(12) Incentive Plan

The Company has established the Amended and Restated OceanFirst Financial Corp. 1997 Incentive Plan (the “Incentive Plan”) which authorizes the granting of stock options and awards of Common Stock and the OceanFirst Financial Corp. 2000 Stock Option Plan which authorizes the granting of stock options. On April 24, 2003 the Company’s shareholders ratified an amendment of the OceanFirst Financial Corp. 2000 Stock Option Plan which increased the number of shares available under option. On April 20, 2006 the OceanFirst Financial Corp. 2006 Stock Incentive Plan was approved which authorizes the granting of stock options or awards of common stock. On May 5, 2011, the OceanFirst Financial Corp. 2011 Stock Incentive Plan was approved which also authorizes the granting of stock options or awards of common stock. The purpose of these plans is to attract and retain qualified personnel in key positions, provide officers, employees and non-employee directors (“Outside Directors”) with a proprietary interest in the Company as an incentive to contribute to the success of the Company, align the interests of management with those of other stockholders and reward employees for outstanding performance. All officers, other employees and Outside Directors of the Company and its affiliates are eligible to receive awards under the plans.

Under the 2011 Stock Incentive Plan, the Company is authorized to issue up to an additional 2,400,000 shares subject to option or, in lieu of options, up to 960,000 shares in the form of stock awards. At December 31, 2013, 1,845,299 options or 738,120 awards remain to be issued. Under the 2006 Stock Incentive Plan, the Company is authorized to issue up to an additional 1,000,000 shares subject to options, or in lieu of options, up to 333,333 shares in the form of stock awards. At December 31, 2013, 32,310 options or 10,770 awards remain to be issued. All options expire 10 years from the date of grant and generally vest at the rate of 20% per year. The exercise price of each option equals the closing market price of the Company’s stock on the date of grant. The Company typically issues Treasury shares to satisfy stock option exercises.

The Company recognizes the grant-date fair value of stock options and other stock-based compensation issued to employees in the income statement. The modified prospective transition method was adopted and, as a result, the income statement includes $502,000, $442,000 and $549,000, of expense for stock option grants for the years ended December 31, 2013, 2012 and 2011, respectively. At December 31, 2013 the Company had $1.4 million in compensation cost related to non-vested awards not yet recognized. This cost will be recognized over the remaining vesting period of 2.7 years.

The fair value of stock options granted by the Company was estimated through the use of the Black-Scholes option pricing model applying the following assumptions:


	2013			2012			2011

Risk-free interest rate		1.47	%		1.40	%		3.08	%
Expected option life		7 years			7 years			7 years
Expected volatility		29	%		29	%		29	%
Expected dividend yield		3.27	%		3.47	%		3.46	%
Weighted average fair value of an option share granted during the year	$	3.01		$	2.69		$	3.14
Intrinsic value of options exercised during the year (in thousands)		11			106			10

The risk-free interest rate is based on the U.S. Treasury rate with a term equal to the expected option life. The expected option life conforms to the Company’s actual experience. Expected volatility is based on actual historical results. Compensation cost is recognized on a straight line basis over the vesting period.

A summary of option activity for the years ended December 31, 2013, 2012 and 2011 follows:


	2013					2012					2011
	Number of Shares			Weighted Average Exercise Price		Number Of Shares			Weighted Average Exercise Price		Number Of Shares			Weighted Average Exercise Price

Outstanding at beginning of year		1,732,694		$	17.62		2,043,933		$	18.21		1,855,113		$	18.75
Granted		277,625			14.68		270,250			13.83		245,575			13.86
Exercised		(5,147	)		12.63		(36,218	)		11.55		(3,766	)		11.20
Forfeited		(29,916	)		13.89		(202,928	)		18.28		(44,252	)		17.87
Expired		(234,676	)		23.28		(342,343	)		17.92		(8,737	)		15.03

Outstanding at end of year		1,740,580		$	16.47		1,732,694		$	17.62		2,043,933		$	18.21

Options exercisable		1,062,786					1,113,185					1,407,271

The following table summarizes information about stock options outstanding at December 31, 2013:


	Options Outstanding					Options Exercisable
Exercise Prices	Number of Options		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Of Options		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price

$10.00 to 13.13		316,526	5.9 years	$	10.63		204,932	5.8 years	$	10.76
13.13 to 16.26		683,425	8.2		14.13		127,225	7.5		13.86
16.26 to 19.40		182,205	4.4		16.80		172,205	4.1		16.81
19.40 to 22.53		377,370	1.5		22.10		377,370	1.5		22.10
22.53 to 25.66		181,054	2.1		23.43		181,054	2.1		23.43

		1,740,580	5.3 years	$	16.47		1,062,786	3.6 years	$	18.29

The aggregate intrinsic value for stock options outstanding and stock options exercisable at December 31, 2013 is $4,164,000 and $1,777,000, respectively.

A summary of the granted but unvested stock award activity for the years ended December 31, 2013, 2012 and 2011 follows:


	2013					2012					2011
	Number of Shares			Weighted Average Grant Date Fair Value		Number Of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value

Outstanding at beginning of year:		48,733		$	13.10		49,148		$	13.25		81,592		$	12.44
Granted		28,228			14.78		19,513			13.83		26,202			13.81
Vested		(14,296	)		13.21		(14,393	)		14.52		(58,646	)		12.38
Forfeited		(2,703	)		13.85		(5,535	)		13.20		—			—

Outstanding at end of year		59,962		$	13.84		48,733		$	13.10		49,148		$	13.25