Newport Bancorp Inc - FORM 10-Q

Attached files

file	filename
EX-31.1 - EXHIBIT 31.1 - Newport Bancorp Inc	ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - Newport Bancorp Inc	ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - Newport Bancorp Inc	ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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: 0-51856

Newport Bancorp, Inc.

(Exact name of registrant as specified in its charter)

United States of America	20-4465271
State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

100 Bellevue Avenue, Newport, Rhode Island	02840
(Address of principal executive offices)	(Zip Code)

(401) 847-5500

(Registrant’s telephone number, including area code)

N/A

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No 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).

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

As of May 2, 2011 the registrant had 3,488,777 shares of common stock outstanding.

NEWPORT BANCORP, INC.

Table of Contents

		Page No.
Part I. Financial Information

Item 1.	Consolidated Financial Statements (Unaudited)

	Consolidated Balance Sheets at March 31, 2011 and December 31, 2010	1

	Consolidated Statements of Income for the Three Months Ended March 31, 2011 and 2010	2

	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2011 and 2010	3

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010	4

	Notes to Unaudited Consolidated Financial Statements	5-13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14-20

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20-21

Item 4.	Controls and Procedures	21

Part II. Other Information

Item 1.	Legal Proceedings	22

Item 1A.	Risk Factors	22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22

Item 3.	Defaults Upon Senior Securities	22

Item 4.	(Removed and Reserved)

Item 5.	Other Information	22

Item 6.	Exhibits	22

	Signatures	23

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

ASSETS

	March 31, 2011			December 31, 2010
	(Unaudited) (Dollars in thousands, except per share data)

Cash and due from banks	$	12,031		$	8,194
Short-term investments		228			1,181
Cash and cash equivalents		12,259			9,375

Securities held to maturity, at amortized cost		43,718			47,021
Federal Home Loan Bank stock, at cost		5,730			5,730
Loans		359,386			359,721
Allowance for loan losses		(3,726	)		(3,672	)
Loans, net		355,660			356,049
Premises and equipment		14,955			14,477
Accrued interest receivable		1,444			1,413
Net deferred tax asset		2,600			2,600
Bank-owned life insurance		10,807			10,705
Foreclosed real estate		365			100
Prepaid FDIC insurance		930			1,052
Other assets		1,061			1,163
Total assets	$	449,529		$	449,685

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	$	260,981		$	261,050
Short-term borrowings		1,800			3,000
Long-term borrowings		133,177			132,236
Accrued expenses and other liabilities		3,362			3,696
Total liabilities		399,320			399,982

Commitments and contingencies (Note 5)

Preferred stock, $.01 par value; 1,000,000 shares authorized; none issued		-			-
Common stock, $.01 par value; 19,000,000 shares authorized; 4,878,349 shares issued		49			49
Additional paid-in capital		50,520			50,435
Retained earnings		19,133			18,832
Unearned compensation (331,526 and 338,030 shares at
March 31, 2011 and December 31, 2010, respectively)		(2,744	)		(2,864	)
Treasury stock, at cost (1,389,572 shares)		(16,749	)		(16,749	)
Total stockholders’ equity		50,209			49,703
Total liabilities and stockholders’ equity	$	449,529		$	449,685

See accompanying notes to unaudited consolidated financial statements.

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CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended March 31,
	2011		2010
	(Unaudited) (Dollars in thousands, except share data)
Interest and dividend income:
Loans	$	4,852	$	5,017
Securities		572		645
Other interest-earning assets		7		3
Total interest and dividend income		5,431		5,665
Interest expense:
Deposits		494		712
Short-term borrowings		3		-
Long-term borrowings		1,139		1,287
Total interest expense		1,636		1,999

Net interest income		3,795		3,666
Provision for loan losses		315		314

Net interest income, after provision for loan losses		3,480		3,352

Non-interest income (loss):
Customer service fees		443		424
Net loss on sales of securities available for sale		-		(217	)
Bank-owned life insurance		102		101
Miscellaneous		9		13
Total non-interest income		554		321
Non-interest expenses:
Salaries and employee benefits		1,951		1,902
Occupancy and equipment		575		491
Data processing		395		377
Professional fees		134		117
Marketing		194		222
Foreclosed real estate		38		-
FDIC insurance		128		112
Other general and administrative		177		196
Total non-interest expenses		3,592		3,417

Income before income taxes		442		256

Provision for income taxes		141		155
Net income	$	301	$	101

Weighted-average shares outstanding:
Basic		3,308,619		3,622,368
Diluted		3,321,534		3,622,368

Earnings per share:
Basic	$	.09	$	.03
Diluted	$	.09	$	.03

See accompanying notes to unaudited consolidated financial statements.

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	CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) (Dollars in thousands)
															Accumulated
					Additional										Other			Total
	Common Stock				Paid-in		Retained		Unearned			Treasury			Comprehensive			Stockholders’
	Shares		Amount		Capital		Earnings		Compensation			Stock			Income (Loss)			Equity
Balance at December 31, 2009		4,878,349	$	49	$	50,504	$	17,032	$	(3,465	)	$	(12,590	)	$	(139	)	$	51,391
Comprehensive income:
Net income		-		-		-		101		-			-			-			101
Net unrealized gain on securities available for sale		-		-		-		-		-			-			198			198
Total comprehensive income																			299
Share-based compensation – restricted stock		-		-		-		-		95			-			-			95
Share-based compensation – options		-		-		97		-		-			-			-			97
Purchase of treasury shares
(109,700 shares)		-		-		-		-		-			(1,318	)		-			(1,318	)
ESOP shares committed to be released (6,504 shares)		-		-		11		-		65			-			-			76
Balance at March 31, 2010		4,878,349	$	49	$	50,612	$	17,133	$	(3,305	)	$	(13,908	)	$	59		$	50,640
Balance at December 31, 2010		4,878,349	$	49	$	50,435	$	18,832	$	(2,864	)	$	(16,749	)	$	-		$	49,703
Comprehensive income:
Net income		-		-		-		301		-			-			-			301
Share-based compensation – restricted stock		-				-		-		55			-			-			55
Share-based compensation – options		-		-		63		-		-			-			-			63
ESOP shares committed to be released (6,504 shares)		-		-		22		-		65			-			-			87
Balance at March 31, 2011		4,878,349	$	49	$	50,520	$	19,133	$	(2,744	)	$	(16,749	)	$	-		$	50,209

See accompanying notes to unaudited consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,
	2011			2010
	(Unaudited) (Dollars in thousands)
Cash flows from operating activities:
Net income	$	301		$	101
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		315			314
Accretion of securities		(52	)		(37	)
Net loss on sales of securities available for sale		-			217
Amortization of net deferred loan fees		(68	)		(64	)
Depreciation and amortization of premises and equipment		253			222
Share-based compensation and ESOP allocation		205			268
Income from bank-owned life insurance		(102	)		(101	)
Decrease in prepaid FDIC insurance		122			104
Net change in:
Accrued interest receivable		(31	)		14
Other assets		102			772
Accrued expenses and other liabilities		(334	)		(642	)
Net cash provided by operating activities		711			1,168

Cash flows from investing activities:
Sales of securities available for sale		-			4,749
Purchases of securities held to maturity		-			(5,975	)
Reinvested dividends on mutual funds		-			(8	)
Principal payments received on securities held to maturity		3,355			2,493
Net loan (originations) principal payments		(123	)		244
Additions to premises and equipment		(731	)		(214	)
Net cash provided by investing activities		2,501			1,289

Cash flows from financing activities:
Net decrease in deposits		(69	)		(1,819	)
Net decrease in borrowings with maturities of three months or less		(1,200	)		-
Proceeds from borrowings with maturities in excess of three months		8,000			3,000
Repayment of borrowings with maturities in excess of three months		(7,059	)		(2,057	)
Purchase of treasury stock		-			(1,318	)
Net cash used by financing activities		(328	)		(2,194	)

Net change in cash and cash equivalents		2,884			263
Cash and cash equivalents at beginning of period		9,375			19,368
Cash and cash equivalents at end of period	$	12,259		$	19,631

Supplementary information:
Interest paid on deposit accounts	$	548		$	730
Interest paid on borrowings		349			1,274
Income taxes paid, net of refunds		20			1
Transfers from loans to foreclosed real estate		265			-

See accompanying notes to unaudited consolidated financial statements.

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NEWPORT BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited consolidated interim financial statements include the accounts of Newport Bancorp, Inc. (the “Company”), its wholly-owned subsidiary, Newport Federal Savings Bank (the “Bank” or “Newport Federal”) and the Bank’s wholly-owned subsidiary, Newport Federal Investments, Inc. These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Newport Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2010. The results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

NOTE 2 – EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

In April 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-02, Receivables (Topic 310), A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This Update provides additional guidance and clarification to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring (“TDR”). The measurement of impairment will be done prospectively in the period of adoption for loans that are newly identified as TDRs upon adoption of this Update. In addition, the TDR disclosures required by ASU 2010-20, Receivables (Topic 310), Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses will be provided beginning in the period of adoption of this Update. The Company will adopt this Update on July 1, 2011 and does not expect the Update to have a material impact on its consolidated financial statements.

In April 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-03, Transfers and Servicing (Topic 860), Reconsideration of Effective Control for Repurchase Agreements. This Update provides additional guidance which affects all entities that enter into agreements to transfer financial assets that both entitle and obligate the transferor to repurchase or redeem the financial assets before their maturity. The amendment removes from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The amendment is effective for the first interim or annual period beginning on or after December 15, 2011 and should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. The Company will adopt this Update on December 31, 2011 and does not expect the Update to have a material impact on its consolidated financial statements.

NOTE 3 – SECURITIES HELD TO MATURITY

The amortized cost and estimated fair value of securities held to maturity, with gross unrealized gains and losses, follows:

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			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)
March 31, 2011

Government-sponsored enterprise
residential mortgage-backed securities	$	43,718	$	2,022	$	(63	)	$	45,677

December 31, 2010

Government-sponsored enterprise
residential mortgage-backed securities	$	47,021	$	2,300	$	(7	)	$	49,314

At March 31, 2011 and December 31, 2010, certain mortgage-backed securities were pledged to secure repurchase agreements (see Note 8).

Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	Less Than Twelve Months				Over Twelve Months
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(Dollars in thousands)
March 31, 2011

Government-sponsored enterprise
residential mortgage-backed securities	$	63	$	9,624	$	-	$	-

December 31, 2010

Government-sponsored enterprise
residential mortgage-backed securities	$	7	$	9,785	$	-	$	-

At March 31, 2011, one mortgage-backed security had an unrealized loss with aggregate depreciation of 0.6% from the Company’s amortized cost basis. Because the decline in fair value is attributable to changes in interest rates and not to credit quality, and because the Company does not intend to sell these investments and it is more likely than not that the Company will not be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2011.

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NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

The following is a summary of the balances of loans at March 31, 2011 and December 31, 2010:

	March 31,			December 31,
	2011			2010
	(Dollars in thousands)
Mortgage loans:
Residential:
One-to-four family residential	$	205,223		$	203,893
Multi-family residential		21,603			22,540
Equity loans and lines of credit		22,102			23,112
Commercial		104,056			104,531
Construction		5,875			4,948
		358,859			359,024
Commercial loans		1,463			1,638
Consumer loans		293			288
Total loans		360,615			360,950

Less: Allowance for loan losses		(3,726	)		(3,672	)
Net deferred loan fees		(1,229	)		(1,229	)

Loans, net	$	355,660		$	356,049

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The following table provides further information pertaining to the allowance for loan losses and impaired loans at March 31, 2011 and December 31, 2010:

	Residential			Commercial
	Mortgages			Mortgages			Construction		Commercial			Consumer		Total
	(Dollars in thousands)

Allowance for loan losses:
Balance at December 31, 2010	$	1,578		$	1,976		$	89	$	25		$	4	$	3,672
Provision for loans losses		41			266			10		(2	)		-		315
Loans charged-off		(3	)		(258	)		-		-			-		(261	)
Balance at March 31, 2011	$	1,616		$	1,984		$	99	$	23		$	4	$	3,726

March 31, 2011

Amount of allowance for loan losses
for loans deemed to be impaired	$	-		$	-		$	-	$	-		$	-	$	-

Amount of allowance for loan losses
for loans not deemed to be impaired		1,616			1,984			99		23			4		3,726

Loans deemed to be impaired		220			-			-		-			-		220

Loans deemed not to be impaired		248,708			104,056			5,875		1,463			293		360,395

December 31, 2010

Amount of allowance for loan losses
for loans deemed to be impaired	$	-		$	-		$	-	$	-		$	-	$	-

Amount of allowance for loan losses
for loans not deemed to be impaired		1,578			1,976			89		25			4		3,672

Loans deemed to be impaired		108			-			-		-			-		108

Loans deemed not to be impaired		249,437			104,531			4,948		1,638			288		360,842

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The following is a summary of past due and non-accrual loans at March 31, 2011 and December 31, 2010:

	30-59 Days		60-89 Days		Greater than		Total		Loans on
	Past Due		Past Due		90 Days		Past Due		Non-accrual
March 31, 2011	(Dollars in thousands)

Residential mortgages:
One-to-four family	$	256	$	-	$	220	$	476	$	220
Multi-family		1,567		-		-		1,567		-
Equity loans and lines of credit		-		-		-		-		-
Commercial mortgages		-		-		-		-		-
Construction		-		-		-		-		-
Commercial		-		-		-		-		-
Consumer		-		-		-		-		-
Total	$	1,823	$	-	$	220	$	2,043	$	220

December 31, 2010

Residential mortgages:
One-to-four family	$	220	$	-	$	108	$	328	$	108
Multi-family		-		-		-		-		-
Equity loans and lines of credit		-		-		-		-		-
Commercial mortgages		618		-		-		618		-
Construction		-		-		-		-		-
Commercial		-		-		-		-		-
Consumer		-		-		-		-		-
Total	$	838	$	-	$	108	$	946	$	108

At March 31, 2011 and December 31, 2010, there were no additional funds committed to be advanced in connection with impaired loans. For the quarters ended March 31, 2011 and March 31, 2010, the average recorded investment in impaired loans amounted to $241,000 and $364,000, respectively. The Company recognized no interest income on impaired loans during the first three months of 2011 and 2010. At March 31, 2011 and December 31, 2010, there were no loans greater than ninety days past due and still accruing interest.

Credit Quality Information:

The Company utilizes a nine grade internal loan rating system for multi-family mortgages, commercial mortgages, construction mortgages and commercial loans as follows:

Loans rated 1 – 4: Loans in these categories are considered “pass” rated loans with low to average risk.

Loans rated 5: Loans in this category are considered “watch” loans. Loans classified as watch are pass rated loans that management is monitoring more closely but remain acceptable credit.

Loans rated 6: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

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Loans rated 7: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

Loans rated 8: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loans rated 9: Loans in this category are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted.

On a quarterly basis, or more often if needed, the Company formally reviews the ratings on all multi-family residential real estate, commercial real estate, construction and commercial loans. Annually, the Company engages an independent third-party to review a significant portion of loans within these segments. Management uses the results of these reviews as part of its review process.

Information pertaining to the Company’s loans by risk rating follows:

	Multi-family		Commercial				Commercial
	Mortgages		Mortgages		Construction		Loans
	(Dollars in thousands)
March 31, 2011

Loans rated 1 - 4	$	16,414	$	79,821	$	1,671	$	1,244
Loans rated 5		2,042		12,591		4,204		163
Loans rated 6		2,811		8,545		-		56
Loans rated 7		336		3,099		-		-
Loans rated 8		-		-		-		-
Loans rated 9		-		-		-		-
	$	21,603	$	104,056	$	5,875	$	1,463

December 31, 2010

Loans rated 1 - 4	$	18,271	$	80,961	$	1,168	$	1,577
Loans rated 5		2,053		13,103		3,382		-
Loans rated 6		2,216		7,355		398		61
Loans rated 7		-		3,112		-		-
Loans rated 8		-		-		-		-
Loans rated 9		-		-		-		-
	$	22,540	$	104,531	$	4,948	$	1,638

The Company utilizes a rating scale of pass, special mention, substandard or doubtful for one-to-four family mortgages and equity loans and lines of credit. On a quarterly basis, or more often if needed, the Company reviews the ratings of these loans and makes adjustments as deemed necessary. At March 31, 2011 and December 31, 2010, one residential mortgage loan was rated substandard and amounted to $220,000 and 92,000, respectively. All other residential real estate and equity loans and lines of credit were classified as pass at March 31, 2011 and December 31, 2010.

NOTE 5 – COMMITMENTS

Outstanding loan commitments totaled $22.3 million at March 31, 2011, as compared to $23.8 million as of December 31, 2010. Loan commitments consist of commitments to originate new loans as well as the outstanding unused portions of lines of credit.

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NOTE 6 – EARNINGS PER SHARE

Basic earnings per share (“EPS”) represents net income available to common stockholders divided by the weighted-average number of shares of common stock outstanding during the period. If rights to dividends on unvested options/awards are non-forfeitable, these unvested awards/options are considered outstanding in the computation of basic earnings per share. Diluted EPS reflects additional common shares (computed using the treasury stock method) that would have been outstanding if all potentially dilutive common stock equivalents (stock options and unvested restricted stock) were issued during the period. Treasury shares and unallocated ESOP shares are not deemed outstanding for earnings per share calculations.

Earnings per common share have been computed based on the following:

	Three Months Ended
	March 31,
	2011			2010
	(In thousands)

Net income applicable to common stock	$	301		$	101

Weighted average number of common shares issued		4,878			4,878
Less: Weighted average treasury shares		(1,390	)		(1,089	)
Less: Weighted average unallocated ESOP shares		(257	)		(283	)
Add: Weighted average unvested restricted stock plan shares
with non-forfeitable dividend rights		78			116
Weighted average number of common shares outstanding
used to calculate basic earnings per common share		3,309			3,622

Effect of dilutive common stock equivalents		13			-
Weighted average number of common shares outstanding
used to calculate diluted earnings per common share		3,322			3,622

Options for 474,919 and 487,834 shares of common stock were not included in the computation of diluted EPS because they were anti-dilutive for the three months ended March 31, 2011 and 2010, respectively.

NOTE 7 – FAIR VALUES OF ASSETS AND LIABILITIES

The Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. For example, Level 2 assets and liabilities may include debt securities with quoted prices that are traded less frequently than exchange-traded instruments or mortgage loans held for sale, for which the fair value is based on what the securitization market is currently offering for mortgage loans with similar characteristics.

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

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The following methods and assumptions were used by the Company in estimating fair value disclosures:

Cash and cash equivalents: The carrying amounts of cash and cash equivalents approximate fair values.

Securities held to maturity: All fair value measurements are obtained from a third party pricing service and are not adjusted by management. Fair values are based on pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data.

FHLB stock: The carrying value of Federal Home Loan Bank of Boston (“FHLB”) stock approximates fair value based on the redemption provisions of the FHLB.

Loans: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for other loans are estimated using discounted cash flow analyses, using market interest rates currently being offered for loans with similar terms, adjusted for credit risk.

Accrued interest: The carrying amounts of accrued interest approximate fair values.

Deposits: The fair values for non-certificate accounts are, by definition, equal to the amount payable on demand at the reporting date which is the carrying amount. Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Long-term borrowings: Fair values of long-term debt are estimated using discounted cash flow analyses based on the current incremental borrowing rates in the market for similar types of borrowing arrangements.

Off-balance-sheet instruments: Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The estimated fair values of off-balance-sheet instruments are immaterial.

Assets Measured at Fair Value

There were no assets or liabilities measured at fair value on a recurring basis at March 31, 2011 and December 31, 2010. The Company does not measure any liabilities at fair value on a non-recurring basis.

Assets measured at fair value on a non-recurring basis are summarized below:

							Total Losses
							Three Months Ended
							March 31,
	Level 1		Level 2		Level 3		2011		2010
	(Dollars in thousands)
Foreclosed Real Estate

March 31, 2011	$	-	$	-	$	365	$	261	$	-

December 31, 2010	$	-	$	-	$	100	$	-	$	140

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Losses applicable to foreclosed real estate are based on the appraisal value of the underlying collateral, less selling costs and adjusted for management’s estimates of changes in market conditions since the appraisal date.

Summary of Fair Value of Financial Instruments

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments are as follows. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein may not necessarily represent the underlying fair value of the Company.

	March 31,				December 31,
	2011				2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(Dollars in thousands)

Financial assets:
Cash and cash equivalents	$	12,259	$	12,259	$	9,375	$	9,375
Securities held to maturity		43,718		45,677		47,021		49,314
FHLB stock		5,730		5,730		5,730		5,730
Loans, net		355,660		365,730		356,049		364,968
Accrued interest receivable		1,444		1,444		1,413		1,413

Financial liabilities:
Deposits		260,981		261,734		261,050		261,851
Short-term borrowings		1,800		1,800		3,000		3,000
Long-term borrowings		133,177		136,410		132,236		133,866
Accrued interest payable		474		474		535		535

NOTE 8 – SECURED BORROWINGS AND ASSETS PLEDGED AS COLLATERAL

FHLB borrowings at March 31, 2011 and December 31, 2010 amounted to $94,977,000 and $95,236,000, respectively. All FHLB borrowings are secured by a blanket lien on certain qualified collateral, defined principally as 75% of the carrying value of first mortgage loans on owner-occupied residential property, 50% of the carrying value of certain pledged commercial mortgages and 65% of the carrying value of certain pledged multi-family real estate loans. At March 31, 2011 and December 31, 2010, the carrying amount of assets qualifying as collateral for FHLB advances amounted to $204,571,000 and $204,031,000, respectively.

During 2008, the Company entered into a repurchase agreement for $15.0 million at a rate of 2.58%. This agreement matures in November 2013 and is callable on a quarterly basis.

During 2007, the Company entered into a repurchase agreement for $25.0 million at a rate of 3.36%, subject to adjustment if 3-month LIBOR exceeds 5.05%. In November 2009 the rate became fixed at 3.36%. This agreement matures in November 2012 and is callable on a quarterly basis.

The amounts of securities collateralizing these repurchase agreements are classified as securities held to maturity and the obligation to repurchase securities sold is reflected as a liability in the consolidated balance sheets. Government-sponsored enterprise residential mortgage-backed securities pledged to secure these agreements had a carrying value of $43.7 million and $47.0 million and a fair value of $45.6 million and $49.3 million at March 31, 2011 and December 31, 2010, respectively. These mortgage-backed securities are held-to-maturity and cannot be sold until the liability that they are pledged against has been paid. In addition, the Company has $2.0 million in cash pledged as collateral to secure these agreements at March 31, 2011. There was no cash pledged at December 31, 2010.

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

Management’s discussion and analysis of the 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 I, Item 1 of this quarterly report on Form 10-Q.

Forward-Looking Statements

This report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company’s market area, changes in real estate market values in the Company’s market area, and changes in relevant accounting principles and guidelines. Additional factors are discussed in the Company’s 2010 Annual Report on Form 10-K under “Item 1A – Risk Factors.” These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies

Critical accounting policies are those that involve significant judgments and assessments by management, and which could potentially result in materially different results under different assumptions and conditions. As discussed in the Company’s 2010 Annual Report on Form 10-K, the Company considers the allowance for loan losses and the valuation of the net deferred tax asset to be our critical accounting policies. The Company’s critical accounting policies have not changed since December 31, 2010.

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

Total assets at March 31, 2011 were $449.5 million, a decrease of $156,000, compared to $449.7 million at December 31, 2010. The decrease in assets was primarily concentrated in securities, offset by an increase in cash and cash equivalents.

The net loan portfolio decreased by $389,000, or 0.1%, during the first three months of 2011. The loan portfolio decrease was attributable to a decrease in home equity loans and lines (a decrease of $1.0 million, or 4.4%), commercial real estate mortgages (a decrease of $475,000, or 0.5%) and commercial loans (a decrease of $175,000, or 10.7%), partially offset by growth in residential real estate mortgages (an increase of $393,000, or 0.2%) and construction loans (an increase of $927,000, or 18.7%).

During the first three months of 2011, deposit balances remained relatively steady, decreasing $69,000. Decreases in NOW/Demand accounts (a decrease of $1.8 million, or 1.7%) and time deposit accounts (a decrease of $470,000, or 0.7%) were partially offset by increases in money market accounts (an increase of $1.5 million, or 2.9%) and savings accounts (an increase of $746,000, or 2.5%).

Borrowings, consisting of FHLB advances and two repurchase agreements totaling $40.0 million, decreased $259,000, or 0.2%, to $135.0 million at March 31, 2011, compared to an outstanding balance of $135.2 million at December 31, 2010.

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Total stockholders’ equity at March 31, 2011 was $50.2 million compared to $49.7 million at December 31, 2010. The increase was primarily attributable to net income and stock-based compensation credits.

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

General. Net income increased by $200,000, or 198.0%, to $301,000 for the three months ended March 31, 2011, compared to $101,000 for the three months ended March 31, 2010. The increase was primarily due to increases in net interest income and non-interest income, offset by an increase in non-interest expenses.

Net Interest Income. Net interest income for the three months ended March 31, 2011 was $3.8 million, which was $129,000, or 3.5%, more than net interest income of $3.7 million for the three months ended March 31, 2010. The increase in net interest income was primarily due to a decrease in expense from deposits and borrowings, partially offset by a decrease in the interest earned on loans and securities. The Company’s first quarter 2011 interest rate spread increased to 3.51% from 3.28% in the first quarter of 2010, an increase of 23 basis points.

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The following table summarizes average balances and average yields and costs on an annualized basis for the three months ended March 31, 2011 and 2010.

	Three Months Ended March 31,
	2011							2010
	Average Balance		Interest and Dividends		Yield/ Cost			Average Balance		Interest and Dividends			Yield/ Cost
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans	$	356,335	$	4,852		5.45	%	$	350,548		$	5,017		5.72	%
Securities		45,480		572		5.03			53,544			645		4.82
Other interest-earning assets		6,223		7		0.45			10,542			3		0.11
Total interest-earning assets		408,038		5,431		5.32			414,634			5,665		5.47

Bank-owned life insurance		10,744							10,353
Noninterest-earning assets		32,577							29,864
Total assets	$	451,359						$	454,851

Liabilities and equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	72,596		139		0.77		$	71,738			258		1.44
Savings accounts		29,543		15		0.20			26,415			17		0.26
Money market accounts		52,735		102		0.77			48,572			133		1.10
Certificates of deposit		69,368		238		1.37			76,458			304		1.59
Total interest-bearing deposits		224,242		494		0.88			223,183			712		1.28

Borrowings		136,772		1,142		3.34			142,525			1,287		3.61
Total interest-bearing liabilities		361,014		1,636		1.81			365,708			1,999		2.19

Demand deposits		36,181							33,711
Noninterest-bearing liabilities		3,800							3,835
Total liabilities		400,995							403,254

Stockholders’ equity		50,364							51,597
Total liabilities and stockholders’ equity	$	451,359						$	454,851

Net interest income			$	3,795							$	3,666
Interest rate spread						3.51	%							3.28	%
Net interest margin						3.72	%							3.54	%
Average interest-earning assets to average interest-bearing liabilities						113.03	%							113.38	%

Total interest and dividend income decreased $234,000, or 4.1%, between the two periods primarily due to a decrease in interest earned on loans and securities. Interest earned on loans decreased $165,000, or 3.3%, for the three months ended March 31, 2011 due to a decrease in the average yield earned on loans. Average loans increased 1.7% to $356.3 million for the three months ended March 31, 2011 from $350.5 million for the three months ended March 31, 2010, while the yield earned on loans decreased to 5.45% for the three months ended March 31, 2011 from 5.72% for the three months ended March 31, 2010. Despite the 21 basis point increase in the average yield, interest earned on securities decreased $73,000 due to the decrease in the average balance of securities to $45.5 million for the three months ended March 31, 2011 from $53.5 million for the three months ended March 31, 2010. Interest earned on other-interest earning assets increased to $7,000 for three months ended March 31, 2011 from $3,000 for the three months ended March 31, 2010, while the average balance decreased and the average yield increased from 0.11% to 0.45%.

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Total interest expense decreased $363,000 to $1.6 million for the three months ended March 31, 2011 from $2.0 million for the three months ended March 31, 2010, due to a 38 basis point decrease in the total average cost of interest-bearing liabilities, including a 40 basis point decrease in the total average cost of interest-bearing deposits and a 27 basis point decrease in the total average cost of borrowings. The largest reductions in interest expense related to interest-bearing deposits were seen in demand deposit accounts (a decrease of $119,000 or 67 basis points in the average cost), certificate of deposit accounts (a decrease of $66,000 or 22 basis points in the average cost), and money market accounts (a decrease of $31,000 or 33 basis points in the average cost). With decreases in short-term market interest rates, customers have increasingly shown a preference for our higher-yielding core accounts, rather than the longer-term time deposit accounts. The cost of total borrowings decreased 11.3% to $1.1 million for the three months ended March 31, 2011 from $1.3 million for the three months ended March 31, 2010, due to a decrease in the average cost from 3.61% to 3.34%, and a decrease in the average balance of $5.7 million to $136.8 million from $142.5 million.

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Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rates (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). Changes due to both volume and rate have been allocated proportionately to the volume and rate changes. The net column represents the sum of the prior columns.

	For the Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010
	Increase (Decrease) Due to
	Volume			Rate			Net
	(Dollars in thousands)
Interest Income:
Loans	$	453		$	(618	)	$	(165	)
Securities		(233	)		160			(73	)
Other interest-earning assets		(8	)		12			4
Total interest-earning assets		212			(446	)		(234	)

Interest Expense:
Deposits		23			(241	)		(218	)
Borrowings		(51	)		(94	)		(145	)
Total interest-bearing liabilities		(28	)		(335	)		(363	)
Change in net interest income	$	240		$	(111	)	$	129

Provision for Loan Losses. The Bank’s management reviews the level of the allowance for loan losses on a quarterly basis and establishes the provision for loan losses based upon the volume and types of lending, delinquency levels, loss experience, the amount of impaired and classified loans, economic conditions and other factors related to the collectability of the loan portfolio. The Company’s loan loss provision for the three months ended March 31, 2011 was $315,000 compared to $314,000 for the three months ended March 31, 2010. At March 31, 2011, there were $15.1 million of classified and criticized loans under watch by management. At March 31, 2011, loans classified as special mention totaled $11.4 million, which consisted primarily of commercial and multi-family residential mortgages, compared to $10.0 million at December 31, 2010. This increase is due to concerns about the local commercial real estate market. Loans classified as substandard, including all impaired loans, totaled $3.6 million at March 31, 2011, compared to $3.2 million at December 31, 2010. Total classified and criticized loans represent 4.2% of the Company’s total gross loans at March 31, 2011, compared to 4.0% at March 31, 2010. There were no changes in the methodology of calculating the allowance for loan losses from the first quarter of 2010 through the first quarter of 2011. The percentages used to calculate the required reserves for non-classified residential mortgages, multi-family and commercial real estate mortgages, consumer loans, and construction loans, were consistent for the periods. The percentages used to calculate the required reserves for residential home equity lines and loans and substandard loans were higher in the first quarter of 2011, when compared to the first quarter of 2010, due to an increase in the trend of charge-offs and delinquencies. The allowance for loan losses to total loans was 1.04%, 1.02% and 0.98% at March 31, 2011, December 31, 2010 and March 31, 2010, respectively. The ratio is slightly higher from December 31, 2010 to March 31, 2011 due to the increase in the total classified and criticized loans that, although currently performing, represent increased risk, due to deteriorating economic conditions. The Company has no exposure to subprime loans in its loan portfolio.

The following table provides information with respect to our non-performing assets at the dates indicated. There were no troubled debt restructurings or accruing loans past due 90 days or more at the dates indicated. All nonaccrual loans are impaired. There were no impaired loans which required a valuation reserve at the dates indicated.

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	March 31,			December 31,			March 31,
	2011			2010			2010
	(Dollars in thousands)
Nonaccrual loans:
Real estate – mortgage:
One-to-four family	$	220		$	108		$	158
Commercial		-			-			1,492
Home equity loans and lines of credit		-			-			135
Total nonaccrual loans		220			108			1,785
Foreclosed real estate		365			100			-
Total non-performing assets	$	585		$	208		$	1,785
Total non-performing loans to total loans		0.06	%		0.03	%		0.51	%
Total non-performing loans to total assets		0.05	%		0.02	%		0.39	%
Total non-performing assets to total assets		0.13	%		0.05	%		0.39	%

Nonaccrual loans were $220,000 at March 31, 2011, an increase of $112,000, from December 31, 2010. There were $1.8 million of nonaccrual loans at March 31, 2010. Although total nonaccrual loans were higher at March 31, 2011 than December 31, 2010, the number of nonaccrual loans remained the same.

At March 31, 2011, the Company had three commercial properties, valued at $260,000 and one residential real estate property, valued at $105,000, classified as foreclosed real estate. Charge-offs through the allowance for loan losses totaling $261,000 were recognized during the quarter ended March 31, 2011 on loans transferred to foreclosed real estate.

Non-interest Income. Non-interest income for the first quarter of 2011 totaled $554,000, an increase of $223,000, or 72.6%, compared to the first quarter of 2010. The increase between the two periods is primarily due to no loss on sales of securities available for sale in the first quarter of 2011, compared to a $217,000 net realized loss on sales of securities available for sale in 2010. The loss on sales of securities available for sale in the first quarter of 2010 was due to the sale of the Bank’s entire holdings in one mutual fund, which resulted in a $267,000 realized loss, partially offset by gains on sales of other securities available for sale.

Non-interest Expense. Non-interest expense increased to $3.6 million for the quarter ended March 31, 2011 from $3.4 million for the quarter ended March 31, 2010, an increase of $175,000, or 5.1%. The increase between periods is attributable to an overall increase in salaries and employee benefits, occupancy and equipment expense, data processing fees, professional services, foreclosed real estate and FDIC insurance expense, offset by a decrease in marketing costs and other general and administrative costs. The increase in salaries and benefits is primarily due to an increase in retirement and incentive compensation expenses, partially offset by a reduction in the stock-based compensation expense associated with option grants and restricted stock awards. The accelerated method of expense recognition was adopted at the inception of the equity incentive plan on October 1, 2007, resulting in a higher stock-based compensation expense in the 2010 period compared to the 2011 period. The increase in occupancy and equipment expense and data processing fees is due to the overall increase in operating costs and an increase in depreciation expense in 2011 as a result of a relocation of an existing branch in the first quarter of 2011. The increase in the foreclosed real estate expense is a result of the increase in foreclosed real estate assets in the first quarter of 2011, compared to the first quarter of 2010. The increase in FDIC deposit insurance expense is due to the increased premium costs imposed by the FDIC. The decrease in marketing costs is due to management’s concerted effort to curtail marketing expenditures in 2011.

Income Taxes. The provision for income taxes for the three months ended March 31, 2011 was $141,000 compared to $155,000 for the three months ended March 31, 2010. The effective tax rate for the first quarter of 2011 was 31.9%, versus 60.5% for the 2010 period. The higher effective tax rate for the 2010 period was a result of the increase in the valuation reserve to offset the tax benefit associated with the loss on sales of securities available for sale.

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

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

Our most liquid assets are cash and cash equivalents and interest-bearing deposits. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At March 31, 2011, cash and cash equivalents totaled $12.3 million. On March 31, 2011, we had $95.0 million of borrowings outstanding with the Federal Home Loan Bank of Boston and we had the ability to borrow an additional $48.8 million from the Federal Home Loan Bank of Boston.

At March 31, 2011, we had $22.3 million in loan commitments outstanding, which consisted of $3.8 million of real estate loan commitments, $14.9 million in unused home equity lines of credit, $3.6 million in construction loan commitments and $3.8 million in commercial lines of credit commitments. Certificates of deposit due within one year of March 31, 2011 totaled $49.0 million, or 70.8% of certificates of deposit. This percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest their funds for long periods in the recent interest rate environment. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. 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 our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Capital Management. We are subject to various regulatory capital requirements administered by the Office of Thrift Supervision, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2011, we exceeded all of our regulatory capital requirements. We are considered “well capitalized” under regulatory guidelines.

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

For the three months ended March 31, 2011, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Qualitative Aspects of Market Risk. The Company’s most significant form of market risk is interest rate risk. We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we have sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Our strategy for managing interest rate risk emphasizes: adjusting the maturities of borrowings; adjusting the investment portfolio mix and duration; and periodically selling fixed-rate mortgage loans and available-for-sale investment securities.

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We have an Asset Liability Management Committee to communicate, coordinate and control all aspects involving asset/liability management. The committee establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.

Quantitative Aspects of Market Risk. We use an interest rate sensitivity analysis prepared by the Office of Thrift Supervision to review our level of interest rate risk. This analysis measures interest rate risk by computing changes in net portfolio value of our cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. Net portfolio value represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. This analysis assesses the risk of loss in market risk sensitive instruments in the event of a sudden and sustained 100 to 300 basis point increase or 100 basis point decrease in market interest rates with no effect given to any steps that we might take to counter the effect of that interest rate movement. We measure interest rate risk by modeling the changes in net portfolio value over a variety of interest rate scenarios.

The following table presents the change in our net portfolio value at December 31, 2010 (the most current information available), that would occur in the event of an immediate change in interest rates based on Office of Thrift Supervision assumptions, with no effect given to any steps that we might take to counteract that change. The Bank expects that its net portfolio value at March 31, 2011 is consistent with the table below.

			Net Portfolio Value (Dollars in thousands)						Net Portfolio Value as % of Portfolio Value of Assets
Basis Point (“bp”) Change in Rates			Amount		Change		% Change		NPV Ratio			Change (bp)

	300		$	34,496	$	-23,330		-40		7.86	%		-437
	200			43,174		-14,652		-25		9.58	%		-265
	100			51,660		-6,166		-11		11.17	%		-106
	50			54,886		-2,940		-5		11.73	%		-50
	0			57,826		0		0		12.23	%		0
	(50	)		59,107		1,281		2		12.40	%		18
	(100	)		61,026		3,199		6		12.71	%		48

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

Item 4. Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, no change in the Company’s internal control over financial reporting occurred during the quarter ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings.

From time to time, we may be party to various legal proceedings incident to our business. At March 31, 2011, we were not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A.

Risk Factors.

Risk factors that may affect future results were discussed in the Company’s 2010 Annual Report on Form 10-K. The Company’s evaluation of its risk factors has not changed materially since December 31, 2010.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable

The Company did not repurchase any shares of its common stock during the quarter ended March 31, 2011.

Item 3.

Defaults Upon Senior Securities.

Not applicable

Item 5.

Other Information.

None.

Item 6.

Exhibits.

31.1

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

31.2

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

32.1

Section 1350 Certifications

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Signatures

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

	Newport Bancorp, Inc.



Date: May 12, 2011	By:	/s/ Kevin M. McCarthy
		Kevin M. McCarthy
		President and Chief Executive Officer



Date: May 12, 2011	By:	/s/ Bruce A. Walsh
		Bruce A. Walsh
		Senior Vice President and Chief Financial Officer
		(Principal Financial and Chief Accounting Officer)

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