thousands
Performing	$	612,882	$	605,210	$	84,479	$	82,495	$	22,886	$	18,412	$	18,124	$	21,342	$	49,367	$	50,831
Non-Performing		2,969		2,597		835		1,580		143		143		153		41		198		601
Total	$	615,851	$	607,807	$	85,314	$	84,075	$	23,029	$	18,555	$	18,277	$	21,383	$	49,565	$	51,432

The following table details activity in the allowance for possible loan losses by portfolio segment for the periods ended September 30, 2016 and December 31, 2015. 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)
September 30, 2016
Allowance for credit losses:
Beginning Balance	$	2,051		$	240		$	25		$	236		$	638		$	3,190
Charge-offs		(169	)		(83	)		—			—			(96	)		(348	)
Recoveries		2			—			—			—			—			2
Provision for loan losses		209			307			8			131			(192	)		463
Ending balance	$	2,093		$	464		$	33		$	367		$	350		$	3,307
Ending balance: individually evaluated for impairment	$	677		$	140		$	—		$	61		$	51		$	929
Ending balance: collectively evaluated for impairment	$	1,416		$	324		$	33		$	306		$	299		$	2,378
Loan Receivables:
Ending balance	$	615,851		$	85,314		$	23,029		$	18,277		$	49,565		$	792,036
Ending balance: individually evaluated for impairment	$	9,060		$	1,085		$	143		$	316		$	1,142		$	11,746
Ending balance: collectively evaluated for impairment	$	606,791		$	84,229		$	22,886		$	17,961		$	48,423		$	780,290

December 31, 2015
Allowance for credit losses:
Beginning Balance	$	2,318		$	625		$	33		$	380		$	404		$	3,760
Charge-offs		(683	)		(25	)		—			(306	)		(245	)		(1,259	)
Recoveries		—			—			—			—			—			—
Provision for loan losses		416			(360	)		(8	)		162			479			689
Ending balance	$	2,051		$	240		$	25		$	236		$	638		$	3,190
Ending balance: individually evaluated for impairment	$	599		$	23		$	—		$	4		$	178		$	804
Ending balance: collectively evaluated for impairment	$	1,452		$	217		$	25		$	232		$	460		$	2,386
Loan Receivables:
Ending balance	$	607,807		$	84,075		$	18,555		$	21,383		$	51,432		$	783,252
Ending balance: individually evaluated for impairment	$	9,861		$	1,830		$	143		$	220		$	1,621		$	13,675
Ending balance: collectively evaluated for impairment	$	597,946		$	82,245		$	18,412		$	21,163		$	49,811		$	769,577

DEPOSITS

Deposits consist of the following major classifications:

	September 30, 2016							December 31, 2015
			Weighted					Weighted
			Average					Average
	Amount		Interest Rate			Amount		Interest Rate
	(Dollars in thousands)
NOW and other demand deposit accounts	$	490,117		0.13	%	$	457,488		0.13	%
Passbook savings and club accounts		177,392		0.20	%		174,640		0.20	%
Subtotal		667,509					632,128
Certificates with original maturities:
Within one year		24,157		0.29	%		29,341		0.30	%
One to three years		142,263		0.94	%		127,813		1.03	%
Three years and beyond		23,221		1.50	%		22,751		1.56	%
Total certificates		189,641					179,905
Total	$	857,150				$	812,033

The aggregate amount of certificate accounts in denominations of $100 thousand or more at September 30, 2016 and December 31, 2015 amounted to $79.0 million and $70.6 million, respectively. Currently, deposits in excess of $250 thousand are generally not federally insured.

Municipal demand deposit accounts in denominations of $100 thousand or more at September 30, 2016 and December 31, 2015 amounted to $203.6 million and $194.6 million, respectively.

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 September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
	(Dollars in thousands, except per share data)
Numerator – Net Income	$	1,701	$	1,669	$	5,233	$	5,121
Denominators:
Basic average shares outstanding		6,207,118		6,043,604		6,158,551		5,983,355
Effect of dilutive common stock equivalents		101,053		101,532		89,172		105,272
Diluted average shares outstanding		6,308,171		6,145,136		6,247,723		6,088,627

Earnings per share:
Basic	$	0.27	$	0.28	$	0.85	$	0.86
Diluted	$	0.27	$	0.27	$	0.84	$	0.84

At September 30, 2016 and 2015, there were 179,938 and 318,265 outstanding anti-dilutive options, respectively, 25,620 and 35,150 outstanding dilutive non-vested shares, respectively.

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”) authorize 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 Plans, 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 September 30, 2016 and 2015 and changes during the nine months ended September 30, 2016 and 2015 are presented below:

	Nine Months Ended September 30, 2016				Nine Months Ended September 30, 2015
	Number of shares		Weighted average exercise price		Number of shares		Weighted average exercise price
Outstanding at the beginning of the period		380,407	$	11.46		674,391	$	12.15
Granted		—		—		—		—
Exercised		109,748		11.64		287,130	$	13.08
Forfeited		2,160		13.56		3,894	$	11.69
Outstanding at the end of the period		268,499	$	11.36		383,367	$	11.45
Exercisable at the end of the period		229,891	$	10.92		309,367	$	10.94
Stock options vested or expected to vest (1)		206,902	$	10.92		345,030	$	11.45

(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 September 30, 2016:

	Options Outstanding
Date Issued	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
November 20, 2007		10,066	$	11.32	1.1 years
August 18, 2010		160,735	$	10.21	3.9 years
March 15, 2011		7,100	$	12.06	4.5 years
August 17, 2011		22,318	$	11.53	4.9 years
November 19, 2012		11,800	$	13.10	6.1 years
November 19, 2013		56,480	$	14.14	7.1 years
Total		268,499	$	11.36	4.7 years

The compensation expense recognized for the three and nine months ended September 30, 2016 was $45 thousand and $135 thousand, respectively, as compared to $46 thousand and $138 thousand for the three and nine months ended September 30, 2015, respectively.

At September 30, 2016, there was $118 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 0.9 years.

Summary of Non-vested Stock Award Activity:

	Nine Months ended September 30, 2016				Nine Months ended September 30, 2015
	Number of shares		Weighted avg grant date fair value		Number of shares		Weighted avg grant date fair value
Outstanding at the beginning of period		26,610	$	14.06		54,950	$	10.74
Issued		—		—		—		—
Forfeited		—		—		—		—
Vested		990	$	12.06		19,800	$	10.30
Outstanding at the end of period		25,620	$	14.14		35,150	$	14.08

The compensation expense recognized for the three and nine months ended September 30, 2016 was $30 thousand and $93 thousand, respectively, as compared to $45 thousand and $208 thousand for the three and nine months ended September 30, 2015, respectively.

As of September 30, 2016, there was $257 thousand of total unrecognized compensation costs related to non-vested stock awards. That cost is expected to be recognized over a weighted average period of 1.1 years .

INCOME TAXES

Income tax expense was $2.6 million for an effective tax rate of 33.1% for the nine months ended September 30, 2016 compared to $2.6 million for an effective tax rate of 33.5% for the same period in 2015.

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 September 30, 2016 and December 31, 2015, 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 September 30, 2016, the tax years ended December 31, 2012 through 2015 were subject to examination by the Internal Revenue Service, while the tax years ended December 31, 2011 through 2015 were subject to New Jersey examination.

STOCKHOLDERS’ EQUITY

During the third quarter of 2016, the Board of Directors of the Company declared a cash dividend of $0.06 per share, which was paid on August 26, 2016 to stockholders of record as of the close of business on August 5, 2016.

No reclassification adjustments were recognized in Accumulated Other Comprehensive Income during the nine months ended September 30, 2016 and 2015. A summary of the changes in components of Accumulated Other Comprehensive Income for the nine months ended September 30, 2016 and 2015 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 - 01/01/2016	$	(1,254	)	$	(133	)	$	(1,387	)
Current period change		826			9			835
Tax benefit		(339	)		─			(339	)
Ending balance – 09/30/2016	$	(767	)	$	(124	)	$	(891	)

Beginning balance – 01/01/2015	$	(1,282	)	$	(169	)	$	(1,451	)
Current period change		1,037			16			1,053
Tax benefit		(419	)		─			(419	)
Ending balance – 09/30/2015	$	(664	)	$	(153	)	$	(817	)

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.

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 September 30, 2016 and December 31, 2015:

	Category Used for Fair Value Measurement
September 30, 2016	Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets:
Securities available for sale:
U.S. government sponsored entity mortgage-backed securities	$	—	$	95,576	$	—
U.S. Treasury and federal agencies		—		33		—
Corporate securities		—		4,752		—
Equity securities		5		—		—
Totals	$	5	$	100,361	$	—

	Category Used for Fair Value Measurement
December 31, 2015	Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets:
Securities available for sale:
U.S. government sponsored entity mortgage-backed securities	$	—	$	92,982	$	—
U.S. Treasury and federal agencies		—		10,040		—
Corporate securities		—		8,844		—
Equity securities		42		—		—
Totals	$	42	$	111,866	$	—

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.

Summary of Non-Recurring Fair Value Measurements

			Category Used for Fair Value Measurement
Nine Month Period Ended	Total		Level 1		Level 2		Level 3		Total Losses
	(Dollars in thousands)
September 30, 2016
Assets:
Impaired loans	$	3,655	$	-	$	360	$	3,296	$	(222	)
Real estate owned		575		-		329		247		(130	)

September 30, 2015
Assets:
Impaired loans	$	3,875	$	─	$	1,718	$	2,157	$	(123	)
Real estate owned		1,587		─		1,587		─		(255	)

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 September 30, 2016, total loans remeasured at fair value were $3.7 million. Such loans were carried at the value of $3.9 million immediately prior to remeasurement, resulting in the recognition of impairment through earnings for the life of the loan in the amount of $222 thousand. At September 30, 2015, total loans remeasured at fair value were $3.9 million. Such loans were carried at the value of $4.0 million immediately prior to remeasurement, resulting in the recognition of impairment through earnings for the life of the loan in the amount of $123 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. At September 30, 2016, total real estate owned remeasured at fair value was $575 thousand. These properties were carried at a value of $705 thousand immediately prior to remeasurement, resulting in $130 thousand of impairment through earnings. At September 30, 2015, total real estate owned remeasured at fair value was $1.6 million. These properties were carried at a value of $1.8 million immediately prior to remeasurement, resulting in $255 thousand of impairment through earnings.

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
September 30, 2016	Carrying Amount		Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	145,469	$	145,469	$	—	$	—
Investment securities:
Held to maturity		822		—		875		—
Available for sale		100,366		5		100,361		—
Loans receivable, net		792,945		—		814,468		—
Federal Home Loan Bank stock		5,875		—		5,875		—

Liabilities:
NOW and other demand deposit accounts		490,117		—		483,352		—
Passbook savings and club accounts		177,392		—		171,867		—
Certificates		189,641		—		190,737		—
Advances from Federal Home Loan Bank		105,000		—		112,398		—

			Category Used For Fair Value
December 31, 2015	Carrying Amount		Level 1		Level 2		Level 3
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	87,710	$	87,710	$	—	$	—
Investment securities:
Held to maturity		1,084		—		1,137		—
Available for sale		111,908		42		111,866		—
Loans receivable, net		783,948		—		793,597		—
Federal Home Loan Bank stock		5,864		—		5,864		—

Liabilities:
NOW and other demand deposit accounts		457,488		—		476,186		—
Passbook savings and club accounts		174,640		—		183,352		—
Certificates		179,905		—		180,624		—
Advances from Federal Home Loan Bank		105,000		—		111,315		—

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

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 September 30, 2016. 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 September 30, 2016 and December 31, 2015. 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 September 30, 2016 and December 31, 2015, 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 September 30, 2016 as compared to $4.6 million at December 31, 2015. The Company completed its annual goodwill impairment test as of August 1, 2016 and concluded that goodwill was not impaired. At September 30, 2016, no triggering events have occurred from the date of the impairment test that would have impaired goodwill.

The core deposit intangible totaled $365 thousand at September 30, 2016 as compared to $440 thousand at December 31, 2015. The core deposit intangible is being amortized over its estimated useful life of approximately 15 years from August 1, 2011.

11.

REAL ESTATE OWNED

Summary of Real Estate Owned (“REO”):

	2016									2015
	Residential			Commercial						Residential			Commercial
	Property			Property			Total			Property			Property			Total
	(Dollars in thousands)									(Dollars in thousands)
Balance, January 1,	$	1,773		$	41		$	1,814		$	609		$	41		$	650
Transfers into Real Estate Owned		230			815			1,045			1,839			195			2,034
Sales of Real Estate Owned		(1,503	)		(349	)		(1,852	)		(585	)		(195	)		(780	)
Balance, September 30,	$	500		$	507		$	1,007		$	1,863		$	41		$	1,904

12.

BUSINESS COMBINATION

At the effective time of the First-Step Merger, the Company’s stockholders will be entitled to receive $4.35 in cash and 0.9667 shares of OceanFirst common stock, par value $0.01 per share (“OceanFirst Common Stock” and, together with such cash consideration, the “Merger Consideration”), for each share of Company common stock. Additionally, all outstanding and unexercised options to purchase Company common stock will fully vest and will convert into the right to receive a number of shares of OceanFirst Common Stock (rounded down to the nearest whole share) determined by multiplying (i) the number of shares of Ocean Shore Common Stock subject to such Ocean Shore stock option immediately prior to the effective time by (ii) 1.2084; and the exercise price per share of the new option will be equal to the quotient obtained by dividing (a) the per share exercise price for the shares of Ocean Shore Common Stock subject to such Ocean Shore option by (b) 1.2084 (rounded up to the nearest whole cent). Each outstanding Company restricted stock award will vest at the effective time and will convert into the right to receive the Merger Consideration.

Subject to the satisfaction or waiver of the closing conditions contained in the Merger Agreement, including (1) the approval of the Merger Agreement by the Company’s stockholders, (2) the approval of the issuance of shares of OceanFirst Common Stock by OceanFirst’s stockholders, (3) the effectiveness of the registration statement on Form S-4 for the OceanFirst Common Stock to be issued in the transaction, (4) the receipt of required regulatory approvals, and (5) receipt by each party of an opinion from its counsel to the effect that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, OceanFirst and the Company expect that the transaction will be completed on November 30, 2016. However, it is possible that factors outside the control of both companies could result in the merger being completed at a different time or not at all.

The SEC declared the registration statement on Form S-4 effective on October 19, 2016 and the joint proxy statement/prospectus was mailed to Ocean Shore and OceanFirst stockholders on or around October 21, 2016. Special meeting of the Company’s and OceanFirst stockholders will be held on November 22, 2016 to obtain the requisite stockholder approval.

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, 2015 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.

MARKET AREA

We are headquartered in Ocean City, New Jersey, and serve the southern New Jersey shore communities through a total of eleven full-service offices, of which nine are located in Atlantic County and two in Cape May County. Our markets are in the southeastern corner of New Jersey, approximately 65 miles east of Philadelphia and 130 miles south of New York.

The economy of Atlantic County is dominated by the service sector, of which the gaming industry in nearby Atlantic City is the primary employer. Atlantic City operated eight casinos during 2015 with a combined employment of just over 23,000 people. The Trump Taj Mahal closed in September 2016, reducing the number of casinos to seven. Both the Borgata and Tropicana Casinos are undergoing major renovations in 2016. The Borgata will invest over $50 million into a new outdoor pool, nightclub, fine dining restaurant and 250,000 square feet of convention space. Tropicana will invest $25 million into the renovation of 500 hotel rooms and updated casino floor space. Atlantic City saw an increase in convention traffic resulting, in part, from the opening of a $134 million convention center at Harrah’s Resort. Convention bookings increased 23% from 2014 to 2015 as 218 conventions brought in over 450,000 attendees. In order to mitigate the loss of jobs from casino closures while positioning Atlantic City for future growth in other industries, several other ventures in the area, which are expected to create employment, have recently been announced or are at the final stages of completion. A Bass Pro Shop opened in 2015. The Pier Shops of Caesars received a $50 million renovation and were reopened as the Playground, a 500,000 square-foot shopping and entertainment complex. Major Atlantic City development was announced at the end of 2015. If approved, Atlantic City would become home to a Stockton University satellite campus, a new South Jersey Gas headquarters and an 886-space parking garage upon project completion in 2018. We do not maintain any branches in Atlantic City, but Atlantic City is within our lending area and some of our borrowers are employed in the gaming industry. We closely monitor the economic environment in our market area and in Atlantic City in particular, and we track our exposure to borrowers who are employed in the gaming industry. Outside of Atlantic City, the FAA Technical Center continues to be a major employer in the region with nearly 2,000 people employed by the FAA and supporting contractors. Development of the Aviation and Research Development Park (Next Gen) has progressed since forming collaboration with Stockton University. Once completed, the complex will contain a combination of operational facilities, services, laboratory systems and simulators that can create the operational environment in a way that any researcher can conduct realistic and relevant research in an effort to gain insight, analyses, or validation of advanced aviation concepts, applications, and services. Additional development outside of Atlantic City includes a 100 unit housing complex in downtown Egg Harbor City and 135 unit mixed-use development in downtown Pleasantville.

While Ocean City Home Bank is not engaged in lending to the casino industry, the employment or businesses of many of Ocean City Home Bank’s customers directly or indirectly benefit from the industry. As of September 30, 2016, we had $15.4 million of loans outstanding to borrowers who, at the time of origination, were employed in the gaming industry, representing 1.9% of total loans. Of these loans, $4.0 million were made to borrowers who were employed at the time of origination at casinos/hotels that subsequently closed or declared bankruptcy. To date, we have not experienced a significant impact from the downturn in the gaming industry, which has experienced declining revenue and employment since 2006.

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2016 AND DECEMBER 31, 2015

Total assets of the Company increased $53.5 million to $1,096.9 million at September 30, 2016 from $1,043.4 million at December 31, 2015. Loans receivable, net, increased $9.0 million, investment and mortgage-backed securities decreased $11.8 million and cash and cash equivalents increased by $57.8 million. Deposits increased $45.2 million while borrowings were unchanged.

Investments

Investments and mortgage-backed securities decreased $11.8 million to $101.2 million at September 30, 2016 from $113.0 million at December 31, 2015. The decrease was primarily the result of repayments, calls and maturities of $27.9 million partially offset by purchases of $15.4 million of agency investments and an improvement in the unrealized holding loss on investment securities of $826 thousand.

Loans

Loans receivable, net, increased $9.0 million to $792.9 million at September 30, 2016 from $783.9 million at December 31, 2015. The increase resulted from increases in the real estate mortgage portfolio of $9.3 million and real estate construction loans of $4.5 million offset by decreases in commercial loans of $3.1 million and consumer loans of $1.9 million. Loan originations totaled $122.6 million for the nine months ended September 30, 2016 compared to $119.8 million originated in the nine months ended September 30, 2015. Real estate mortgage loan originations totaled $75.5 million, real estate construction loan originations totaled $25.9 million, consumer loan originations totaled $8.8 million and commercial loan originations totaled $12.3 million for the first nine months of 2016. Origination activity was offset by $113.6 million of normal loan payments and payoffs, compared to payments and payoffs of $108.3 million in the same period of the prior year. The higher than normal increase in residential loans payoffs resulted from higher refinance activity due to the low interest rate environment on loans.

The following table summarizes changes in the loan portfolio in the nine months ended September 30, 2016.

	September 30, 2016			December 31, 2015			$ change			% change
	(Dollars in thousands)
Real estate – mortgage:
One-to-four-family residential	$	615,851		$	607,807		$	8,044			1.3	%
Commercial and multi-family		85,314			84,075			1,239			1.5
Total real estate – mortgage		701,165			691,882			9,283			1.3

Real estate – construction:
Residential		18,174			14,960			3,214			21.5
Commercial		4,855			3,595			1,260			35.0
Total real estate – construction		23,029			18,555			4,474			24.1

Commercial		18,277			21,383			(3,106	)		(14.5	)

Consumer
Home equity		49,291			51,001			(1,710	)		(3.4	)
Other consumer loans		274			431			(157	)		(36.4	)
Total consumer loans		49,565			51,432			(1,867	)		(3.6	)

Total loans		792,036			783,252			8,784			1.1
Net deferred loan cost		4,216			3,886			330			8.5
Allowance for loan losses		(3,307	)		(3,190	)		(117	)		3.7
Net total loans	$	792,945		$	783,948		$	8,997			1.1

Non-Performing Assets

Non-performing assets totaled $6.3 million, or 0.57% of total assets, at September 30, 2016 compared to $7.5 million or 0.72% of total assets at December 31, 2015 and $7.7 million, or 0.72% of total assets, at September 30, 2015. The decrease of $1.2 million from December 31, 2015 was the result of decreases in non-performing loans of $411 thousand and in real estate owned of $807 thousand offset by an increase in TDR non-accrual loans of $253 thousand. Non-performing assets consisted of twenty-one residential mortgages totaling $3.0 million, one real estate construction mortgage totaling $143 thousand, four real estate commercial mortgages totaling $835 thousand, three commercial loans totaling $153 thousand, five consumer equity loans totaling $197 thousand, three TDR non-accrual loans totaling $961 thousand and six real estate owned properties totaling $1.0 million. Real estate owned remained the same at six properties while the total balance decreased $800 thousand at September 30, 2016 to $1.0 million from $1.8 million at December 31, 2015.

The allowance for loan losses increased $116 thousand to $3.3 million, or 0.42% of total net loans, from $3.2 million at December 31, 2015, or 0.41% of total net loans. The increase in the allowance for loan losses resulted from an addition to the allowance of $463 thousand offset by net charge offs of $346 million. Net charge-offs totaled $346 thousand in 2016 compared to $1.3 million for the same period in 2015. The loss factors used to calculate the allowance were relatively stable in September 2016 from December 2015. 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, collateral position, credit characteristics of the underlying borrowers and current economic conditions. At September 30, 2016, the specific allowance on loans individually evaluated for impairment was $929 thousand and pooled allowance on the remainder of the loan portfolio was $2.4 million as compared to specific allowance on loans individually evaluated for impairment of $804 thousand and pooled allowance on the reminder of the loan portfolio of $2.4 million at December 31, 2015.

	Nine months Ended September 30,
	2016			2015
	(Dollars in thousands)
Allowance for loan losses:
Allowance at beginning of period	$	3,190		$	3,760
Provision for loan losses		463			496

Recoveries		2			–
Charge-offs		(348	)		(1,140	)
Net (charge-offs) recoveries		(346	)		(1,140	)
Allowance at end of period	$	3,307		$	3,116
Allowance for loan losses as a percent of total loans		0.42	%		0.40	%
Allowance for loan losses as a percent of non-performing loans		62.9	%		54.2	%

	September 30, 2016			December 31, 2015
	(Dollars in thousands)
Nonaccrual loans:
Real estate – residential	$	2,969		$	2,597
Real estate – commercial		835			1,580
Real estate – construction		143			143
Commercial		153			41
Consumer		198			601
Total		4,298			4,962
Troubled debt restructurings – nonaccrual		961			708
Total nonaccrual loans		5,259			5,670
Real estate owned		1,007			1,814
Total non-performing assets	$	6,266		$	7,484

Total non-performing loans to total loans		0.66	%		0.72	%
Total non-performing loans to total assets		0.48	%		0.54	%
Total non-performing assets to total assets		0.57	%		0.72	%

Deposits

Deposits increased $45.1 million, or 5.6%, to $857.1 million at September 30, 2016 from $812.0 million at December 31, 2015. Non-interest bearing demand deposits increased $10.7 million, interest bearing checking increased $21.9 million, savings accounts increased by $2.8 million and certificates of deposit increased by $9.7 million. Municipal deposits increased $9.0 million at September 30, 2016 compared to December 31, 2015 as a result of seasonal deposits. The Company continued its focus on attracting core deposits which totaled $667.5 million or 77.9% of total deposits.

The following table summarizes changes in deposits in the nine months ended September 30, 2016.

	September 30,		December 31,
	2016		2015		$ change		% change
	(Dollars in thousands)
Non-interest-bearing demand deposits	$	201,312	$	190,614	$	10,698		5.6	%
Interest-bearing demand deposits		288,805		266,874		21,931		8.2
Savings accounts		177,392		174,640		2,752		1.6
Time deposits		189,641		179,905		9,736		5.4
Total	$	857,150	$	812,033	$	45,117		5.6	%

Borrowings

Federal Home Loan Bank advances were unchanged at $105.0 million at September 30, 2016 from December 31, 2015.

Stockholders’ Equity

Stockholders’ equity increased $6.4 million to $118.2 million at September 30, 2016, from $111.8 million at December 31, 2015, primarily as a result of $5.3 million of net income, proceeds from exercises of stock options of $1.3 million, increases in contra benefit plans of $213 thousand and an increase in other comprehensive income of $497 thousand offset by dividends paid of $1.2 million.

COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

Net income was $1.7 million for the three months ended September 30, 2016 as compared to $1.7 million for the three months ended September 30, 2015. The increase of $32 thousand, or 1.9%, in 2016 from 2015 was due primarily to an increase in net interest income, a decrease in provision for loan losses and a decrease in income tax expense offset by a decrease in other income and an increase in other expenses.

Net income was $5.2 million for the nine months ended September 30, 2016 as compared to $5.1 million for the nine months ended September 30, 2015. The $112 thousand, or 2.2%, increase in 2016 from 2015 was due primarily to an increase in net interest income and a decrease in provision for loan losses offset by a decrease in other income and increases in other expenses and income tax expense.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
	(Dollars in thousands, except per share data)
Net income	$	1,701		$	1,669		$	5,233		$	5,121
Basic earnings per share	$	0.27		$	0.28		$	0.85		$	0.86
Diluted earnings per share	$	0.27		$	0.27		$	0.84		$	0.84
Return on average assets (annualized)		0.64	%		0.62	%		0.66	%		0.65	%
Return on average equity (annualized)		5.91	%		6.10	%		6.06	%		6.34	%

Net Interest Income

The following table summarizes changes in interest income and interest expense for the three month periods ended September 30, 2016 and 2015.

	Three Months Ended September 30,
	2016		2015		$ change			% change
	(Dollars in thousands)
INTEREST INCOME:
Loans	$	8,027	$	8,168	$	(141	)		(1.7	)%
Investment securities		713		609		104			17.1
Total interest income	$	8,740	$	8,777	$	(37	)		(0.4	)

INTEREST EXPENSE:
Deposits		669		642		27			4.2
Borrowings		809		1,043		(234	)		(22.4	)
Total interest expense		1,478		1,685		(207	)		(12.3	)
Net interest income	$	7,262	$	7,092	$	170			2.4

Net interest income increased by $170 thousand, or 2.4%, for the quarter ended September 30, 2016 compared to the same period in 2015. The interest rate spread and net interest margin of the Company were 3.11% and 3.24%, respectively, for the three months ended September 30, 2016, compared to 3.02% and 3.17%, respectively, for the same period in 2015. The increase in the net interest margin of seven basis points resulted from an increase in the average balance of interest-earning assets of $764 thousand, a decrease in the average balance of interest-bearing liabilities of $653 thousand, a decrease average rate paid on deposits and borrowings of 11 basis points offset by a decrease in the yield on interest-earning assets of two basis points.

Interest income decreased by $37 thousand, or 0.4%, for the quarter ended September 30, 2016 compared to September 30, 2015. The decrease in interest income resulted from a decrease in the average balance of investments of $9.0 million and lower yields on loans of 12 basis points offset by an increase in the average balance of loans of $9.8 million and yield on investments of 58 basis points. The decrease in average balance of investments resulted from investment calls and maturities. The decrease in loan yield resulted from lower rates on new loans originated and payoffs or refinances of higher yielding loans offset by increased loan balances from new originations at lower rates.

Interest expense decreased by $207 thousand, or 12.3%, for the quarter ended September 30, 2016 over the same period last year. The decrease in interest expense resulted from decreases in borrowings of $9.4 million and rates paid on FHLB advances of 57 basis points offset by increases in the average balance of interest-bearing deposits of $8.7 million and in the cost of deposits of one basis point. The increase in the average balance of interest-bearing deposits resulted primarily from new deposits while the decrease in the cost of FHLB advances resulted from refinancing of maturing advances to a lower rate and payoff of subordinated debt.

The following table summarizes changes in interest income and interest expense for the nine month periods ended September 30, 2016 and 2015.

	Nine Months Ended September 30,
	2016		2015		$ change			% change
	(Dollars in thousands)
INTEREST INCOME:
Loans	$	24,370	$	24,517	$	(147	)		(0.6	)%
Investment securities		2,044		1,811		233			12.9
Total interest income		26,414		26,328		86			0.3

INTEREST EXPENSE:
Deposits		1,988		1,872		116			6.2
Borrowings		2,517		3,216		(699	)		(21.7	)
Total interest expense		4,505		5,088		(583	)		(11.5	)
Net interest income	$	21,909	$	21,240	$	669			3.1

Net interest income increased by $669 thousand, or 3.1%, for the nine months ended September 30, 2016 compared to the same period in 2015. The interest rate spread and net interest margin of the Company were 3.11% and 3.25%, respectively, for the nine months ended September 30, 2016, compared to 3.02% and 3.17%, respectively, for the same period in 2015. The increase resulted from by an increase in interest-earning assets of $5.7 million, a decrease in borrowings of $11.3 million and decreases in the average rates paid on deposits and borrowings of 11 basis points offset by decreases in the average balance of interest-bearing deposits of $15.5 million and yield on earning assets of two basis points.

Interest income decreased by $86 thousand, or 0.3%, for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The decrease in interest income resulted from a decrease in the average balance of investments of $7.4 million and lower yields on loans of 10 basis points offset by increases in the average balance of loans of $13.1 million and yield on investments of 44 basis points. The decrease in average balance of investments resulted from investment calls and maturities. The decrease in loan yield resulted from lower rates on new loans originated and payoffs or refinances of higher yielding loans offset by increased loan balances from new originations at lower rates.

Interest expense decreased by $583 thousand, or 11.5%, for the nine months ended September 30, 2016 over the same period last year. The decrease in interest expense resulted from decreases in the average balance of borrowings of $11.3 million and rates paid on FHLB advances of 49 basis points offset by an increase in the average balance of interest-bearing deposits of $15.5 million and in the cost of deposits of two basis points. The increase in the average balance of interest-bearing deposits resulted primarily from new deposits while the decrease in the cost of FHLB advances resulted from refinancing of maturing advances to a lower rate and payoff of subordinated debt.

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.

Average Balance Tables

	Three Months Ended September 30, 2016										Three Months Ended September 30, 2015
	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	$	790,554			$	8,027		4.06	%		$	780,769			$	8,168		4.18	%
Investment securities		105,222				713		2.71	%			114,243				609		2.13	%
Total interest-earning assets		895,776				8,740		3.90	%			895,012				8,777		3.92	%
Noninterest-earning assets		183,240										173,735
Total assets	$	1,079,016									$	1,068,747

Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	274,383				119		0.17	%		$	282,193				124		0.18	%
Savings accounts		177,479				90		0.20	%			171,199				87		0.20	%
Certificates of deposit		189,077				460		0.97	%			178,807				431		0.96	%
Total interest-bearing deposits		640,939				669		0.42	%			632,199				642		0.41	%

FHLB advances		105,000				809		3.08	%			110,000				946		3.44	%
Subordinated debt		0				0		0.00	%			4,393				97		8.86	%
Total borrowings		105,000				809		3.08	%			114,393				1,043		3.65	%
Total interest-bearing liabilities		745,939				1,478		0.79	%			746,592				1,685		0.90	%
Noninterest-bearing demand accounts		201,377										199,437
Other liabilities		14,293										13,328
Total liabilities		961,609										959,357

Stockholders’ equity		117,407										109,390
Total liabilities and stockholders’ equity	$	1,079,016									$	1,068,747

Net interest income					$	7,262									$	7,092
Interest rate spread								3.11	%									3.02	%
Net interest margin								3.24	%									3.17	%
Average interest-earning assets to average interest-bearing liabilities		120.09	%									119.88	%

Average Balance Tables

	Nine Months Ended September 30, 2016								Nine Months Ended September 30, 2015
	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	$	790,309		$	24,370		4.11	%	$	777,226		$	24,518		4.21	%
Investment securities		107,363			2,044		2.54	%		114,748			1,810		2.10	%
Total interest-earning assets		897,672			26,414		3.92	%		891,974			26,328		3.94	%
Noninterest-earning assets		167,010								154,597
Total assets	$	1,064,682							$	1,046,571

Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	271,224		$	346		0.17	%	$	270,928		$	358		0.18	%
Savings accounts		178,273			269		0.20	%		170,222			256		0.20	%
Certificates of deposit		185,865			1,373		0.98	%		178,719			1,257		0.94	%
Total interest-bearing deposits		635,362			1,988		0.42	%		619,869			1,871		0.40	%

FHLB advances		105,000			2,517		3.20	%		110,000			2,807		3.40	%
Subordinated debt		0			0		0.00	%		6,265			410		8.73	%
Total borrowings		105,000			2,517		3.20	%		116,265			3,217		3.69	%
Total interest-bearing liabilities		740,362			4,505		0.81	%		736,134			5,088		0.92	%
Noninterest-bearing demand accounts		195,234								190,022
Other		13,893								12,644
Total liabilities		949,489								938,800

Stockholders’ equity		115,193								107,771
Total liabilities and stockholders’ equity	$	1,064,682							$	1,046,571

Net interest income				$	21,909							$	21,240
Interest rate spread							3.11	%							3.02	%
Net interest margin							3.25	%							3.17	%
Average interest-earning assets to average interest-bearing liabilities		121.25	%							121.17	%

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 $150 thousand and $463 thousand in the three and nine months ended September 30, 2016, respectively, compared to $165 thousand and $496 thousand in the three and nine months ended September 30, 2015, respectively. 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.

Other Income

The following table summarizes other income for the three months ended September 30, 2016 and 2015 and the changes between the periods.

	Three Months Ended September 30,
	2016		2015		% Change
	(Dollars in thousands)
OTHER INCOME:
Service charges	$	463	$	487		(4.9	)%
Cash surrender value of life insurance		158		159		(0.6	)
Gain on sale of investments		─		3		N/M
Other		441		473		(6.8	)
Total other income	$	1,062	$	1,122		(5.3	)

N/M – Not measurable

Other income decreased $60 thousand, or 5.3%, to $1.1 million for the three-month period ended September 30, 2016 from the same period in 2015. The decrease in service charges income of $24 thousand resulted from lower service charges collected on deposit accounts. Gain on sale of investments decreased $3 thousand and other income decreased $32 thousand primarily from decreased debit card commissions and other fees received.

The following table summarizes other income for the nine months ended September 30, 2016 and 2015 and the changes between the periods.

	Nine Months Ended September 30,
	2016		2015		% Change
	(Dollars in thousands)
OTHER INCOME:
Service charges	$	1,350	$	1,498		(9.8	)%
Cash surrender value of life insurance		469		469		─
Gain on sale of investments		37		3		N/M
Other		1,281		1,334		(0.4	)
Total other income	$	3,137	$	3,304		(5.1	)

N/M – Not measurable

Other income decreased $167 thousand, or 5.1%, to $3.1 million for the nine-month period ended September 30, 2016 from the same period in 2015. The decrease in service charges income of $148 thousand resulted from lower service charges collected on deposit accounts. Gain on sale of investments increased $34 thousand and other income decreased $53 thousand primarily from decreased debit card commissions and other fees received.

Other Expense

The following table summarizes other expense for the three months ended September 30, 2016 and 2015 and the changes between periods.

	Three Months Ended September 30,
	2016		2015		% Change
	(Dollars in thousands)
OTHER EXPENSE:
Salaries and employee benefits	$	3,341	$	3,173		5.3	%
Occupancy and equipment		1,150		1,282		(10.3	)
Federal insurance premiums		140		136		2.9
Advertising		89		97		(8.2	)
Professional services		459		273		68.1
Real estate owned expense		50		84		(40.5	)
Other operating expense		451		491		(8.1	)
Total other expense	$	5,680	$	5,536		2.6

Other expenses increased $144 thousand, or 2.6%, to $5.7 million for the three-month period ended September 30, 2016 from the same period in 2015. The increase in other expense for the third quarter of 2016 compared to 2015 resulted from increases in salaries and benefits, FDIC insurance and professional services of $358 thousand offset by decreases in occupancy and equipment, marketing expenses, REO and other expenses of $214 thousand.

The following table summarizes other expense for the nine months ended September 30, 2016 and 2015 and the changes between the periods.

	Nine Months Ended September 30,
	2016		2015		% Change
	(Dollars in thousands)
OTHER EXPENSE:
Salaries and employee benefits	$	9,994	$	9,640		3.7	%
Occupancy and equipment		3,573		3,779		(5.4	)
Federal insurance premiums		429		415		3.4
Advertising		281		323		(12.9	)
Professional services		1,060		821		29.1
Real estate owned expense		98		38		157.9
Other operating expense		1,324		1,334		(0.7	)
Total other expense	$	16,759	$	16,350		2.5

Other expenses increased $409 thousand, or 2.5%, to $16.8 million for the nine-month period ended September 30, 2016 from the same period in 2015. The increase in the nine-month period of 2016 compared to 2015 resulted from increases in salaries and benefits, FDIC insurance, professional services and REO expenses of $667 thousand offset by decreases in occupancy and equipment, advertising and other expenses of $258 thousand.

Income Taxes

Income taxes decreased $51 thousand to $793 thousand for an effective tax rate of 31.8% for the three months ended September 30, 2016, compared to $844 thousand for an effective tax rate of 33.6% from the same period in 2015. The decrease in the effective tax rate resulted from by a change in the mix of assets with a tax preference offset by higher net income before taxes.

Income taxes increased $14 thousand to $2.6 million for an effective tax rate of 33.1% for the nine months ended September 30, 2016, compared to $2.6 million for an effective tax rate of 33.5% from the same period in 2015. The decrease in the effective tax rate resulted from by a change in the mix of assets with a tax preference offset by higher net income before taxes.

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 September 30, 2016, cash and cash equivalents totaled $145.5 million and securities classified as available-for-sale whose market value exceeds our cost, which provide additional sources of liquidity, totaled $40.8 million. In addition, at September 30, 2016, we had the ability to borrow a total of approximately $302.1 million from the Federal Home Loan Bank of New York.

At September 30, 2016, we had $77.5 million in loan commitments outstanding, which included $31.6 million in undisbursed loans, $25.6 million in unused home equity lines of credit and $20.3 million in commercial lines and letters of credit. Certificates of deposit due within one year of September 30, 2016 totaled $123.6 million, or 65.2% 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 September 30, 2016, the Bank exceeded all of its regulatory capital requirements with Tier 1 leverage capital of $101.5 million, or 9.47% of total adjusted assets, which is above the required level of $42.9 million or 4.0%; common equity Tier 1 risk-based capital of $101.5 million, or 18.63% of total adjusted assets which is above the required level of $24.5 million or 4.5%; Tier 1 risk-based capital of $101.5 million, or 18.63% of total adjusted assets which is above the required level of $32.7 million or 6.0%; and total risk-based capital of $104.8 million, or 19.23% of risk-weighted assets, which is above the required level of $43.6 million or 8.0%. The Bank is considered a “well-capitalized” institution under the applicable prompt corrective action regulations.

At September 30, 2016, the Company had the following levels of regulatory capital: Tier 1 leverage capital ratio 10.64% of total adjusted assets, common equity Tier 1 risk-based capital ratio of 20.86% of risk-weighted assets; Tier 1 risk-based capital ratio of 20.86% of risk-weighted assets and total risk-based capital ratio 21.47% of risk-weighted assets.

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.

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

	At June 30, 2016 Percentage Change in Estimated Net Interest Income Over
	12 Months			24 Months
	(dollars in thousands)
200 basis point increase in rates	$	2,668		$	7,899
100 basis point decrease in rates		(381	)		(2,128	)

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 be positively 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 June 30, 2016 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	$	116,352	$	(23,769	)		(16.96	)%		11.77	%		(131	)bp
200		127,145		(12,976	)		(9.26	)		12.48			(60	)
100		135,566		(4,555	)		(3.25	)		12.95			(13	)
50		138,290		(1,831	)		(1.31	)		13.05			(3	)
0		140,121		─			─			13.08			─
(50)		139,814		(307	)		(0.22	)		12.93			(15	)
(100)		137,257		(2,864	)		(2.04	)		12.62			(46	)

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.

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 and nine months ended September 30, 2016 and 2015, 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 September 30, 2016 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.

On July 22, 2016, Robert Strougo, a purported Ocean Shore stockholder, filed a putative class action lawsuit in the Superior Court for the State of New Jersey, Cape May County, against Ocean Shore, the members of the Ocean Shore board and OceanFirst on behalf of all Ocean Shore public stockholders. The lawsuit generally alleges that the members of the Ocean Shore board breached their fiduciary duties by approving the merger agreement because the transactions contemplated by the merger agreement with OceanFirst are procedurally flawed and financially inadequate, certain terms in the merger agreement are preclusive and unfair, and certain members of the Ocean Shore board are conflicted. Plaintiff further alleges that OceanFirst aided and abetted such breaches. The lawsuit seeks to enjoin the merger, as well as unspecified money damages, costs and attorney’s fees and expenses. On September 7, 2016, plaintiff filed an amended complaint bringing disclosure claims alleging that OceanFirst’s registration statement on Form S-4 omitted certain material information. Although the defendants believe that they have meritorious defenses to the plaintiff’s claims, defendants and plaintiffs agreed to the terms of a settlement on October 10, 2016 whereby additional disclosures were made in the Registration Statement. The terms of the settlement are subject to, among other things, further documentation and Court approval.

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, 2015.

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

The Company did not repurchase any of its common stock during the three months ended September 30, 2016.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

2.1	Agreement and Plan of Merger, dated as of July 12, 2016, by and among OceanFirst Financial Corp., Ocean Shore Holding Co. and Masters Merger Sub Corp. (incorporated by reference to Exhibit 2.1 to Ocean Shore’s Current Report on Form 8-K, filed July 14, 2016).

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 Officer.

101.0	The following materials from the Ocean Shore Holding Co. Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 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.

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: November 4, 2016	/s/ Steven E. Brady
	Steven E. Brady
	President and Chief Executive Officer

Date: November 4, 2016	/s/ Donald F. Morgenweck
	Donald F. Morgenweck
	Chief Financial Officer and Senior Vice President