Beacon Federal Bancorp, Inc. - FORM 10-Q

Attached files

Attached files

Beacon Federal Bancorp, Inc. Reports

Also read

file	filename
EX-32 - EXHIBIT 32 - Beacon Federal Bancorp, Inc.	ex32.htm
EX-31.1 - EXHIBIT 31.1 - Beacon Federal Bancorp, Inc.	ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - Beacon Federal Bancorp, Inc.	ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2011

o	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 001-33713


	BEACON FEDERAL BANCORP, INC.
(Exact name of registrant as specified in its charter)

	Maryland		26-0706826
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 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 o

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 o No o

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 definitions of “large accelerated filer “, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding May 3, 2011
Common Stock, par value $0.01 per share		6,380,203

BEACON FEDERAL BANCORP, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2011

TABLE OF CONTENTS


		PAGE NO.
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3

	Consolidated Balance Sheets	3

	Consolidated Statements of Operations	4

	Consolidated Statements of Changes in Stockholders’ Equity	5

	Consolidated Statements of Comprehensive Income	6

	Consolidated Statements of Cash Flows	7

	Notes to Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

Item 4. Controls and Procedures		44

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3.	Defaults Upon Senior Securities	45

Item 4.	(Removed and Reserved)	45

Item 5.	Other Information	45

Item 6.	Exhibits	45

Signatures		47

Certifications

BEACON FEDERAL BANCORP, INC.

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

	March 31,			December 31,
	2011			2010
	(Unaudited)
ASSETS
Cash and cash equivalents - cash and due from financial institutions	$	7,766		$	12,439
Securities available for sale		165,160			162,405
Securities held to maturity (fair value of $9,424 and $10,543, respectively)		9,150			10,321
Loans held for sale		618			2,692
Loans, net of allowance for loan losses of $15,896 and $15,240, respectively		800,564			792,553
Federal Home Loan Bank (“FHLB”) of New York stock		9,785			9,954
Premises and equipment, net		11,894			12,030
Accrued interest receivable		3,473			3,528
Foreclosed and repossessed assets		65			206
Bank-owned life insurance (“BOLI”)		10,727			10,639
Other assets		14,640			15,711
Total assets	$	1,033,842		$	1,032,478

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits	$	681,099		$	677,384
Federal Home Loan Bank advances		159,027			163,427
Securities sold under agreement to repurchase		70,000			70,000
Accrued interest payable and other liabilities		4,632			4,218
Capital lease obligation		7,740			7,739
Total liabilities		922,498			922,768
Commitments and contingencies (Note 9)
Preferred stock, $.01 par value, 50,000,000 shares authorized; none issued or outstanding
Common stock, $.01 par value, 100,000,000 shares authorized; 7,652,816 issued; 6,413,128 and 6,432,922 shares outstanding, respectively		76			76
Additional paid-in capital		74,527			74,092
Retained earnings-substantially restricted		52,402			51,185
Unearned Employee Stock Ownership Plan (“ESOP”) shares		(3,109	)		(3,286	)
Accumulated other comprehensive loss, net		(1,778	)		(1,866	)
Treasury stock, 1,239,688 and 1,219,894 shares at cost, respectively		(10,774	)		(10,491	)
Total stockholders’ equity		111,344			109,710
Total liabilities and stockholders’ equity	$	1,033,842		$	1,032,478

See accompanying notes to consolidated financial statements.

BEACON FEDERAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

	Three Months Ended
	March 31,
	2011			2010
Interest and dividend income:	(Unaudited)
Loans, including fees	$	10,887		$	11,612
Securities		1,478			1,967
FHLB stock		150			167
Federal funds sold and other		3			5
Total interest income		12,518			13,751
Interest expense:
Deposits		2,162			3,178
FHLB advances		1,710			1,976
Securities sold under agreement to repurchase		668			668
Lease obligation		196			196
Total interest expense		4,736			6,018
Net interest income		7,782			7,733
Provision for loan losses		979			1,780
Net interest income after provision for loan losses		6,803			5,953
Noninterest income:
Service charges		936			796
Commission and fee income		207			167
Change in cash surrender value of BOLI		88			13
Gain on sale of loans		70			113
Other-than-temporary impairment (OTTI) credit loss on securities		(111	)		(257	)
Other		312			285
Total noninterest income		1,502			1,117
Noninterest expense:
Salaries and employee benefits		3,089			2,622
Occupancy and equipment		698			592
Advertising and marketing		121			111
Telephone, delivery and postage		210			180
Supplies		62			48
Audit and examination		169			200
FDIC premium expense		360			318
Other		1,133			942
Total noninterest expense		5,842			5,013
Income before income taxes		2,463			2,057
Income tax expense		944			763
Net income	$	1,519		$	1,294
Basic and diluted earnings per share	$	0.25		$	0.21

OTTI credit loss on securities:
Total OTTI loss on securities	$	665		$	271
Portion of OTTI loss recognized in other comprehensive loss before income taxes		(554	)		(14	)
OTTI credit loss on securities	$	111		$	257

See accompanying notes to consolidated financial statements.

BEACON FEDERAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

(Dollars in thousands, except per share data)


														Accumulated
	Common Stock					Additional					Unearned			Other
	Shares			Amount		Paid-In		Retained			ESOP			Comprehensive			Treasury
	Outstanding			Issued		Capital		Earnings			Shares			(Loss)/Income			Stock			Total
Balance at the beginning of the period		6,432,922		$	76	$	74,092	$	51,185		$	(3,286	)	$	(1,866	)	$	(10,491	)	$	109,710
Net income									1,519												1,519
Other comprehensive income, net of tax															88						88
Earned ESOP shares							50					177									227
Stock-based compensation							385														385
Cash dividends $0.20 per share									(302	)											(302	)
Repurchase of common stock		(19,794	)															(283	)		(283	)
Balance at March 31, 2011		6,413,128		$	76	$	74,527	$	52,402		$	(3,109	)	$	(1,778	)	$	(10,774	)	$	111,344

See accompanying notes to consolidated financial statements.

BEACON FEDERAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

	Three Months Ended
	March 31,
	2011			2010
	(Unaudited)

Other comprehensive income (loss), before tax:
Net change in unrealized gains (losses) on available for sale securities	$	700		$	2,270
OTTI non-credit related loss on securities for which a portion of the OTTI has been recognized in income		(554	)		(14	)
Other comprehensive income before tax		146			2,256
Income tax related to other comprehensive income (loss)		(58	)		(902	)
Other comprehensive income (loss), net of tax		88			1,354
Net Income		1,519			1,294
Comprehensive income	$	1,607		$	2,648

See accompanying notes to consolidated financial statements.

BEACON FEDERAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Three Months Ended
	March 31,
	2011			2010
	(Unaudited)
Cash flows from operating activities:
Net income	$	1,519		$	1,294
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		979			1,780
Change in fair value of servicing assets		102			130
Depreciation and amortization		380			345
ESOP expense		227			160
Amortization of stock-based compensation expense		385			207
Amortization of net deferred loan costs		667			594
Net amortization of premiums and discounts on securities		318			74
Gain on sale of loans		(70	)		(113	)
Other-than-temporary impairment credit loss on securities		111			257
Originations of loans held for sale		(4,048	)		(7,637	)
Proceeds from loans held for sale		6,192			8,218
Increase in cash surrender value of BOLI		(88	)		(13	)
Net change in:
Accrued interest receivable		55			(16	)
Other assets		909			275
Accrued interest payable and other liabilities		415			(11	)
Net cash provided by operating activities		8,053			5,544
Cash flows from investing activities:
Purchase of FHLB stock		(1,686	)		(463	)
Redemption of FHLB stock		1,855			591
Securities held to maturity:
Maturities, prepayments and calls		1,162			894
Securities available for sale:
Purchases		(15,347	)		(15,389	)
Proceeds from maturity or call		12,320			17,945
Loan originations and payments, net		(9,773	)		(3,139	)
Purchase of premises and equipment		(244	)		(165	)
Proceeds from sale of foreclosed and repossessed assets		257			175
Net cash (used for) provided by investing activities	$	(11,456	)	$	449

Continued on following page

BEACON FEDERAL BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

Continued

	Three Months Ended
	March 31,
	2011			2010
	(Unaudited)
Cash flows from financing activities:
Net change in deposits	$	3,715		$	5,900
Proceeds from FHLB advances		151,600			12,500
Repayment of FHLB advances		(156,000	)		(14,692	)
Cash dividends		(302	)		(303	)
Repurchase of common stock		(283	)		-
Net cash (used for) provided by financing activities		(1,270	)		3,405
Net change in cash and cash equivalents		(4,673	)		9,398
Cash and cash equivalents at beginning of period		12,439			12,993
Cash and cash equivalents at end of period	$	7,766		$	22,391
Supplemental cash flow information:
Interest paid	$	4,765		$	6,012
Income taxes paid	$	60		$	544
Real estate and repossessions acquired in settlement of loans	$	116		$	222

See accompanying notes to consolidated financial statements.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Basis of Presentation

The accompanying unaudited interim consolidated financial statements include the accounts of Beacon Federal Bancorp, Inc. (the “Company”), a financial holding company that owns and operates Beacon Federal (the “Bank”), and have been prepared in accordance with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, do not include all disclosures necessary for a complete presentation of the financial statements in conformity with U.S. generally accepted accounting principles. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the results of operations for the interim periods. The results of operations for the quarter ended March 31, 2011 are not necessarily indicative of the results that may be expected for the entire year or any other interim period.

Certain amounts in the prior period consolidated financial statements have been reclassified to conform with the current presentation. The reclassifications made to the prior year have no impact on the net income or overall presentation of the consolidated financial statements.

Note 2 – Significant Accounting Estimates and Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management has identified the allowance for credit losses, the carrying value of securities and income taxes to be the accounting areas that require the most subjective and complex judgments, and as such could be the most subject to revision as new information becomes available. Actual results could differ from those estimates.

Securities

Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale are carried at fair value, with unrealized gains and losses reported in other comprehensive income, net of tax. The Company does not purchase securities for trading purposes.

The Bank is a member of the Federal Home Loan Bank of New York. The required investment in the common stock is based upon a certain percentage of the Bank’s assets and advances. Federal Home Loan Bank stock is carried at cost, which represents redemption value, and is periodically evaluated for impairment based on ultimate recovery of par value. Dividends received on such stock are reported as income.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized using the interest method based upon anticipated prepayments. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Declines in the fair value of securities below their cost that are other-than-temporary are reflected as realized losses. In estimating if losses are other-than-temporary, management considers: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) the Company’s intent to sell the security or whether it is more likely than not that it will be required to sell the security before the anticipated recovery of its remaining amortized cost basis and (4) evaluation of cash flows to determine if they have been adversely affected.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Allowance for Loan Losses

The adequacy of the allowance for loan losses for all loan classes is determined by management based upon an evaluation and review of the credit quality of the loan portfolio, consideration of historical loan loss experience, relevant internal and external factors that affect the collection of a loan, and other pertinent factors. All loan losses are charged to the related allowance and all recoveries are credited to it. Additions to the allowance for loan losses are provided by charges to income based on various factors which, in our judgment, deserve current recognition in estimating probable losses. The allowance for loan losses consists of two components:

(1)

specific allowances established for any impaired loans for which the carrying value of the loan exceeds the fair value of the collateral or the present value of expected future cash flows or loans otherwise adversely classified; and

(2)

general allowances for loan losses for each loan type based on the historical loan loss experience for the last four years, including qualitative adjustments to historical loss experience, maintained to cover uncertainties that affect our estimate of probable losses for each loan type. Portions of the general allowance may be allocated for specific credits; however, the entire allowance is available for any credit that in management’s judgment should be charged-off.

We evaluate the allowance for loan losses for all loan classes based upon the combined total of the specific and general components. Generally, when the loan portfolio increases, absent other factors, the allowance for loan loss methodology for the general allowance results in a higher dollar amount of estimated probable losses than would be the case without the increase. In contrast, when the loan portfolio decreases, absent other factors, the allowance for loan loss methodology results in a lower dollar amount of estimated probable losses than would be the case without the decrease.

A general loan loss allowance is provided on all loans not specifically identified as impaired (“non-impaired loans”). The allowance is determined first based on a quantitative analysis using a loss migration methodology. The loans are stratified by type and the historical loss migration is tracked for the various stratifications. Loss experience is quantified for the most recent four years and if considered necessary by management, weighted to give more weight to the most recent losses. That loss experience is then applied to the stratified portfolio at each quarter end.

Additionally, in order to systematically quantify the credit risk impact of other trends and changes within the loan portfolio, the Bank utilizes qualitative adjustments to the migration analysis within parameters. The qualitative adjustments are based on the factors below. Generally, the factors are considered to have no significant impact to our historical migration ratios. However, if information exists to warrant adjustment to the migration analysis, changes are made in accordance with parameters supported by narrative and/or statistical analysis. Each of the factors below could be adjusted by as much as 50 basis points in either direction (positive or negative) for each loan type pool. This matrix considers the following ten factors, which are patterned after the guidelines provided under the FFIEC Interagency Policy Statement on the Allowance for Loan and Lease Losses:

●

changes in lending policies and procedures, including underwriting standards;

●

changes in collection, charge-off and recovery practices;

●

changes in the nature and volume of the loan portfolio;

●

changes in the experience, ability, and depth of lending management;

●

changes in the volume and severity of past due loans, non-accrual loans, troubled debt restructurings, and adversely classified loans;

●

changes in the value of underlying collateral for collateral-dependent loans;

●

the existence and effect of any concentrations of credit and changes in the level of such concentrations;

●

changes in the quality of our loan review system and the degree of oversight by the Board of Directors;

●

changes in current, national and local economic and business conditions; and

●

the effect of other external factors such as competition and legal and regulatory requirements.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A loan is impaired when full payment under the loan terms is not expected. Multi-family, commercial business and commercial real estate loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. The Bank is subject to periodic examination by regulatory agencies that may require the Bank to record increases in the allowances based on their evaluation of available information. There can be no assurance that the Bank’s regulators will not require further increases to the allowances.

Income Taxes

Provisions for income taxes are based on taxes currently payable or refundable, and deferred taxes which are based on temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are reported in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled.

New Accounting Pronouncements

In July 2010, the FASB issued ASU No. 2010-20, “Receivables (Topic 310) – Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” The ASU expands the disclosures about the credit quality of financing receivables and the related allowance for credit losses. The ASU also requires disaggregation of existing disclosures by portfolio segment. The amendments that require disclosures as of the end of a reporting period are effective for periods ending on or after December 15, 2010. The amendments that require disclosures about activity that occurs during a reporting period are effective for periods beginning on or after December 15, 2010. The adoption of this guidance on December 31, 2010 expanded the Company’s disclosures surrounding credit quality of financing receivables and the related allowance for credit losses.

In April 2011, the FASB issued ASU No. 2011-2, “Receivables (Topic 310) – A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.” The ASU provides additional guidance to creditors for evaluating whether a modification or restructuring of a receivable constitutes a troubled debt restructuring (“TDR”) by clarifying the existing guidance on whether (1) the creditor has granted a concession and (2) whether the debtor is experiencing financial difficulties, which are the two criteria used to determine whether a modification or restructuring is a TDR. The ASU:

●	Provides additional guidance on determining whether a creditor has granted a concession, including guidance on collection of all amounts due, receipt of additional collateral or guarantees from the debtor, and restructuring the debt at a below-market rate;

●	Includes factors and examples for creditors to determine whether an insignificant delay in payment is considered a concession;

●	Prohibits creditors from using the borrower’s effective rate test in ASC 470-50, Debt, Modifications and Extinguishment, to evaluate whether a concession has been granted to the borrower;

●	Adds factors for creditors to use to determine whether the debtor is experiencing financial difficulties; and

●	Ends the FASB’s deferral of the additional disclosures about TDR activities required by ASU 2010-20.

This ASU is effective for the first interim period beginning on or after June 15, 2011. The Company is currently evaluating the impact this new ASU will have on the financial statements.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 3 – Earnings Per Share

Earnings per share are based upon the weighted-average shares outstanding. ESOP shares, which have been committed to be released and stock options, to the extent dilutive, are considered outstanding. Under the treasury stock method, stock options are dilutive when the average market price of the Company’s common stock and effect of any unamortized compensation expense exceeds the option price during the period. In addition, proceeds from the assumed exercise of dilutive stock options and related tax benefit are assumed to be used to repurchase common stock at the average market price during the period. There were approximately 154,000 anti-dilutive stock options outstanding at March 31, 2011 that were excluded from the calculation below. There were no anti-dilutive stock options outstanding at March 31, 2010. The basic and diluted earnings per share are summarized as follows (amounts in thousands, except per share data):


	Three Months Ended
	March 31,
	2011		2010

Basic earnings per share:

Net income	$	1,519	$	1,294
Less dividends paid:
Common stock		298		295
Participating securities		4		8

Undistributed earnings	$	1,217	$	991

Weighted-average basic shares outstanding		6,038		5,987
Add: weighted-average participating securities outstanding		73		155
Total weighted-average basic shares and participating securities outstanding		6,111		6,142

Distributed earnings per share	$	0.05	$	0.05
Undistributed earnings per share		0.20		0.16
Net income per share	$	0.25	$	0.21

Diluted earnings per share:

Undistributed earnings	$	1,217	$	991

Total weighted-average basic shares and participating securities outstanding		6,111		6,142
Add: Dilutive stock options		108		14
Total weighted-average diluted shares and participating securities outstanding		6,219		6,156


Distributed earnings per share	$	0.05	$	0.05
Undistributed earnings per share		0.20		0.16
Net income per share	$	0.25	$	0.21

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 4 – Securities

The amortized cost, unrealized gross gains and losses and fair values of securities at March 31, 2011 were as follows (dollars in thousands):


			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
March 31, 2011	Cost		Gains		Losses			Value

Held to maturity:
Debt securities:
Mortgage-backed securities - Residential	$	3,499	$	141	$	-		$	3,640
Collateralized mortgage obligations - Private issuer		3,476		50		(64	)		3,462
Collateralized mortgage obligations - Government agency		2,175		147		-			2,322
Total	$	9,150	$	338	$	(64	)	$	9,424

Available for sale:
Debt securities:
Treasuries	$	100	$	-	$	(1	)	$	99
Agencies		7,997		19		(62	)		7,954
Pooled trust preferred securities		11,500		-		(5,527	)		5,973
Mortgage-backed securities - Residential		43,163		1,538		(293	)		44,408
Collateralized mortgage obligations - Private issuer		14,609		143		(904	)		13,848
Collateralized mortgage obligations - Government agency		90,653		2,243		(18	)		92,878
Total	$	168,022	$	3,943	$	(6,805	)	$	165,160

Mortgage-backed securities and collateralized mortgage obligations consist of residential mortgage securities and are backed by single-family mortgage loans. The Company does not have any such securities backed by commercial real estate loans.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The amortized cost, unrealized gross gains and losses and fair values of securities at December 31, 2010 were as follows (dollars in thousands):


			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2010	Cost		Gains		Losses			Value

Held to maturity:
Debt securities:
Mortgage-backed securities - Residential	$	3,726	$	139	$	-		$	3,865
Collateralized mortgage obligations - Private issuer		4,264		41		(123	)		4,182
Collateralized mortgage obligations - Government agency		2,331		165		-			2,496
Total	$	10,321	$	345	$	(123	)	$	10,543

Available for sale:
Debt securities:
Treasuries	$	100	$	-	$	-		$	100
Agencies		7,997		45		(55	)		7,987
Pooled trust preferred securities		11,566		-		(6,120	)		5,446
Mortgage-backed securities - Residential		41,677		1,613		(256	)		43,034
Collateralized mortgage obligations - Private issuer		15,547		442		(1,010	)		14,979
Collateralized mortgage obligations - Government agency		88,528		2,399		(68	)		90,859
Total	$	165,415	$	4,499	$	(7,509	)	$	162,405

Maturities of debt securities at March 31, 2011 are summarized as follows (dollars in thousands):


	Held to Maturity				Available for Sale
March 31, 2011	Amortized Cost		Fair Value		Amortized Cost		Fair Value

Due within one year	$	-	$	-	$	-	$	-
Due after one through five years		-		-		8,097		8,053
Due after five through ten years		-		-		-		-
Due after ten years		-		-		11,500		5,973
		-		-		19,597		14,026
Mortgage-backed securities - Residential		3,499		3,640		43,163		44,408
Collateralized mortgage obligations - Private issuer		3,476		3,462		14,609		13,848
Collateralized mortgage obligations - Government agency		2,175		2,322		90,653		92,878
	$	9,150	$	9,424	$	168,022	$	165,160

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows (dollars in thousands):

	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
March 31, 2011	Value		loss			Value		loss			Value		loss

Treasuries	$	99	$	(1	)	$	-	$	-		$	99	$	(1	)
Agencies		1,932		(62	)		-		-			1,932		(62	)
Pooled trust preferred securities		-		-			5,973		(5,527	)		5,973		(5,527	)
Mortgage backed securities - Residential		12,992		(293	)		-		-			12,992		(293	)
CMOs - Private issuer		1,822		(47	)		9,031		(921	)		10,853		(968	)
CMOs - Government Agency		9,594		(18	)		-		-			9,594		(18	)
	$	26,439	$	(421	)	$	15,004	$	(6,448	)	$	41,443	$	(6,869	)

	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
December 31, 2010	Value		loss			Value		loss			Value		loss

Agencies	$	1,940	$	(55	)	$	-	$	-		$	1,940	$	(55	)
Pooled trust preferred securities		-		-			5,446		(6,120	)		5,446		(6,120	)
Mortgage backed securities - Residential		13,620		(256	)		-		-			13,620		(256	)
CMOs - Private issuer		-		-			12,145		(1,133	)		12,145		(1,133	)
CMOs - Government Agency		9,357		(68	)		-		-			9,357		(68	)
	$	24,917	$	(379	)	$	17,591	$	(7,253	)	$	42,508	$	(7,632	)

No assurance can be made that the credit quality of the securities with unrealized losses at March 31, 2011 will not deteriorate in the future which may require future reductions in income for other-than-temporary impairment (“OTTI”) credit losses.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Pooled Trust Preferred Securities (PTPS) (6 issues with unrealized loss at March 31, 2011). The unrealized losses on the Company’s pooled trust preferred securities, which are backed by financial institution issuers, were caused by general market conditions for financial institutions, which is an industry sector that is relatively out of favor, and the resulting lack of liquidity in the market for securities issued by or backed by financial institutions. Management of the Company does not intend to sell the securities and does not believe the Company will be required to sell the securities before recovery of their amortized cost basis, which may be upon maturity. The Company used a discounted cash flow (“DCF”) analysis to provide an estimate of the present value of expected future cash flows which was more than the carrying amount for three of the six PTPS with unrealized losses. The predominate factor in the present value of expected cash flows being greater than the carrying amount was the Company holding senior tranche positions in those securities, providing a priority in receipt of the cash flows estimated to be collected. Accordingly, the Company did not consider the unrealized losses on those three securities to be other-than-temporary credit-related losses at March 31, 2011.

Our PTPS were rated “C” (below investment grade), or lower, and the lowest was rated “CCC” (highly vulnerable, perhaps in bankruptcy or in arrears but still continuing to pay out on obligations), as discussed below under the caption “Other-Than-Temporary Impairments.”

Mortgage-backed Securities (5 issues with unrealized loss at March 31, 2011) and Collateralized Mortgage Obligations (9 issues with unrealized loss at March 31, 2011). The unrealized losses on the Company’s mortgage-backed securities and collateralized mortgage obligations were caused primarily by decreased liquidity and larger non-credit risk premiums for these securities. Management of the Company does not intend to sell the securities and does not believe the Company will be required to sell the securities before recovery of their amortized cost basis, which may be upon maturity. Accordingly, the Company did not consider the unrealized losses on those securities to be other-than-temporary credit-related losses at March 31, 2011.

Mortgage-backed securities, and to a lesser extent, collateralized mortgage obligations (CMOs) are issued by federal agencies, primarily FNMA and FHLMC, and private issuers. Of the Company’s fifty-three CMOs, forty are government agency and thirteen are privately issued. Of the $986,000 of unrealized losses on CMOs, $968,000 of the losses are on privately issued securities, which generally carry a higher yield and greater degree of credit risk and liquidity risk than agency issues. Three privately issued CMOs with unrealized losses were rated investment grade or better and four privately issued CMOs were rated less than investment grade (including three subprime securities) with the lowest rated “Caa3.”

Agencies (1 issue with unrealized loss at March 31, 2011). The unrealized loss on the Company’s agency security was caused primarily by one agency security that was purchased for Community Redevelopment Act purposes and held for collateral with the Senior Housing Crime Prevention Foundation. The agency security has a one-time call in 2011, and if not called the agency security matures in 2015.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Individual debt securities in an unrealized loss position greater than 12 months and below investment grade with the lowest rating by security type as of March 31, 2011, are as follows (dollars in thousands):

Description	Class		Amortized Cost		Fair Value		Unrealized Loss			Lowest Credit Rating
CMOs - Private Issuer:
CWALT 2006-19CB		A14	$	3,440	$	3,177	$	(263	)	CCC
First Horizon ALT 2006		1A1		1,924		1,710		(214	)	Caa3
JPMMT 2007-S3		2A3		1,853		1,806		(47	)	CC
ARMT 2005-3		4A1		2,897		2,516		(381	)	Caa1
				10,114		9,209		(905	)

Trust Preferred Securities:
Alesco Preferred Funding Ltd		A-1		2,094		1,386		(708	)	CCC+
Alesco Preferred Funding IV		B-1		545		151		(394	)	C
MMCAPS Fund XVIII Ltd		A-1		2,705		1,683		(1,022	)	CCC-
US Capital Funding III 12/01/35		A-2		2,966		960		(2,006	)	CCC-
MM Community Funding IX		A-1		2,638		1,673		(965	)	CCC-
US Capital Funding I 05/01/34		B-2		551		120		(431	)	Caa1
				11,499		5,973		(5,526	)
			$	21,613	$	15,182	$	(6,431	)

The Company’s ten investment securities that are in an unrealized loss position and rated below investment grade were all originally purchased at investment grade. Beginning with the second half of 2008, factors outside the Company’s control impacted the fair value of these securities and will likely continue to do so for the foreseeable future. These factors include, but are not limited to, issuer credit deterioration, issuer deferral and default rates, potential failure or government seizure of underlying financial institutions, ratings agency actions, and regulatory actions. As a result of changes in these and various other factors during 2009 and 2010, Moody’s Investors Service and Standard & Poor’s downgraded multiple CMO and Trust Preferred Securities, including securities that are held by the Company. Of the Company’s fifty-three CMOs, four are now considered to be below investment grade and in an unrealized loss position. All six of the Company’s trust preferred securities are now considered to be below investment grade and in an unrealized loss position. The deteriorating economic, credit and financial conditions experienced in 2008 and carrying through the first quarter of 2011 have resulted in illiquid and inactive financial markets and severely depressed prices for these securities.

The below investment grade for those securities in the table above was only one factor evaluated in determining whether it was appropriate to recognize an other-than-temporary impairment. Since the securities were below investment grade, we performed additional cash flow analysis in determining if the unrealized losses on the below investment grade securities are considered to be other-than-temporary.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Of our four CMOs in unrealized loss positions with below investment grade rating, we have determined that all but one are other-than-temporarily impaired. The ARMT 2005-3 investment is not considered other-than-temporarily impaired due to management not having an intention to sell the investment and not believing we will be required to sell the investment before recovery of its amortized cost basis and the underlying mortgages experiencing a relatively low amount of delinquencies and foreclosures of 7.5% and an average FICO score of 741 for the underlying mortgage borrowers.

Of the six PTPS securities in unrealized loss positions with below investment grade rating, we have determined that three are other-than-temporarily impaired. The Alesco Preferred Funding Ltd Class A-1, MMCAPS Fund XVIII Ltd and MM Community Funding IX investments are not considered other-than-temporarily impaired due to management not having an intention to sell the investments and not believing we will be required to sell the investments before recovery of their amortized cost basis and the underlying collateral not deteriorating. Due to uncertainty in the credit markets broadly, and the lack of both trading and new issuance in pooled trust preferred securities, market price indications generally reflect the illiquidity in these markets and not the credit quality of the individual securities. Due to this illiquidity, it is unlikely that the Company would be able to recover its investment in these securities if they were sold at this time. The Company has the intent and ability to hold these securities until a recovery of amortized cost basis, which may be at maturity. Based on an assessment of the credit quality of the underlying issuers and the Company’s senior tranche positions in the three trust preferred securities, we did not consider the investment in these securities to be other-than-temporarily impaired at March 31, 2011. The Company will continue to monitor the market price of these securities and the default rates of the underlying issuers and continue to evaluate these securities for possible other-than-temporary impairment.

Other-Than-Temporary Impairments. In estimating other-than-temporary impairment losses, management considers: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) the Company’s intent to sell the security or whether it is more likely than not that it will be required to sell the security before the anticipated recovery of its remaining amortized cost basis and (4) evaluation of cash flows to determine if they have been adversely affected.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

OTTI credit losses on debt securities recognized in noninterest income during the three months ended March 31, 2011 and OTTI non-credit losses recognized in accumulated other comprehensive loss (“AOCL”) at March 31, 2011 are summarized in the table below. Also included in the table is the lowest credit rating of each security and the percentage of defaults and delinquencies in the underlying banks and loans supporting each trust preferred and CMO security, respectively, as of March 31, 2011 (dollars in thousands):


			OTTI Credit		Non-Credit		Lowest
	Fair		Loss During		Loss in AOCL		Credit	Default /
Description	Value		the Quarter		March 31, 2011		Rating	Delinquency
Trust preferred securities:
US Capital Funding III 12/01/35	$	960	$	-	$	2,006	CCC-		29.7	%
Alesco Preferred Funding IV		229		33		317	C		44.7	%
US Capital Funding I 05/01/34		120		-		431	Caa1		18.9	%
		1,309		33		2,754
Collateralized mortgage obligations:
CWALT 2006-19CB		3,177		49		263	CCC		32.6	%
First Horizon Alt 2006		1,710		29		214	Caa3		14.9	%
JPMMT 2007-S3		1,806		-		47	CC		22.4	%
		6,693		78		524
	$	8,002	$	111	$	3,278

For the quarter ended March 31, 2010, there was OTTI credit loss of $232,000 related to two trust preferred securities and OTTI credit loss of $25,000 related to two collateralized mortgage obligations.

The Company recognized an OTTI credit loss on trust preferred securities of $33,000 during the quarter ended March 31, 2011. The Company used a DCF analysis to provide an estimate of the trust preferred securities OTTI credit loss, which resulted from the fair value amount being less than the carrying amount. Inputs to the discount model included default rates, deferrals of interest, over-collateralization tests, interest coverage tests and other factors. For debt securities with credit ratings below “AA” (not high quality), the Company discounts the expected cash flows at the current yield used to accrete the beneficial interest in accordance with FASB ASC 325-40-35, “Investments-Other-Beneficial Interests in Securitized Financial Assets.” The accretable yield for the beneficial interest on the date of evaluation is the excess of estimated cash flows over the beneficial interest’s reference amount. The reference amount is equal to the initial investment minus cash received to date minus other-than-temporary impairments recognized to date plus the yield accreted to date. The increase in the defaults and deferrals contributed to the OTTI credit loss. For those trust preferred security with OTTI credit loss, defaults and deferrals provided by a third-party broker increased by $20.9 million as of March 31, 2011 as compared to December 31, 2010.

With regard to our PTPS CDO valuations, unrealized losses are larger than OTTI for two primary reasons:

The discount rate used in assessing OTTI is the purchased yield of a bond, which is constant. Therefore, changes in OTTI are purely a function of changes in the amount and timing of projected future cash flows, but are not influenced by the market’s required rate of return for these cash flows (their discount rate). Fair value measures, however, incorporate the market’s perception of the risk of a bond’s future cash flows. Given that the credit quality of PTPS collateral has deteriorated significantly since the onset of the credit crisis, the riskiness of all PTPS CDO bonds has increased, pushing the discount rates used to value them well above their coupon rates. This risk premium is the primary reason that the fair values of most PTPS CDOs are significantly below their amortized costs.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the height of the credit bubble in late 2007 and early 2008, there was tremendous demand for PTPS CDOs, and competition among dealers for PTPS compressed collateral credit spreads to artificially tight levels. When the credit bubble burst, demand for PTPS declined and PTPS credit spreads increased. This increase in credit spreads reduced the fair value of PTPS collateral, which by extension reduced the fair value of PTPS CDOs.

Although the third party model we use captures the illiquidity premium embedded in the yields of benchmark, publicly traded PTPS, we do not incorporate the illiquidity that currently exists in the PTPS CDO market itself. The PTPS CDO market is severely dislocated and opaque, and features a small number of sophisticated hedge funds bidding for PTPS assets held by a large number of institutions. As a result, trades have occurred over a wide range of prices that we believe contain excessive discounts for distressed sales, illiquidity and complexity, and are therefore not an accurate measure of the fair value of PTPS CDOs.

The Company recognized an OTTI credit loss on collateralized mortgage obligations of $78,000 during the quarter ended March 31, 2011. The Company used a DCF analysis to provide an estimate of the OTTI credit loss, which resulted from the fair value amount being less than the carrying amount. Inputs to the DCF analysis include prepayment rate, default rate, delinquencies, loss severities and percentage of non-performing assets. For debt securities with credit ratings below “AA” (high quality), the Company discounts the expected cash flows at the current yield used to accrete the beneficial interest, which is in accordance with the subsequent measurement provisions of FASB ASC 325-40-35, “Investments-Other-Beneficial Interests in Securitized Financial Assets.” The accretable yield for the beneficial interest on the date of evaluation is the excess of estimated cash flows over the beneficial interest’s reference amount. The reference amount is equal to the initial investment minus cash received to date minus other-than-temporary impairments recognized to date plus the yield accreted to date. The increase in the percentage of delinquent loans and decrease in credit support contributed to the OTTI credit loss.

The following table summarizes the change in OTTI credit related losses on debt securities, exclusive of tax effects, for the three months ended March 31, 2011 and 2010 (dollars in thousands):

	Three Months Ended
	March 31,
	2011		2010
Credit related impairments with a portion recognized in other comprehensive loss:
Beginning balance	$	4,553	$	3,293
Credit related impairments on portions of OTTI previously recognized in other comprehensive loss		111		257
Ending balance	$	4,664	$	3,550

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 5 – Loans

Loans, net are summarized as follows (dollars in thousands):

	March 31,			December 31,
	2011			2010

Residential real estate:
1-4 family	$	180,063		$	182,832
Home equity		155,560			157,629
Total Residential real estate		335,623			340,461
Commercial :
Commercial business		87,260			85,960
Commercial real estate		156,585			146,433
Multi-family real estate		26,213			26,944
Commercial - 1-4 family real estate		10,728			10,024
Construction		23,153			22,030
Total Commercial		303,939			291,391
Consumer:
Auto - indirect		122,141			119,723
Auto - direct		23,863			25,459
Other consumer - secured		19,325			18,669
Other consumer - unsecured		7,000			7,495
Total Consumer		172,329			171,346
Gross loans		811,891			803,198

Net deferred loan costs		4,569			4,595
Allowance for loan losses		(15,896	)		(15,240	)
Loans, net of allowance for loan losses	$	800,564		$	792,553

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table details activity in the allowance for loan losses by portfolio segment for the quarter ended March 31, 2011. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories (dollars in thousands).

	Residential
	Real Estate			Commercial			Consumer			Unallocated			Total
Allowance for loan losses:
Balance at December 31, 2010	$	1,288		$	12,070		$	1,844		$	38		$	15,240
Provision for loan losses		36			746			235			(38	)		979
Charge-offs		(61	)		(40	)		(335	)		-			(436	)
Recoveries		1			-			112			-			113
Balance at March 31, 2011	$	1,264		$	12,776		$	1,856		$	-		$	15,896

Period-end allowance balance attributed to loans:
Individually evaluated for impairment	$	5		$	3,666		$	-		$	-		$	3,671
Collectively evaluated for impairment		1,259			9,110			1,856			-			12,225

Loan balance individually evaluated for impairment	$	876		$	10,358		$	-					$	11,234
Loan balance collectively evaluated for impairment		334,747			293,581			172,329						800,657
	$	335,623		$	303,939		$	172,329					$	811,891

The stratification of the non-impaired loan portfolio resulted in a quantitative general loan loss allowance of $8.1 million for both March 31, 2011 and December 31, 2010. The qualitative adjustments made to the general loan loss provision were $4.1 million at March 31, 2011 and $4.2 million at December 31, 2010.

For homogeneous loan pools, such as 1-4 family residential mortgages, home equity lines of credit and consumer loans, the Company uses payment status to identify the credit risk in these loan portfolios. Payment status is reviewed on a monthly basis by the Bank’s collection area and on a quarterly basis with respect to determining the adequacy of the allowance for loan losses.

Commercial real estate loans generally have greater credit risks compared to one- to four-family residential mortgage loans, as they typically involve large loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related real estate project and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy.

Commercial business loans involve a higher risk of default than residential loans of like duration since their repayment generally depends on the successful operation of the borrower’s business and the sufficiency of collateral, if any.

Loans secured by multi-family residential mortgages generally involve a greater degree of credit risk than one- to four-family residential mortgage loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family mortgages typically depends upon the successful operation of the related real estate property. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Construction loans generally have greater credit risk than traditional one- to four-family residential mortgage loans. The repayment of these loans depends upon the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. In the event we make a loan on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. These events may adversely affect the borrower and the collateral value of the property. Construction loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated.

Nonaccrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are automatically placed on nonaccrual status when payment of principal or interest is more than 120 days delinquent. Restructured loans are placed on nonaccrual status if collection of principal or interest in full is in doubt. Collateral-dependent loans may be placed on nonaccrual status if the estimated proceeds, less costs to sell, of the collateral is less than the carrying value of the loan.

When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. At any time a loan is less than 120 days delinquent, and we expect to collect principal and interest in full, the loan will return to accrual status.

The recorded investment in nonaccrual loans, segregated by class of loans, were as follows (dollars in thousands):

	March 31,		December 31,
	2011		2010
Residential real estate:
1-4 family	$	1,308	$	1,059
Home equity		206		158
Commercial :
Commercial business		607		984
Commercial real estate		5,295		4,633
Multi-family real estate		2,459		3,200
Commercial - 1-4 family real estate		1,500		-
Construction		-		314
	$	11,375	$	10,348

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

An aging analysis of past due loans, segregated by class of loans, as of March 31, 2011 was as follows (dollars in thousands):

													Accruing Loans
	30-59 Days		60-89 Days		90-119 Days		120 Days		Current		Total		90 or More
	Past Due		Past Due		Past Due		and Greater		Loans		Loans		Days Past Due
Residential real estate:
1-4 family	$	66	$	-	$	-	$	1,308	$	178,689	$	180,063	$	-
Home equity		550		159		127		206		154,518		155,560		127
Commercial :
Commercial business		1,782		964		21		607		83,886		87,260		21
Commercial real estate		2,424		502		-		5,295		148,364		156,585		-
Multi-family real estate		-		-		-		2,459		23,754		26,213		-
Commercial - 1-4 family real estate		-		53		95		1,500		9,080		10,728		95
Construction		-		-		-		-		23,153		23,153		-
Consumer:
Auto - indirect		1,196		76		-		-		120,869		122,141		-
Auto - direct		61		-		4		-		23,798		23,863		4
Other consumer - secured		93		-		-		-		19,232		19,325		-
Other consumer - unsecured		25		2		-		-		6,973		7,000		-
Total	$	6,197	$	1,756	$	247	$	11,375	$	792,316	$	811,891	$	247

An aging analysis of past due loans, segregated by class of loans, as of December 31, 2010 was as follows (dollars in thousands):

													Accruing Loans
	30-59 Days		60-89 Days		90-119 Days		120 Days		Current		Total		90 or More
	Past Due		Past Due		Past Due		and Greater		Loans		Loans		Days Past Due
Residential real estate:
1-4 family	$	303	$	-	$	345	$	1,059	$	181,125	$	182,832	$	345
Home equity		470		235		185		158		156,581		157,629		185
Commercial :
Commercial business		2,276		555		543		984		81,602		85,960		543
Commercial real estate		361		668		-		4,633		140,771		146,433		-
Multi-family real estate		-		-		-		3,200		23,744		26,944		-
Commercial - 1-4 family real estate		-		-		1,500		-		8,524		10,024		1,500
Construction		-		-		-		314		21,716		22,030		-
Consumer:
Auto - indirect		1,750		33		-		-		117,940		119,723		-
Auto - direct		141		7		-		-		25,311		25,459		-
Other consumer - secured		82		-		-		-		18,587		18,669		-
Other consumer - unsecured		28		6		2		-		7,459		7,495		2
Total	$	5,411	$	1,504	$	2,575	$	10,348	$	783,360	$	803,198	$	2,575

Impaired loans. Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged-off when deemed uncollectible, with the balance remaining as an impaired loan until either the full principal is received or the loan is charged-off.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Impaired loans are set forth in the following table (dollars in thousands).

	Unpaid		Recorded		Recorded
	Contractual		Investment		Investment		Total				Average		Interest
	Principal		With No		With		Recorded		Related		Recorded		Income
	Balance		Allowance		Allowance		Investment		Allowance		Investment		Recognized
March 31, 2011
Residential real estate:
1-4 family	$	876	$	-	$	876	$	876	$	5	$	877	$	1
Commercial :
Commercial business		2,345		99		1,364		1,463		943		1,473		29
Commercial real estate		7,261		2,385		2,242		4,627		1,308		4,604		2
Multi-family real estate		4,653		775		1,684		2,459		785		2,459		-
Commercial 1-4 family real estate		1,500		-		1,500		1,500		500		1,250		-
Construction		309		-		309		309		130		310		5
Total	$	16,944	$	3,259	$	7,975	$	11,234	$	3,671	$	10,973	$	37

December 31, 2010
Residential real estate:
1-4 family	$	881	$	-	$	881	$	881	$	5	$	422	$	15
Commercial :
Commercial business		4,225		245		2,593		2,838		1,333		2,376		18
Commercial real estate		6,540		2,390		1,516		3,906		846		5,321		20
Multi-family real estate		4,117		1,297		1,126		2,423		430		4,009		162
Construction		314		-		314		314		130		37		1
Total	$	16,077	$	3,932	$	6,430	$	10,362	$	2,744	$	12,165	$	216

Credit quality indicators. As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators. For non-commercial loans, management analyzes primarily historical payment experience, credit documentation and current economic trends. Additionally, for commercial loans, management tracks loans based on risk ratings. These risk ratings were last updated on March 31, 2011. We use the following definitions for risk ratings:

Special mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present risk rated classified loans by class of commercial loan (dollars in thousands).

	March 31, 2011
	Special Mention		Substandard		Doubtful
Commercial business	$	3,668	$	6,390	$	2,867
Commercial real estate		2,905		16,135		1,838
Multi-family real estate		-		2,459		-
Commercial - 1-4 family real estate		282		1,500		-
Construction		467		1,300		-
	$	7,322	$	27,784	$	4,705

	December 31, 2010
	Special Mention		Substandard		Doubtful
Commercial business	$	1,435	$	7,793	$	846
Commercial real estate		2,903		11,477		-
Multi-family real estate		-		2,561		741
Commercial - 1-4 family real estate		285		1,500		-
Construction		1,269		314		-
	$	5,892	$	23,645	$	1,587

Loan modifications. As of March 31, 2011, the Company had the following restructured loans classified by type of concession made:

Type of concession	# of Loans		Unpaid principal balance		Allocated allowance
			(Dollars in thousands)
Commercial loans - non collateral-dependent
Interest-only for 6 to 12 months		9	$	1,739	$	1,198

Commercial loans - collateral-dependent
Interest-only for 6 to 12 months		8	$	4,917	$	1,087
Interest-only for 24 months at a below-market interest rate		1		1,501		-
Term extended and interest rate reduced (reduced to market rate)		2		596		219

Residential 1-4 family loan - non collateral-dependent
Term extended and interest rate reduced to below-market rate		1	$	876	$	5

At March 31, 2011, there were $3,397,000 of restructured loans classified as nonaccrual loans and nonperforming loans. At December 31, 2010, there were $3,412,000 of restructured loans classified as nonaccrual loans and nonperforming loans.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Based on the underwriting at the time of the restructuring, the Company makes a determination whether or not the loan is a troubled debt restructuring (“TDR”). Restructured loans are not considered TDRs when the loan terms are consistent with the Company’s current product offerings and the borrowers meet the Company’s current underwriting standards with regard to financial condition, payment history and collateral.

The Company considers a TDR to be any restructured loan where a debtor’s financial difficulties leads to a concession being granted in order to maximize the probability of repayment that would not otherwise have been considered. The restructured terms must be of a nature that the debtor could not obtain similar funds with a source other than the Bank, or could only obtain similar funds at effective rates so high that it could not afford to pay them.

The Company had two TDRs totaling $2,377,000 as of March 31, 2011. A TDR of $1,501,000 was included in impaired and nonaccrual loans, while the remaining $876,000 TDR was included in impaired loans on accrual status since it is performing in accordance with the restructured terms. There are no commitments to lend additional funds on either TDR loan.

At December 31, 2010, there were two TDRs totaling $2,382,000. A TDR of $1,501,000 was included in impaired and nonaccrual loans, while the remaining $881,000 TDR was included in impaired loans on accrual status.

Note 6 – Deposits

Deposits are summarized as follows (dollars in thousands):

	March 31,		December 31,
	2011		2010

Noninterest-bearing checking	$	42,606	$	42,468
Interest-bearing checking accounts		61,836		62,757
Savings accounts		113,454		108,335
Money market accounts		140,496		142,450
Time accounts		322,707		321,374
	$	681,099	$	677,384

Note 7 – Equity Incentive Plan

As authorized by the Beacon Federal Bancorp, Inc. 2008 Equity Incentive Plan (the “2008 Plan”), the Board of Directors granted 153,735 shares of non-incentive stock options to directors, officers and employees on January 27, 2011. The options have an exercise price of $12.60 per share, vest over a three-year period and expire ten years from the date of the grant. The Company has estimated the fair value of awards under this option issuance to be $3.72 per award using the Black-Scholes pricing model. The Company has recorded $46,000 of expense related to this option issuance for 2011. Total option expense for the three months ended March 31, 2011 and March 31, 2010 was $131,000 and $48,000, respectively.

Restricted stock award expense for the three months ended March 31, 2011 and March 31, 2010 was $153,000 and $159,000, respectively.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 8 – Income Taxes

Under FASB ASC 740-10-25, “Income Taxes,” a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

At March 31, 2011, the Company had $190,000 of unrecognized tax benefits, which would affect the effective tax rate if recognized. The Company anticipates that the unrecognized tax benefits will change significantly in the next twelve months due to an expected reversal as a result of the expiration of the statute of limitations during the third quarter of 2011. We are subject to U.S. Federal income taxes, as well as State of New York, Massachusetts, Texas and Tennessee income taxes. Income tax returns filed for the tax years ended December 31, 2007 through December 31, 2009 remain open to examination by these jurisdictions.

Note 9 – Commitments and Financial Guarantees

As a financial services provider, we routinely are a party to various financial instruments with off-balance sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may, and are likely to, expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make.

The contractual amount of financial instruments with off-balance sheet risk was as follows (dollars in thousands):

	March 31, 2011					December 31, 2010
	Fixed			Variable		Fixed			Variable
	Rate			Rate		Rate			Rate
Commitments to make loans	$	44,565		$	9,358	$	12,438		$	31,019
Unused lines of credit	$	3,856		$	55,364	$	3,704		$	56,828
Range of fixed-rate commitments		3.25%-15.00	%		-		3.25%-15.00	%		-

The following instruments are considered financial guarantees and are carried at fair value. The contract amount and fair value of these instruments was as follows (dollars in thousands):

	March 31, 2011				December 31, 2010
	Contract		Fair		Contract		Fair
	Amount		Value		Amount		Value
Standby letters of credit	$	3,176	$	-	$	1,191	$	-
Limited recourse obligations related to loans sold	$	1,664	$	-	$	1,664	$	-

Loans sold to the Federal Home Loan Bank (FHLB) of New York under the Mortgage Partnership Finance program are sold with recourse. The Bank has an annual agreement that allows selling residential loans up to $80.0 million to the FHLB of New York. Approximately $48.6 million has been sold through March 31, 2011 under the current and previous agreements. Under the agreements, the Bank has a maximum credit enhancement of $1.7 million at March 31, 2011. Based upon a favorable payment history, the Bank does not anticipate recognizing any losses on these residential loans, and accordingly, has not recorded a liability for the credit enhancement.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 10 – Fair Value Measurements and Financial Instruments

Fair Value Measurements

General. The Company follows the provisions of FASB ASC 820-10, “Fair Value Measurements,” for financial assets and liabilities. FASB ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the assumptions that market participants would use in pricing the assets or liabilities (the “inputs”) into three broad levels.

The fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets and liabilities and the lowest priority (Level 3) to unobservable inputs in which little, if any, market activity exists, requiring entities to develop their own assumptions and data.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in market areas that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Valuation Techniques. Securities available for sale are carried at fair value on a recurring basis utilizing Level 1, Level 2 and Level 3 inputs. For U.S. Treasuries, the Company obtains fair values using quoted prices in the U.S. Treasury market. For agencies, mortgage-backed securities, and collateralized mortgage obligations, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, live trading levels, trade execution data, cash flows, market consensus prepayment speeds, market spreads, credit information and the U.S. Treasury yield curve.

For trust preferred securities, the Company obtains fair values using a discounted cash flow analysis. The analysis considers the structure and term of the trust preferred securities and the financial condition of the underlying financial institution issuers. Specifically, the analysis details interest rates, principal balances of note classes and underlying issuers, the timing and amount of interest and principal payments of the underlying issuers, and the allocation of the payments to the note classes. The current estimate of expected cash flows is based on the most recent trustee reports and any other relevant market information including announcements of interest payment deferrals or defaults. Assumptions used in the analysis include default rate, deferral of interest, over-collateralization test, interest coverage test and other factors. For debt securities with credit ratings below “AA” (not high quality), the Company discounts the expected cash flows at the current yield used to accrete the beneficial interest in accordance with the subsequent measurement provisions of FASB ASC 325-40-35, “Investments-Other-Beneficial Interests in Securitized Financial Assets.” The accretable yield for the beneficial interest on the date of evaluation is the excess of estimated cash flows over the beneficial interest’s reference amount. The reference amount is equal to the initial investment minus cash received to date minus other-than-temporary impairments recognized to date plus the yield accreted to date.

In determining the amount of currently performing collateral for purposes of modeling the expected future cash flows, management analyzed the default and deferral history. This review indicated significant increases in the number and amount of defaults and deferrals by the financial institution issuers. We assume that all deferrals will default, and 10% recoveries for deferrals and no recoveries for the failed banks. Additionally, management has noted the correlation between the rising levels of nonperforming loans as a percent of tangible equity plus loan loss reserves, by those issuers that have defaulted and/or, deferred interest payments. Therefore management has used this ratio as a primary indicator to project the levels of future defaults for fair value analysis purposes.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Given that the Federal Reserve Board approved PTPS as a source of Tier 1 capital in 1996, the short history of PTPSs and the scarcity of bank defaults prior to the credit crisis has left us with limited data with which to estimate recoveries. A 10% recovery was obtained for Silver State Bancorp’s PTPS, and developments in the bankruptcy proceedings for Corus Bank and Washington Mutual provide some support for an assumption of positive recoveries. However, until further recovery data emerges from the bankruptcy proceedings of numerous PTPS issuers, we believe it is prudent to assume zero recoveries for all failed banks.

With regard to currently deferring issuers, we assume that banks that have either raised significant amounts of new capital, or that have been acquired by stronger institutions, will cure within six months. For the remaining deferrals, we refer to Moody’s preferred stock research which reveals that, historically, 71% of issuers that suspended dividends eventually defaulted. Given the historically high default risk of deferring issuers, and the current stress on the banking system, we apply a conservative assumption that deferring issuers will default immediately. As it is likely that some deferring issuers will eventually cure, a development that is already underway with the acquisition of deferring banks by stronger banks, we assume a 10% recovery on projected defaults.

Subsequent to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) we expect that banks with total assets greater than $15 billion will call their PTPS within the first six months of 2013. To account for future growth and consolidation expected in the industry, we assume banks that currently have $13 billion in total assets will reach the $15 billion threshold by early 2013. We believe that profitable, well capitalized banks will begin to call PTPS with fixed rate coupons above 9%, or floating rate coupons with spreads above 325 basis points. We are assuming that these prepayments will occur sometime during 2012. In addition, we are assuming prepayments of 5% every five years to account for further industry growth and isolated prepayments unrelated to the Dodd-Frank Act.

We assume that all auction calls will fail due to the dramatic decline in value of PTPS pools below the par value of PTPS CDO liabilities.

Under the ASC 825-10-25 election, all mortgage loans originated and intended for sale in the secondary market are carried at fair value, utilizing Level 2 inputs as determined based on quotes in the secondary market of outstanding commitments to sell our loans from investors. The fair value election was made to match changes in the value of these loans with the value of the loan commitment derivatives. None of the loans held for sale are in a delinquent status. Fair value gains or losses on loans held for sale are reported on the income statement in the line “Gain on sale of loans.”

The Company estimates fair values on mortgage servicing rights using Level 2 inputs, which include discounted cash flows based on current market pricing. For purposes of measuring impairment, the rights are stratified based on the predominant risk characteristics of the underlying loans. The predominant characteristic currently used for stratification is type of loan, including coupon and loan age. The fair value of each stratification of servicing portfolio is estimated by calculating the present value of estimated future net servicing cash flows, taking into consideration actual and expected mortgage loan prepayment rates, discount rates, servicing costs, and other economic factors. A fair value analysis is also obtained from an independent third party agent. The amount of impairment recognized is the amount by which the capitalized mortgage servicing rights for a stratum exceeds their fair value.

Derivative instruments used in the ordinary course of business consist of mandatory forward sales contracts and interest rate lock commitments. The Company manages interest rate risk and hedges the interest rate lock commitments through mandatory forward sales contracts, which have fair value changes opposite to market movements. Generally, in an interest rate lock commitment, the borrower locks-in the current market rate for a fixed-rate loan. The mandatory forward sales contract is a loans sales agreement in which the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specific price on or before a specific date.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company had outstanding forward sales contracts of $2.9 million in notional value, matched against $3.1 million of interest rate lock commitments at March 31, 2011. The interest rate lock commitments included in other assets and forward sales contracts recognized in other liabilities amounted to $29,000 and $0, respectively, at March 31, 2011 and were accounted for at fair value as an undesignated derivative with a $5,000 fair value loss on the interest rate lock commitments and a $107,000 gain on the mandatory forward sales contracts recognized in noninterest income for the quarter ended March 31, 2011. The fair value of the Company’s derivative financial instruments is primarily measured by obtaining pricing from broker-dealers recognized to be market participants. The pricing is derived from market observable inputs that can generally be verified and do not typically involve significant judgment by the Company. Forward contracts and loan commitments are recorded at fair value utilizing Level 2 inputs. The Company believes that it has enough sources of liquidity to satisfy future cash requirements as they related to these derivative instruments.

Impaired loans are carried at fair value on a non-recurring basis utilizing Level 3 inputs, consisting of appraisals of underlying collateral and discounted cash flow analysis. A loan is impaired when full payment under the loan terms is not expected. Multi-family, commercial business and commercial real estate loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Real estate collateral is typically valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace, adjusted based on non-observable inputs and the related nonrecurring fair value measurement adjustments and have generally been classified as Level 3. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

Nonfinancial assets measured at fair value on a non-recurring basis include foreclosed and repossessed assets. Assets acquired through, or instead of, loan foreclosure and by repossession are initially recorded at fair value utilizing level 3 inputs based on recent appraisals less costs to sell when acquired, establishing a new cost basis. The fair value under such appraisals is determined by using one of the following valuation techniques: income, cost or comparable sales.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Assets and Liabilities Measured at Fair Value on a Recurring Basis. The following table summarizes financial assets and liabilities measured at fair value on a recurring basis at March 31, 2011, segregated by the level of the inputs within the hierarchy used to measure fair value (dollars in thousands):

	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
Assets	(Level 1)		(Level 2)		(Level 3)		Value

Available for sale securities:
Debt securities:
U.S. Treasury and agencies	$	99	$	7,954	$	-	$	8,053
Pooled trust preferred securities		-		-		5,973		5,973
Mortgage-backed securities - Residential		-		44,408		-		44,408
Collateralized mortgage obligations - Private issuer		-		13,848		-		13,848
Collateralized mortgage obligations - Government agency		-		92,878		-		92,878
	$	99	$	159,088	$	5,973	$	165,160

Loans held for sale	$	-	$	618	$	-	$	618

Mortgage servicing rights	$	-	$	976	$	-	$	976

Loan commitment derivatives	$	-	$	29	$	-	$	29

The aggregate fair value exceeded the aggregate unpaid principal balance of loans held for sale that are carried at fair value under ASC 825-10-25 by $7,000 as of March 31, 2011.

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes financial assets measured at fair value on a recurring basis at December 31, 2010, segregated by the level of the inputs within the hierarchy used to measure fair value (dollars in thousands):

	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable		Total
	Assets		Inputs		Inputs		Fair
Assets	(Level 1)		(Level 2)		(Level 3)		Value

Securities available for sale:
Debt securities:
U.S. Treasury and agencies	$	101	$	25,972	$	-	$	26,073
Pooled trust preferred securities		-		-		5,012		5,012
Residential mortgage-backed securities		-		41,253		-		41,253
Collateralized mortgage obligations - Private issuer		-		18,300		-		18,300
Collateralized mortgage obligations - Government agency		-		76,600		-		76,600
	$	101	$	162,125	$	5,012	$	167,238

Loans held for sale	$	-	$	940	$	-	$	940

Mortgage servicing rights	$	-	$	900	$	-	$	900

Loan commitment derivatives	$	-	$	79	$	-	$	79

Liabilities

Sales contract derivatives	$	-	$	17	$	-	$	17

The aggregate fair value exceeded the aggregate unpaid principal balance of loans held for sale that are carried at fair value under ASC 825-10-25 by $34,000 as of December 31, 2010.

Assets Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3). A reconciliation of the beginning and ending balances for trust preferred securities using Level 3 inputs was as follows (dollars in thousands):

	Three Months Ended March 31,
	2011			2010

Beginning balance	$	5,446		$	5,012
Capitalized interest		-			35
Principal paydowns		(32	)		(99	)
Total gains or losses (realized/unrealized)
Included in earnings		(34	)		(232	)
Included in other comprehensive income		593			972
Ending balance	$	5,973		$	5,688

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Assets Measured at Fair Value on a Non-Recurring Basis. Financial assets measured at fair value on a non-recurring basis at March 31, 2011, include impaired loans of $7.6 million, net of allowance for loan losses of $3.7 million, utilizing level 3 inputs. At December 31, 2010 there were impaired loans of $7.6 million, net of allowance for loan losses of $2.7 million, utilizing level 3 inputs. The impaired loans are collateral dependent.

Nonfinancial assets measured on a non-recurring basis at March 31, 2011 and December 31, 2010 includes foreclosed and repossessed assets of $65,000 and $206,000, respectively, utilizing Level 3 inputs. There was no provision for losses on these assets.

Assets measured at fair value on a non-recurring basis are summarized below (dollars in thousands):

	March 31, 2011				December 31, 2010
	Significant				Significant
	Unobservable				Unobservable
	Inputs		Total		Inputs		Total
	(Level 3)		Fair Value		(Level 3)		Fair Value

Impaired loans:
Residential real estate	$	876	$	876	$	881	$	881
Commercial business		1,463		1,463		2,838		2,838
Commercial real estate		4,627		4,627		3,906		3,906
Multi-family real estate		2,459		2,459		2,423		2,423
Commercial 1-4 family real estate		1,500		1,500		-		-
Construction		309		309		314		314
Foreclosed and repossessed assets:
Residential real estate		34		34		53		53
Consumer - autos		31		31		51		51
Commercial multi-family real estate		-		-		102		102

The activity in the allowance for losses on impaired loans during the quarter ended March 31, 2011 was as follows (dollars in thousands):

Balance at January 1, 2011	$	2,744
Provision for loan losses		1,171
Loans charged off		-
Recoveries		(244	)
Balance at March 31, 2011	$	3,671

BEACON FEDERAL BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Financial Instruments

Carrying amount and estimated fair values of financial instruments were as follows (dollars in thousands):

	March 31,				December 31,
	2011				2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value

Financial assets:
Cash and cash equivalents	$	7,766	$	7,766	$	12,439	$	12,439
Securities available for sale		165,160		165,160		162,405		162,405
Securities held to maturity		9,150		9,424		10,321		10,543
Loans held for sale		618		618		2,692		2,692
Loans, net		800,564		817,065		792,553		812,908
FHLB stock		9,785		N/A		9,954		N/A
Accrued interest receivable		3,473		3,473		3,528		3,528

Financial liabilities:
Deposits		681,099		686,054		677,384		683,008
Federal Home Loan Bank advances		159,027		166,310		163,427		172,049
Securities sold under agreement to repurchase		70,000		76,613		70,000		77,464
Accrued interest payable		1,463		1,463		1,492		1,492

The methods and assumptions used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, interest-bearing deposits, accrued interest receivable and payable, demand deposits, short-term debt, and variable rate loans or deposits that reprice frequently and fully. It is not practicable to determine the fair value of FHLB stock due to the restriction placed on its transferability. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of debt is based on current rates for similar financing. The fair value of off-balance sheet items is not considered material.

The discounted cash flow models used to determine fair value are significantly affected by the assumptions used, including, but not limited to, the discount rate and estimates of future cash flows.

BEACON FEDERAL BANCORP, INC.

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

Management’s discussion and analysis of financial condition and results of operations at March 31, 2011 and for the three months ended March 31, 2011 and 2010 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited Consolidated Financial Statements and the notes thereto, appearing in Part 1, Item 1 of this report

Forward-Looking Statements

When used in this Form 10-Q, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in our market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in our market area, and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Additionally, other risks and uncertainties are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the Securities and Exchange Commission (the “SEC”), which is available through the SEC’s website at www.sec.gov. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which only speak as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies

Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We believe the most complex and sensitive judgments, because of their significance to the Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 1 to the Consolidated Financial Statements in our 2010 Annual Report, filed as Exhibit 13 to our 2010 Form 10-K, describe the significant accounting estimates and policies used in preparation of the Consolidated Financial Statements. The critical accounting policies are the accounting for credit losses, the valuation of securities and the accounting for income taxes. Actual results in these areas could differ from management’s estimates. There have been no significant changes in our critical accounting estimates during the first three months of 2011.

Overview

General. Our results of operations depend mainly on our net interest income, which is the difference between the interest income earned on our loan and investment portfolios and interest expense we pay on our deposits and borrowings. Results of operations are also affected by fee income from banking operations, provisions for loan losses, gains on sales of loans and other miscellaneous income. Our noninterest expense consists primarily of compensation and employee benefits, occupancy and equipment, marketing, general administrative expenses and income tax expense.

Our results of operations are also significantly affected by general economic and competitive conditions, particularly with respect to changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially affect our financial condition and results of operations.

BEACON FEDERAL BANCORP, INC.

Economic Conditions. The national economy, as well as the local economies within our market areas, continue to be weak. The economy has been marked by high unemployment rates, rising numbers of foreclosures, declining home prices and contractions in business and consumer credit. The national unemployment rate has retreated to 8.8% in March 2011, a 90 basis point improvement from the prior year, falling below 9.0% in February 2011 for the first time since April 2009. The unemployment rate in the Company’s primary market area in New York State is slightly below the national average at 8.0% in March 2011 compared to 8.8% in March 2010. The Federal Open Market Committee has kept the federal funds rate between 0.00% and 0.25% since December 2008. The reduced federal funds rate has increased the Company’s net interest margin and net interest income. However, price competition for loans and deposits has increased.

Operating Results. Net income increased to $1.5 million for the quarter ended March 31, 2011 from $1.3 million for the quarter ended March 31, 2010. The increase in net income resulted from lower cost of funds, provision for loan losses and other-than-temporary impairments on investment securities, partially offset by lower interest income and higher noninterest expense.

Financial Condition. Total assets increased slightly by $1.4 million from December 31, 2010 to $1.03 billion at March 31, 2011 as a result of a $5.9 million increase in net loans, including loans held for sale, partially offset by a $4.7 million decrease in cash. Stockholders’ equity increased by $1.6 million, or 1.5%, to $111.3 million at March 31, 2011 from $109.7 million at December 31, 2010. The increase reflected $1.5 million of net income, $385,000 of amortization of stock related compensation and $227,000 of allocated ESOP shares, partially offset by cash dividends of $302,000 and repurchases of $283,000 of common stock.

At March 31, 2011 Beacon Federal was categorized as “well capitalized” under regulatory capital requirements.

Comparison of Financial Condition at March 31, 2011 and December 31, 2010

Cash. Cash decreased by $4.7 million to $7.8 million at March 31, 2011 from $12.4 million at December 31, 2010 due to net repayments on FHLB advances of $4.4 million.

Securities. Securities available for sale increased to $165.2 million at March 31, 2011 from $162.4 million at December 31, 2010. The increase in securities available for sale reflected primarily net purchases of $3.0 million for the period. Securities held to maturity decreased $1.2 million from principal payments received to $9.2 million at March 31, 2011. The Company intends to maintain investments at the current level by replacing maturing investments with similar AAA-rated investments.

Loans. Net loans, including loans held for sale, increased by $5.9 million to $801.2 million at March 31, 2011 from $795.2 million at December 31, 2010. For the quarter ended March 31, 2011, the Company originated $64.6 million of loans, partially offset by provision for loan losses of $979,000 and scheduled principal payments.

Through the first three months of 2011 commercial loans increased $12.5 million and consumer loans increased $1.0 million, while residential real estate loans decreased $4.8 million.

The increase in commercial loans was due to $26.9 million of originations for the quarter, which was a $152,000 increase in originations compared to the fourth quarter of 2010 and an $11.3 million, or 72.3%, increase compared to the first quarter of 2010. The increase in originations was due in part to the hiring of a new loan officer in our Chelmsford, MA branch.

The increase in consumer loans was due to $20.3 million of originations for the quarter, which was a $3.8 million, or 23.2%, increase compared to the fourth quarter of 2010 and a $2.5 million increase, or 14.1%, compared to the first quarter of 2010. The increase in consumer loan originations was due in part to a stronger Company presence at a large annual boat and RV show in Central New York. The Company continues to see potential for growth of the indirect loan portfolio by actively seeking additional automobile dealer relationships when profitable opportunities are available.

BEACON FEDERAL BANCORP, INC.

The decrease in residential loans was due to normal loan amortizations and a decrease in mortgage refinances. Originations of mortgages for the quarter were $10.5 million, a decrease of $10.1 million, or 48.8%, compared to the fourth quarter 2010 and a decrease of $1.4 million, or 11.6%, compared to the first quarter of 2010. Originations of home equity loans for the quarter were $6.9 million, a decrease of $849,000, or 11.3%, compared to the fourth quarter of 2010 and an increase of $4.2 million, or 151.3% compared to the first quarter of 2010. Home equity loan demand has been slow as many homeowners have previously refinanced their homes over the last two years. We expect the demand for residential real estate loan refinances to decrease during the near future, which may hamper our residential real estate originations.

Deposits. Deposits increased by $3.7 million to $681.1 million at March 31, 2011 from $677.4 million at December 31, 2010. Savings accounts, brokered deposits and noninterest-bearing checking accounts increased by $5.1 million, $5.1 million and $138,000, respectively. Certificates of deposit, money market, CDARS and interest-bearing checking deposits decreased $2.7 million, $2.0 million, $1.1 million and $922,000, respectively. These deposit category fluctuations reflected the Company’s efforts to continue to decrease the cost of funds by reducing the amount of rate sensitive certificates of deposit as a percentage of all deposits and targeting our marketing efforts on attracting new core accounts.

Of the net $5.1 million increase in brokered deposits for the quarter, $10.0 million is expected to be temporary, since those funds were used for pre-investing approximately three months of scheduled cash receipts from mortgage securities, in order to earn float on the difference in the brokered deposit funding interest rates versus investment return. The brokered deposits used to fund these purchases will mature in June 2011.

Borrowings. FHLB advances decreased by $4.4 million, or 2.7%, to $159.0 million at March 31, 2011 from $163.4 million at December 31, 2010 due to the call of a $5.0 million borrowing. The Company has access when necessary to alternative sources of financing, including brokered deposits, CDARS and the Borrower-in-Custody (“BIC”) program with the Federal Reserve Bank of New York.

Stockholders’ Equity. Stockholders’ equity increased by $1.6 million, or 1.5%, to $111.3 million at March 31, 2011 from $109.7 million at December 31, 2010. The increase reflected $1.5 million of net income, $385,000 of amortization of stock-related compensation and $227,000 of allocated ESOP shares, partially offset by cash dividends of $302,000 and repurchases of $283,000 of common stock.

Comparison of Operating Results for the Three Months Ended March 31, 2011 and 2010

Interest Income. Interest income was $12.5 million in the first quarter of 2011, decreasing by $1.2 million, or 9.0%, compared with the first quarter of 2010. The decrease resulted primarily from lower yields on interest earning assets along with a decrease in the average balances of interest earning assets.

Interest income on loans of $10.9 million for the first quarter decreased $725,000, or 6.2%, from the same period in the prior year. The average balance on loans decreased to $814.6 million for the quarter ended March 31, 2011 from $836.0 million for the quarter ended March 31, 2010. The average yield on loans declined 21 basis points to 5.42% for the quarter from 5.63% for the same quarter in the prior year, which reflected a decline in the yield on loans indexed to prime, partially offset by the greater proportion of higher-yielding commercial real estate, commercial business and secured consumer loans in our loan portfolio during the 2011 period compared to the 2010 period.

Interest income on securities for the quarter of $1.5 million decreased by $489,000 from the first quarter 2010, reflecting lower average yields on such securities to 3.47% from 4.41%. The average balance of securities decreased $8.2 million, or 4.5%, to $172.7 million at March 31, 2011 from $180.9 million at March 31, 2010.

Interest Expense. Interest expense decreased 21.3% to $4.7 million for the first quarter of 2011, from $6.0 million for the first quarter of 2010. The decrease in interest expense resulted from lower average rates on deposits and lower average balances of deposits and borrowings.

BEACON FEDERAL BANCORP, INC.

Interest expense on deposits decreased by $1.0 million, or 32.0%, to $2.2 million for the quarter ended March 31, 2011 from $3.2 million for the quarter ended March 31, 2010. The average rate paid on deposits decreased 57 basis points to 1.38% for the current quarter from 1.95% for the comparable quarter in 2010. The average balance of deposits decreased to $634.2 million for the quarter ended March 31, 2011 from $659.9 million for the quarter ended March 31, 2010.

Interest expense on time accounts (certificates of deposit, brokered deposits and CDARS) decreased by $867,000, or 34.7%, to $1.6 million for the quarter ended March 31, 2011 from $2.5 million for the quarter ended March 31, 2010, due primarily to a decrease of 57 basis points in average time account rates to 2.06% from 2.63% and a $63.7 million lower average balance of time accounts. Interest expense on money market accounts decreased to $262,000 from $559,000, reflecting substantially lower average rates on such accounts, 0.75% in the 2011 period compared to 1.37% in the 2010 period, and lower average balances on such accounts, $142.1 million compared to $165.9 million.

Interest expense on borrowings decreased to $2.4 million for the quarter ended March 31, 2011 from $2.6 million for the quarter ended March 31, 2010, due primarily to a lower average balance. The average balance on borrowings decreased to $233.8 million for the quarter ended March 31, 2011 from $260.5 million for the quarter ended March 31, 2010.

Net Interest Income. Net interest income increased slightly, by $49,000, to $7.8 million for the first quarter 2011. The increase in net interest income was due to a higher interest rate spread and overall average net interest-earning asset growth. Our net interest rate spread increased to 2.89% for the current quarter from 2.75% for the first quarter of 2010 and the net interest margin increased to 3.16% from 3.02%. The higher interest rate spread was attributable to a lower cost of funds. The cost of funds decreased 44 basis points, while the yield on interest-earning assets declined by 29 basis points.

Provision for Loan Losses. We recorded a provision for loan losses of $979,000 for the quarter ended March 31, 2011 compared to a provision for loan losses of $1,780,000 for the quarter ended March 31, 2010. The decrease in provision was primarily due to a decrease in the estimated allowance for losses for impaired loans as compared to the prior year first quarter. While the balance of impaired loans remained consistent, $11.2 million at March 31, 2011 compared to $11.3 million at March 31, 2010, the allowance for losses for impaired loans decreased from $5.2 million at March 31, 2010 to $3.7 million at March 31, 2011. The decrease in the allowance on impaired loans was primarily the result of charge-offs of $6.3 million of impaired loans during the fourth quarter of 2010.

Net loan charge-offs were $323,000 for the quarter ended March 31, 2011, compared to net charge-offs of $263,000 for the quarter ended March 31, 2010.

The allowance for loan losses was $15.9 million, or 1.96% of total loans at March 31, 2011 compared to $15.2 million, or 1.90% of total loans at December 31, 2010. Total nonperforming assets increased by $1.5 million to $16.6 million at March 31, 2011, compared to $15.1 million at December 31, 2010. Nonperforming assets at March 31, 2011 and December 31, 2010 were primarily secured by commercial real estate, multi-family and 1-4 family residential real estate and commercial business assets. The ratio of the allowance for loan losses to nonperforming loans was 96.07% at March 31, 2011, compared with 102.14% at December 31, 2010. The decrease in the ratio was due primarily to an increasing amount of doubtful loans.

To the best of our knowledge, we have recorded all losses that are both probable and reasonable to estimate as of March 31, 2011.

Noninterest Income. Noninterest income increased $385,000, or 34.5%, for the quarter ended March 31, 2011 to $1.5 million from $1.1 million for the quarter ended March 31, 2010. Noninterest income increased primarily due to other-than-temporary impairment losses on debt securities of $111,000 incurred during the current quarter compared to $257,000 in the prior year first quarter and a $140,000 increase in service charges income.

BEACON FEDERAL BANCORP, INC.

Other-than-temporary impairment charges for the quarter resulted from three securities, one trust preferred security and two private label collateralized mortgage obligation (“CMOs”). The extent of impairment recognized was based on the current and projected performance of the issuing banks and their ability to repay their obligation as it relates to the trust preferred security, and the current and projected delinquencies along with reduced credit support in the underlying mortgages for the CMOs. The other-than-temporary credit impairment for the quarter of $111,000 was less than 1% of the fair value of our securities portfolio at March 31, 2011.

The 17.6% increase in service charge income related primarily to an increase in debit card fees. The Bank is actively promoting debit card usage and core deposits that require debit card transactions in order to obtain an attractive rate of interest for depositors. The resulting increased debit card usage is leading to the increase in the debit card fee income. Our management team is closely monitoring a proposed rule by the Board of Governors of the Federal Reserve System that would implement the debit card interchange and processing provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which could severely limit the amount of debit card fee income that we would be able to recognize in the future.

Noninterest Expense. Noninterest expense increased by $829,000, or 16.5%, to $5.8 million for the quarter ended March 31, 2011 from $5.0 million for the quarter ended March 31, 2010. The increase in noninterest expense was due primarily to increases in salaries and benefits.

Salaries and employee benefits increased by $467,000, or 17.8%, to $3.1 million for the quarter ended March 31, 2011 from $2.6 million for the quarter ended March 31, 2010 due primarily to $272,000 in compensation increases (including bonuses and taxes), $83,000 in additional stock option expense due to two additional grants and $66,000 additional ESOP expense due to the increase in the Company’s stock price.

Income Tax Expense. The provision for income taxes was $944,000 for the quarter ended March 31, 2011, compared to $763,000 for the quarter ended March 31, 2010. The increase was due to a $406,000 increase in pre-tax income and a higher effective tax rate. Our effective tax rate was 38.3% for the quarter ended March 31, 2011 compared to 37.1% for the quarter ended March 31, 2010.

BEACON FEDERAL BANCORP, INC.

Average Balances and Yields. The following tables set forth average balance sheets, average yields and rates, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of net deferred costs, discounts and premiums that are amortized or accreted to interest income.

	For the Three Months Ended March 31,
	2011							2010
	Average Outstanding Balance		Interest Earned/Paid		Yield / Rate			Average Outstanding Balance		Interest Earned/Paid		Yield / Rate
	(Dollars in thousands)
Interest-earning assets:
Loans	$	814,641	$	10,887		5.42	%	$	835,956	$	11,612		5.63	%
Securities		172,732		1,478		3.47			180,939		1,967		4.41
FHLB stock		10,253		150		5.93			11,557		167		5.86
Interest-earning deposits		221		3		5.51			8,420		5		0.24
Total interest-earning assets		997,847		12,518		5.09			1,036,872		13,751		5.38
Noninterest-earning assets		34,044							31,666
Total assets	$	1,031,891						$	1,068,538

Interest-bearing liabilities:
Savings	$	110,012	$	135		0.50		$	60,153	$	45		0.30
Money market accounts		142,050		262		0.75			165,914		559		1.37
Checking accounts		60,928		132		0.88			48,887		74		0.61
Time accounts		321,242		1,633		2.06			384,986		2,500		2.63
Total deposits		634,232		2,162		1.38			659,940		3,178		1.95
FHLB advances		163,841		1,710		4.23			190,464		1,976		4.21
Reverse repurchase agreements		70,000		668		3.87			70,000		668		3.87
Lease obligation		7,740		196		10.27			7,736		196		10.28
Total interest-bearing liabilities		875,813		4,736		2.19			928,140		6,018		2.63

Noninterest-bearing deposits		41,330							33,432
Other noninterest-bearing liabilities		5,370							4,835
Total liabilities		922,513							966,407
Stockholders’ equity		109,378							102,131
Total liabilities and equity	$	1,031,891						$	1,068,538

Net interest income			$	7,782						$	7,733

Net interest rate spread						2.89	%						2.75	%

Net interest-earning assets	$	122,034						$	108,732

Net interest margin						3.16	%						3.02	%

Average of interest-earning assets to interest-bearing liabilities						113.93	%						111.72	%

BEACON FEDERAL BANCORP, INC.

Liquidity and Capital Resources

Our primary sources of funds consist of deposit inflows, loan repayments, advances from the Federal Home Loan Bank of New York, and maturities and sales of securities. In addition, we have the ability to collateralize borrowings in the wholesale markets. 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 seek to maintain a liquidity ratio of 8.0% or greater. For the quarter ended March 31, 2011, our liquidity ratio averaged 10.0%. We believe that we have enough sources of liquidity to satisfy our short- and long-term liquidity needs as of March 31, 2011. Excess liquid assets have been invested generally in interest-earning deposits and short- and intermediate-term securities.

Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At March 31, 2011, cash and cash equivalents totaled $7.8 million. Securities classified as available for sale, which provide additional sources of liquidity, totaled $165.2 million at March 31, 2011. On that date, we had $159.0 million of Federal Home Loan Bank advances outstanding and $1.7 million in limited recourse obligations related to loans sold, with the ability to borrow an additional $56.3 million.

At March 31, 2011, we had $53.9 million in loan commitments outstanding. In addition to commitments to originate loans, we had $60.5 million in unused lines of credit to borrowers. Certificates of deposit due within one year of March 31, 2011 totaled $208.3 million, or 30.6% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including loan and security sales, brokered deposits, CDARS, BIC and Federal Home Loan Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before March 31, 2011. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Our primary investing activity is originating loans. During the quarter ended March 31, 2011, we originated $64.6 million of loans, and during the quarter ended March 31, 2010, we originated $46.8 million of loans.

We purchased $15.3 million of securities during the quarter ended March 31, 2011, compared to $15.4 million during the quarter ended March 31, 2010.

Financing activities consist primarily of activity in deposit accounts and Federal Home Loan Bank advances. We experienced a net increase in total deposits of $3.7 million for the quarter ended March 31, 2011 compared to $5.9 million for the quarter ended March 31, 2010. Deposit flows are affected by the interest rates and products offered by us and our local competitors, and by other factors.

Federal Home Loan Bank advances decreased on a net basis by $4.4 million for the quarter ended March 31, 2011, compared to a decrease of $2.2 million for the quarter ended March 30, 2010. Historically, Federal Home Loan Bank advances have primarily been used to fund loan demand. At March 31, 2011, we had the ability to borrow up to $216.4 million ($56.3 million available) from the Federal Home Loan Bank of New York.

Banks are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. At March 31, 2011 the Bank met all capital adequacy requirements.

BEACON FEDERAL BANCORP, INC.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If an institution is only adequately capitalized, regulatory approval is required to accept brokered deposits. If an institution is undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At March 31, 2011 and December 31, 2010, the most recent regulatory notification categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

Actual and required capital amounts and ratios for the Bank are presented below (dollars in thousands):

												To Be Well
												Capitalized Under
							For Capital					Prompt Corrective
	Actual						Adequacy Purposes					Action Provisions
March 31, 2011	Amount			Ratio			Amount		Ratio			Amount		Ratio
Equity	$	99,476
Disallowed deferred tax assets		(673	)
Unrealized loss on AFS securities		1,777
Tier 1 (Core) Capital and Tangible Capital		100,580			9.71	%	$	15,540		1.50	%
General valuation allowance (1)		10,069
Deduction for low-level recourse		(1,665	)
Total Capital to risk-weighted assets	$	108,984			13.53	%	$	64,439		8.00	%	$	80,549		10.00	%
Tier 1 (Core) Capital to risk-weighted assets	$	98,915			12.28	%	$	32,219		4.00	%	$	48,329		6.00	%
Tier 1 (Core) Capital to adjusted total assets	$	100,580			9.71	%	$	41,440		4.00	%	$	51,799		5.00	%
(1) Limited to 1.25% of risk-weighted assets.
												To Be Well
												Capitalized Under
							For Capital					Prompt Corrective
	Actual						Adequacy Purposes					Action Provisions
December 31, 2010	Amount			Ratio			Amount		Ratio			Amount		Ratio
Equity	$	97,165
Disallowed deferred tax assets		(192	)
Unrealized loss on AFS securities		1,866
Tier 1 (Core) Capital and Tangible Capital		98,839			9.55	%	$	15,531		1.50	%
General valuation allowance (1)		9,981
Deduction for low-level recourse		(1,665	)
Total Capital to risk-weighted assets	$	107,155			13.42	%	$	63,877		8.00	%	$	79,847		10.00	%
Tier 1 (Core) Capital to risk-weighted assets	$	97,174			12.17	%	$	31,939		4.00	%	$	47,908		6.00	%
Tier 1 (Core) Capital to adjusted total assets	$	98,839			9.55	%	$	41,415		4.00	%	$	51,768		5.00	%
(1) Limited to 1.25% of risk-weighted assets.

BEACON FEDERAL BANCORP, INC.

Asset Quality

Classification of Assets. We regularly review our asset portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of our review of our assets at March 31, 2011, classified assets included substandard loans of $30.2 million and doubtful loans of $4.7 million. Substandard loans and doubtful loans were $26.1 million and $1.6 million, respectively, at December 31, 2010. As of March 31, 2011, we had $7.3 million of loans designated as special mention, compared to $5.9 million at December 31, 2010.

As of March 31, 2011, our largest borrower under the substandard asset category had loans secured by commercial and residential real estate in Massachusetts and New Hampshire, with a principal balance of $6.8 million. As of March 31, 2011, our largest doubtful loan was secured by numerous properties and equipment located in Central New York, with a principal balance of $2.4 million. As of March 31, 2011, our largest loan designated as special mention was secured by commercial real estate properties located in Massachusetts, with a principal balance of $1.3 million.

While we have used the same methodology in assessing the classification of loans for all periods presented, during the first quarter of 2011 in preparation for the impending change in the Bank’s regulator from the Office of Thrift Supervision (the “OTS”) to the Office of the Comptroller of Currency (the “OCC”) scheduled to occur on July 21, 2011, in addition to our recurring internal review process, we changed our additional third-party loan review to a company staffed with, among others, former OCC regulators who are experienced in the regulatory environment the Company will soon be operating under. This review has prompted the Company to enhance its loan rating process in anticipation of the regulatory change and in several instances include a previously unclassified loan as either substandard or special mention for the current quarter. This first quarter increase in criticized and classified loans did not significantly influence the Company’s allowance for loan loss as of March 31, 2011, since there was determined to be no changes in performance of the underlying loans that are newly classified and criticized requiring any significant specific loan loss provisions.

Off-Balance Sheet Arrangements

In our 2010 Annual Report, included as Exhibit 13 in our 2010 Form 10-K, we disclosed our off-balance sheet arrangements and contractual obligations. At March 31, 2011, there have been no material changes to these off-balance sheet arrangements and contractual obligations outside the ordinary course of business except as disclosed above.

Item 3. Quantitative and qualitative disclosures about market risk.

Not required for smaller reporting companies. See the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 for discussion of interest rate risk at December 31, 2010.

Item 4. Controls and procedures.

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on this evaluation, the Company’s 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 to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

BEACON FEDERAL BANCORP, INC.

In addition, there have been no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1 - Legal Proceedings.

There are no material legal proceedings to which the Company is a party or of which any of its property is subject. From time to time, the Company is a party to various legal proceedings incident to its business.

Item 1A – Risk Factors.

Not required for smaller reporting companies. See the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 for discussion of risk factors at December 31, 2010.

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

(d)

(c)

Maximum Number

Total Number of

(or Approximate

(a)

(b)

Shares (or Units)

Dollar Value) of

Total Number

Average Price

Purchased as

Shares (or Units)

of Shares

Paid per

Part of Publicly

That May Yet Be

(or Units)

Announced Plans

Purchased Under the

Period

Purchased

(or Unit)

or Programs

Plans or Programs)

January 1, 2011 through January 31, 2011

245,460

February 1, 2011 through February 28, 2011

245,460

March 1, 2011 through March 31, 2011

19,794

14.28

19,794

225,666

Total

19,794

14.28

19,794

On April 29, 2010, the Board of Directors authorized the Company’s fourth stock repurchase program of 326,669 shares.

Item 3 - Defaults Upon Senior Securities.

Not applicable.

Item 4 – (Removed and Reserved).

Item 5 - Other Information.

None

Item 6 – Exhibits.

(a) Exhibits.

3.1	Articles of Incorporation of Beacon Federal Bancorp, Inc. (1)

3.2	Bylaws of Beacon Federal Bancorp, Inc. (1)

4	Form of Common Stock Certificate of Beacon Federal Bancorp, Inc. (1)

10.1	Employee Stock Ownership Plan (1)

10.2	Employment Agreement with Ross J. Prossner (2)

BEACON FEDERAL BANCORP, INC.

10.3	Employment Agreement with J. David Hammond (2)

10.4	Employment Agreement with Darren T. Crossett (2)

10.5	Employment Agreement with Lisa M. Jones (3)

10.6	Form of Change in Control Agreement (2)

10.7	Beacon Federal Excess Benefit Plan (4)

10.8	Beacon Federal Annual Cash Incentive Plan (1)

10.9	Beacon Federal Supplemental Executive Retirement Plan (5)

10.10

Beacon Federal 2008 Equity Incentive Plan (6)

13	Annual Report to Stockholders

21	Subsidiaries of Registrant (1)

23	Consent of Independent Registered Public Accounting Firm.

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32	Statement of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1)	Incorporated by reference to the Registration Statement on Form S-1 of Beacon Federal Bancorp, Inc. (File No. 333-143522), originally filed with the Securities and Exchange Commission on June 5, 2007.

(2)	Filed with the Securities and Exchange Commission on October 4, 2007 on Form 8K.

(3)	Filed with the Securities and Exchange Commission on December 23, 2010 on Form 8K.

(4)	Filed with the Securities and Exchange Commission on October 31, 2008 on Form 8K.

(5)	Filed with the Securities and Exchange Commission on December 28, 2007 on Form 8K.

(6)	Incorporated by reference to Appendix A of the Company’s Definitive Proxy Statement for the Special Meeting of Stockholders (File No. 001-33713), as filed with the Securities and Exchange Commission on October 9, 2008.

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.

BEACON FEDERAL BANCORP, INC.

(Registrant)


DATE: May 12, 2011	BY:	Ross J. Prossner
	Ross J. Prossner, President and Chief Executive Officer

	BY:	Lisa M. Jones
	Lisa M. Jones, Senior Vice President and Chief Financial Officer

6611 Manlius Center Road, East Syracuse, New York

(Address of principal executive office)

(Zip Code)

Registrant’s telephone number, including area code (315) 433-0111