UNITED
      STATESSECURITIES
      AND EXCHANGE COMMISSION
              WASHINGTON,
      D.C. 20549FORM
      10-Q





(Mark
      One)x
                QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended June 30, 2009ORo
                TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from _______________ to
      _______________                     Commission
      file number 000-52826





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)





6611
      Manlius Center Road, East Syracuse, New York
                                        
                                        13057(Address
      of principal executive office)
                                        
                                        (Zip
      Code)Registrant’s
      telephone number, including area code (315)
      433-0111




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
      August 10, 2009Common
      Stock, par value $0.01 per share
              6,781,281







BEACON
FEDERAL BANCORP, INC.




FORM
10-Q




FOR THE
QUARTER ENDED JUNE 30, 2009




INDEX


PAGE
      NO.PART
      I - Financial Information.
                                        
                                        3Item
      1. Financial
      Statements.
                                        
                                        3Consolidated
      Balance Sheets
                                        
                                        3Consolidated
      Statements of Income
                                        
                                        4Consolidated
      Statements of Stockholders’ Equity and ComprehensiveIncome
      (Loss)
                                        
                                        5Consolidated
      Statements of Cash Flows
                                        
                                        6Notes
      to Consolidated Financial Statements
                                        
                                        8Item
      2. Management’s
      Discussion and Analysis of Financial Condition
      and Results of Operations.
                                        
                                        26Item
      3. Quantitative
      and Qualitative Disclosures About Market Risk.
                                        
                                        45Item
      4T. Controls and Procedures.
                                        
                                        45PART
      II - Other Information.
                                        
                                        46Item
      1. Legal
      Proceedings.
                                        
                                        46Item
      1A. Risk Factors
                                        
                                        46Item
      2. Unregistered
      Sales of Equity Securities and Use of Proceeds.
                                        
                                        46Item
      3. Defaults
      Upon Senior Securities.
                                        
                                        47Item
      4. Submission
      of Matters to a Vote of Security Holders.
                                        
                                        47Item
      5. Other
      Information.
                                        
                                        47Item
      6. Exhibits.
                                        
                                        47Signatures
                                        
                                        49Certifications
                                        
                                        50




2




BEACON
FEDERAL BANCORP, INC.




PART
1. FINANCIAL INFORMATION - ITEM 1. FINANCIAL STATEMENTS




CONSOLIDATED
BALANCE SHEETS


(Dollars
in thousands)


June
      30,
                  
                  
                  December
      31,2009
                  
                  
                  2008(Unaudited)ASSETSCash
      and cash equivalents - cash and due from financial
      institutions
                  
                  $
                  25,034
                  
                  
                  
                  18,297Interest-bearing
      deposits in other financial institutions
                  
                  
                  536
                  
                  
                  
                  536Trading
      account assets
                  
                  
                  —
                  
                  
                  
                  23,337Securities
      held to maturity (fair value of $17,850 and $21,955,
      respectively)
                  
                  
                  18,411
                  
                  
                  
                  23,315Securities
      available for sale
                  
                  
                  144,966
                  
                  
                  
                  139,803Loans
      held for sale
                  
                  
                  3,301
                  
                  
                  
                  1,536Loans,
      net of allowance for loan losses of $14,261 and $10,546,
      respectively
                  
                  
                  802,108
                  
                  
                  
                  770,695Federal
      Home Loan Bank stock of New York
                  
                  
                  12,452
                  
                  
                  
                  13,080Premises
      and equipment, net
                  
                  
                  12,353
                  
                  
                  
                  3,437Accrued
      interest receivable
                  
                  
                  3,684
                  
                  
                  
                  3,985Foreclosed
      and repossessed assets
                  
                  
                  115
                  
                  
                  
                  149Bank-owned
      life insurance
                  
                  
                  10,438
                  
                  
                  
                  10,369Other
      assets
                  
                  
                  12,773
                  
                  
                  
                  12,804Total
      assets
                  
                  $
                  1,046,171
                  
                  
                  $
                  1,021,343LIABILITIES
      AND STOCKHOLDERS’ EQUITYDeposits
                  
                  $
                  658,510
                  
                  
                  $
                  626,467Federal
      Home Loan Bank advances
                  
                  
                  208,641
                  
                  
                  
                  218,641Securities
      sold under agreement to repurchase
                  
                  
                  70,000
                  
                  
                  
                  70,000Accrued
      interest payable and other liabilities
                  
                  
                  4,165
                  
                  
                  
                  4,150Capital
      lease obligation
                  
                  
                  7,800
                  
                  
                  
                  —Total
      liabilities
                  
                  
                  949,116
                  
                  
                  
                  919,258Commitments
      and contingenciesPreferred
      stock, $.01 par value, 50,000,000 shares authorized; none issued or
      outstandingCommon
      stock, $.01 par value, 100,000,000 shares authorized; 7,662,315 and
      7,662,315 shares issued
                  
                  
                  74
                  
                  
                  
                  74Additional
      paid-in capital
                  
                  
                  72,646
                  
                  
                  
                  72,160Retained
      earnings-substantially restricted
                  
                  
                  45,242
                  
                  
                  
                  42,835Unearned
      Employee Stock Ownership Plan (ESOP) shares
                  
                  
                  (4,387
                  )
                  
                  
                  (4,733
                  )Accumulated
      other comprehensive loss, net
                  
                  
                  (9,206
                  )
                  
                  
                  (8,251
                  )Treasury
      stock, 881,034 shares at cost
                  
                  
                  (7,314
                  )
                  
                  
                  —Total
      stockholders’ equity
                  
                  
                  97,055
                  
                  
                  
                  102,085Total
      liabilities and stockholders’ equity
                  
                  $
                  1,046,171
                  
                  
                  $
                  1,021,343




See
accompanying notes to consolidated financial statements.


3




BEACON
FEDERAL BANCORP, INC.




CONSOLIDATED
STATEMENTS OF INCOME


(Dollars
in thousands, except per share data)


Three
      Months Ended
                  June
      30,
                
                
                Six
      Months Ended
                  June
      30,2009
                
                
                2008
                
                
                2009
                
                
                2008(Unaudited)
                
                
                (Unaudited)Interest
      and dividend income:Loans,
      including fees
                
                $
                11,385
                
                
                $
                11,410
                
                
                $
                22,727
                
                
                $
                22,720Securities
                
                
                2,079
                
                
                
                2,211
                
                
                
                4,434
                
                
                
                4,144FHLB
      stock
                
                
                177
                
                
                
                237
                
                
                
                276
                
                
                
                400Federal
      funds sold and other
                
                
                12
                
                
                
                75
                
                
                
                28
                
                
                
                305Total
      interest income
                
                
                13,653
                
                
                
                13,933
                
                
                
                27,465
                
                
                
                27,569Interest
      expense:Deposits
                
                
                3,925
                
                
                
                4,665
                
                
                
                8,172
                
                
                
                9,656FHLB
      advances
                
                
                2,236
                
                
                
                2,782
                
                
                
                4,530
                
                
                
                5,565Securities
      sold under agreement to repurchase
                
                
                549
                
                
                
                288
                
                
                
                1,092
                
                
                
                575Total
      interest expense
                
                
                6,710
                
                
                
                7,735
                
                
                
                13,794
                
                
                
                15,796Net
      interest income
                
                
                6,943
                
                
                
                6,198
                
                
                
                13,671
                
                
                
                11,773Provision
      for loan losses
                
                
                1,900
                
                
                
                1,530
                
                
                
                4,470
                
                
                
                2,430Net
      interest income after provision for loan losses
                
                
                5,043
                
                
                
                4,668
                
                
                
                9,201
                
                
                
                9,343Noninterest
      income:Service
      charges
                
                
                697
                
                
                
                684
                
                
                
                1,427
                
                
                
                1,350Commission
      and fee income
                
                
                147
                
                
                
                121
                
                
                
                287
                
                
                
                267Change
      in cash surrender value of BOLI
                
                
                37
                
                
                
                114
                
                
                
                69
                
                
                
                232Gain
      on sale of loans
                
                
                224
                
                
                
                60
                
                
                
                387
                
                
                
                98Gain
      on sale of securities available for sale
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                129Other
                
                
                248
                
                
                
                95
                
                
                
                407
                
                
                
                168Total
      noninterest income
                
                
                1,353
                
                
                
                1,074
                
                
                
                2,577
                
                
                
                2,244Noninterest
      expense:Salaries
      and employee benefits
                
                
                2,255
                
                
                
                2,171
                
                
                
                4,606
                
                
                
                4,233Occupancy
      and equipment
                
                
                367
                
                
                
                322
                
                
                
                694
                
                
                
                647Advertising
      and marketing
                
                
                96
                
                
                
                86
                
                
                
                217
                
                
                
                211Telephone,
      delivery and postage
                
                
                163
                
                
                
                182
                
                
                
                355
                
                
                
                380Supplies
                
                
                65
                
                
                
                55
                
                
                
                131
                
                
                
                114Audit
      and examination
                
                
                169
                
                
                
                136
                
                
                
                291
                
                
                
                301FDIC
      premium expense
                
                
                847
                
                
                
                94
                
                
                
                1,010
                
                
                
                185Provision
      for loss on servicing asset
                
                
                68
                
                
                
                —
                
                
                
                34
                
                
                
                —Other-than-temporary
      impairment (OTTI) credit loss on securities
                
                
                538
                
                
                
                273
                
                
                
                962
                
                
                
                801Prepayment
      penalty on FHLB advances
                
                
                —
                
                
                
                —
                
                
                
                241
                
                
                
                —Other
                
                
                732
                
                
                
                906
                
                
                
                1,474
                
                
                
                1,588Total
      noninterest expense
                
                
                5,300
                
                
                
                4,225
                
                
                
                10,015
                
                
                
                8,460Income
      before income taxes
                
                
                1,096
                
                
                
                1,517
                
                
                
                1,763
                
                
                
                3,127Income
      tax expense
                
                
                402
                
                
                
                684
                
                
                
                633
                
                
                
                1,330Net
      income
                
                $
                694
                
                
                $
                833
                
                
                $
                1,130
                
                
                $
                1,797Basic
      and diluted earnings per share
                
                $
                0.11
                
                
                $
                0.12
                
                
                $
                0.17
                
                
                $
                0.26OTTI
      credit loss on securities:Total
      OTTI loss on securities
                
                $
                538
                
                
                
                
                
                
                $
                982Portion
      of OTTI loss recognized in other comprehensive loss before income
      taxes
                
                
                —
                
                
                
                
                
                
                
                (20
                )OTTI
      credit loss on securities
                
                $
                538
                
                
                
                
                
                
                $
                962




See
accompanying notes to consolidated financial statements.


4




BEACON
FEDERAL BANCORP, INC.




CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY AND


COMPREHENSIVE
INCOME (LOSS)


(Dollars
in thousands, except per share data)


Three
      Months Ended
                    June
      30,
                  
                  
                  Six
      Months Ended
                    June
      30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008(Unaudited)
                  
                  
                  (Unaudited)Common
      Stock
                  
                  $
                  74
                  
                  
                  $
                  74
                  
                  
                  $
                  74
                  
                  
                  $
                  74Additional
      paid-in capital:Balance
      at beginning of period
                  
                  
                  72,363
                  
                  
                  
                  72,087
                  
                  
                  
                  72,160
                  
                  
                  
                  72,080Earned
      ESOP shares
                  
                  
                  (18
                  )
                  
                  
                  8
                  
                  
                  
                  (55
                  )
                  
                  
                  15Amortization
      of stock-based compensation expense
                  
                  
                  301
                  
                  
                  
                  —
                  
                  
                  
                  541
                  
                  
                  
                  —Balance
      at end of period
                  
                  
                  72,646
                  
                  
                  
                  72,095
                  
                  
                  
                  72,646
                  
                  
                  
                  72,095Retained
      earnings:Balance
      at beginning of period
                  
                  
                  44,863
                  
                  
                  
                  47,637
                  
                  
                  
                  42,835
                  
                  
                  
                  46,673Adoption
      of FSP SFAS No. 115-2
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,866
                  
                  
                  
                  —Balance
      at beginning of period, as adjusted
                  
                  
                  44,863
                  
                  
                  
                  47,637
                  
                  
                  
                  44,701
                  
                  
                  
                  46,673Net
      income
                  
                  
                  694
                  
                  
                  
                  833
                  
                  
                  
                  1,130
                  
                  
                  
                  1,797Cash
      dividends, $.05, $.04, $.09 and $.04 per share
                  
                  
                  (315
                  )
                  
                  
                  (274
                  )
                  
                  
                  (589
                  )
                  
                  
                  (274
                  )Balance
      at end of period
                  
                  
                  45,242
                  
                  
                  
                  48,196
                  
                  
                  
                  45,242
                  
                  
                  
                  48,196Unearned
      ESOP shares:Balance
      at beginning of period
                  
                  
                  (4,535
                  )
                  
                  
                  (5,178
                  )
                  
                  
                  (4,733
                  )
                  
                  
                  (5,325
                  )Earned
      ESOP shares
                  
                  
                  148
                  
                  
                  
                  148
                  
                  
                  
                  346
                  
                  
                  
                  295Balance
      at end of period
                  
                  
                  (4,387
                  )
                  
                  
                  (5,030
                  )
                  
                  
                  (4,387
                  )
                  
                  
                  (5,030
                  )Accumulated
      other comprehensive loss, net:Balance
      at beginning of period
                  
                  
                  (10,146
                  )
                  
                  
                  (2,667
                  )
                  
                  
                  (8,251
                  )
                  
                  
                  (328
                  )Adoption
      of FSP SFAS No. 115-2, net of taxes of $1,144
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (1,866
                  )
                  
                  
                  —Balance
      at beginning of period, as adjusted
                  
                  
                  (10,146
                  )
                  
                  
                  (2,667
                  )
                  
                  
                  (10,117
                  )
                  
                  
                  (328
                  )Net
      change in unrealized losses on available for sale securities, net
      of taxes of $627, $1,978, $615 and $3,538
                  
                  
                  940
                  
                  
                  
                  (2,968
                  )
                  
                  
                  923
                  
                  
                  
                  (5,307
                  )OTTI
      non-credit related loss on securities for which a portion of the OTTI has
      been recognized in income, net of taxes of $8
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (12
                  )
                  
                  
                  —Balance
      at end of period
                  
                  
                  (9,206
                  )
                  
                  
                  (5,635
                  )
                  
                  
                  (9,206
                  )
                  
                  
                  (5,635
                  )Treasury
      stock:Balance
      at beginning of period
                  
                  
                  (3,042
                  )
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Repurchase
      of common stock, 498,728 and 881,844 shares
                  
                  
                  (4,272
                  )
                  
                  
                  —
                  
                  
                  
                  (7,314
                  )
                  
                  
                  —Balance
      at end of period
                  
                  
                  (7,314
                  )
                  
                  
                  —
                  
                  
                  
                  (7,314
                  )
                  
                  
                  —Total
      stockholders’ equity
                  
                  $
                  97,055
                  
                  
                  $
                  109,700
                  
                  
                  $
                  97,055
                  
                  
                  $
                  109,700Comprehensive
      income (loss):Net
      income
                  
                  $
                  694
                  
                  
                  $
                  833
                  
                  
                  $
                  1,130
                  
                  
                  $
                  1,797Net
      change in unrealized losses on available for sale securities, net of taxes
      of $627, $1,978, $615 and $3,538
                  
                  
                  940
                  
                  
                  
                  (2,968
                  )
                  
                  
                  923
                  
                  
                  
                  (5,307
                  )OTTI
      non-credit related loss on securities for which a portion of the OTTI has
      been recognized in income, net of taxes of $8
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (12
                  )
                  
                  
                  —Comprehensive
      income (loss)
                  
                  $
                  1,634
                  
                  
                  $
                  (2,135
                  )
                  
                  $
                  2,041
                  
                  
                  $
                  (3,510
                  )




See
accompanying notes to consolidated financial statements.


5




BEACON
FEDERAL BANCORP, INC.




CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Dollars
in thousands)


Six
      Months Ended
                  June
      30,2009
                
                
                2008(Unaudited)Cash
      flows from operating activities:Net
      income
                
                $
                1,130
                
                
                $
                1,797Adjustments
      to reconcile net income to net cash provided by (used for) operating
      activities:Provision
      for loan losses
                
                
                4,470
                
                
                
                2,430Provision
      for loss on servicing assets
                
                
                34
                
                
                
                —Depreciation
      and amortization
                
                
                294
                
                
                
                241ESOP
      expense
                
                
                291
                
                
                
                310Amortization
      of stock-based compensation expense
                
                
                541
                
                
                
                —Amortization
      of net deferred loan costs
                
                
                1,268
                
                
                
                610Net
      (accretion) amortization on securities
                
                
                (1
                )
                
                
                21Gain
      on sale of loans
                
                
                (387
                )
                
                
                (98
                )Gain
      on sale of securities available for sale
                
                
                —
                
                
                
                (129
                )Other-than-temporary
      impairment credit loss on securities
                
                
                962
                
                
                
                801Originations
      of loans held for sale
                
                
                (53,864
                )
                
                
                (14,476
                )Proceeds
      from loans held for sale
                
                
                52,463
                
                
                
                14,534Proceeds
      from trading account assets
                
                
                23,337
                
                
                
                —Increase
      in cash surrender value of BOLI
                
                
                (69
                )
                
                
                (232
                )Net
      change in:Accrued
      interest receivable
                
                
                301
                
                
                
                (166
                )Other
      assets
                
                
                (587
                )
                
                
                (364
                )Accrued
      interest payable and other liabilities
                
                
                15
                
                
                
                945Net
      cash provided by operating activities
                
                
                30,198
                
                
                
                6,224Cash
      flows from investing activities:Purchase
      of FHLB stock
                
                
                (464
                )
                
                
                (2,297
                )Redemption
      of FHLB stock
                
                
                1,092
                
                
                
                31Maturities
      of interest-bearing deposits
                
                
                —
                
                
                
                1,000Securities
      held to maturity:Maturities,
      prepayments and calls
                
                
                4,933
                
                
                
                4,305Securities
      available for sale:Purchases
                
                
                (25,989
                )
                
                
                (95,393
                )Proceeds
      from maturity or call
                
                
                21,354
                
                
                
                28,776Proceeds
      from sale
                
                
                —
                
                
                
                129Loan
      originations and payments, net
                
                
                (37,544
                )
                
                
                (42,999
                )Purchase
      of premises and equipment
                
                
                (1,410
                )
                
                
                (311
                )Proceeds
      from foreclosed and repossessed assets
                
                
                427
                
                
                
                77Net
      cash used for investing activities
                
                $
                (37,601
                )
                
                $
                (106,682
                )




Continued
on following page


6




BEACON
FEDERAL BANCORP, INC.




CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Dollars
in thousands)




Continued


Six
      Months Ended
                  June
      30,2009
                
                
                2008(Unaudited)Cash
      flows from financing activities:Net
      change in deposits
                
                $
                32,043
                
                
                $
                69,974Proceeds
      from FHLB advances
                
                
                —
                
                
                
                27,192Repayment
      of FHLB advances
                
                
                (10,000
                )
                
                
                (5,000
                )Proceeds
      from securities sold under agreement to repurchase
                
                
                —
                
                
                
                20,000Cash
      dividends
                
                
                (589
                )
                
                
                (274
                )Repurchase
      of common stock
                
                
                (7,314
                )
                
                
                —Net
      cash provided by financing activities
                
                
                14,140
                
                
                
                111,892Net
      change in cash and cash equivalents
                
                
                6,737
                
                
                
                11,434Cash
      and cash equivalents at beginning of period
                
                
                18,297
                
                
                
                14,148Cash
      and cash equivalents at end of period
                
                $
                25,034
                
                
                $
                25,582Supplemental
      cash flow information:Interest
      paid
                
                $
                14,359
                
                
                $
                15,685Income
      taxes paid
                
                $
                2,189
                
                
                $
                1,663Real
      estate and repossessions acquired in settlement of loans
                
                $
                393
                
                
                $
                316Loans
      originated to finance the sale of foreclosed real estate
                
                $
                —
                
                
                $
                337Supplemental
      schedule of non-cash investing and financing activities:Building
      acquired with capital lease obligation
                
                $
                7,800
                
                
                $
                —




See accompanying notes to consolidated
financial statements.


7




BEACON
FEDERAL BANCORP, INC.




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


(Dollars
in thousands, except per share data)




NOTE
1 – BASIS OF PRESENTATION




The
accompanying unaudited interim consolidated financial statements 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 only of normal recurring accruals) considered necessary for a fair
presentation of the results of operations for the interim periods. The results
of operations for the three and six months ended June 30, 2009 are not
necessarily indicative of the results that may be expected for the entire year
or any other interim period. Subsequent events have been evaluated through
August 10, 2009, which is the date we filed this Form 10-Q with the Securities
and Exchange Commission.




NOTE
2 – STOCK CONVERSION




On
October 1, 2007, Beacon Federal (the “Bank”) completed its conversion from a
mutual savings association to a capital stock corporation. A new holding
company, Beacon Federal Bancorp, Inc. (the “Company”), was established as part
of the conversion. The public offering was consummated through the sale and
issuance by Beacon Federal Bancorp, Inc. of 7,396,431 shares of common stock at
$10 per share. Net proceeds of $66.2 million were raised in the stock offering,
after deduction of estimated conversion costs of $1.8 million and excluding $5.9
million which was loaned by the Company to a trust for the Employee Stock
Ownership Plan (the “ESOP”), enabling it to purchase 591,714 shares of common
stock in the offering.




The cost
of shares issued to the ESOP, but not yet committed to be released, is shown as
a reduction of stockholders’ equity. For ESOP shares committed to be released,
the Bank recognizes compensation expense equal to the average fair values of the
shares committed to be released during the period in accordance with the
provisions of Statement of Position 93-6. To the extent that the fair value of
the ESOP shares differs from the cost of such shares, the difference is charged
or credited to stockholders’ equity as additional paid-in capital. Dividends on
allocated ESOP shares are paid to participants of the ESOP and charged to
retained earnings. Dividends on unallocated ESOP shares are used to repay the
ESOP loan and related accrued interest.




Beacon
Federal Bancorp, Inc.’s common stock is traded on the NASDAQ Global Market under
the symbol “BFED.”




Voting
rights are held and exercised exclusively by the stockholders of the Company.
Deposit accounts continue to be insured by the FDIC. A liquidation account was
established in the amount of $44.7 million, which represented the Bank’s total
equity as of March 31, 2007, the latest balance sheet date in the final
prospectus used in the conversion.




The Bank
may not declare, pay a dividend on, or repurchase any of its capital stock, if
the effect thereof would cause retained earnings to be reduced below the
liquidation account amount or regulatory capital requirements. Any repurchase of
the Company’s common stock will be conducted in accordance with applicable laws
and regulations.


8




BEACON
FEDERAL BANCORP, INC.




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.


Three
      Months Ended
                        June
      30,
                      
                      
                      Six
      Months Ended
                        June
      30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Basic
      earnings per share:Net
      income
                      
                      $
                      694
                      
                      
                      $
                      833
                      
                      
                      
                      1,130
                      
                      
                      
                      1,797Less
      dividends paid:Common
      stock
                      
                      
                      302
                      
                      
                      
                      263
                      
                      
                      
                      565
                      
                      
                      
                      263Participating
      securities
                      
                      
                      13
                      
                      
                      
                      11
                      
                      
                      
                      24
                      
                      
                      
                      11Undistributed
      earnings
                      
                      $
                      379
                      
                      
                      $
                      559
                      
                      
                      
                      541
                      
                      
                      
                      1,523Weighted-average
      basic shares outstanding
                      
                      
                      6,178
                      
                      
                      
                      6,620
                      
                      
                      
                      6,497
                      
                      
                      
                      6,612Add:
      weighted-average participating securities outstanding
                      
                      
                      266
                      
                      
                      
                      266
                      
                      
                      
                      266
                      
                      
                      
                      266Total
      weighted-average basic shares and participating securities
      outstanding
                      
                      
                      6,444
                      
                      
                      
                      6,886
                      
                      
                      
                      6,763
                      
                      
                      
                      6,878Distributed
      earnings per share
                      
                      $
                      0.05
                      
                      
                      $
                      0.04
                      
                      
                      
                      0.09
                      
                      
                      
                      0.04Undistributed
      earnings per share
                      
                      
                      0.06
                      
                      
                      
                      0.08
                      
                      
                      
                      0.08
                      
                      
                      
                      0.22Net
      income per share
                      
                      $
                      0.11
                      
                      
                      $
                      0.12
                      
                      
                      
                      0.17
                      
                      
                      
                      0.26Diluted
      earnings per share:Undistributed
      earnings
                      
                      $
                      379
                      
                      
                      $
                      559
                      
                      
                      
                      541
                      
                      
                      
                      1,523Total
      weighted-average basic shares and
      participating securitiesoutstanding
                      
                      
                      6,444
                      
                      
                      
                      6,886
                      
                      
                      
                      6,763
                      
                      
                      
                      6,878Add:
      Dilutive stock options
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Total
      weighted-average diluted shares and participating securities
      outstanding
                      
                      
                      6,444
                      
                      
                      
                      6,886
                      
                      
                      
                      6,763
                      
                      
                      
                      6,878Distributed
      earnings per share
                      
                      $
                      0.05
                      
                      
                      $
                      0.04
                      
                      
                      
                      0.09
                      
                      
                      
                      0.04Undistributed
      earnings per share
                      
                      
                      0.06
                      
                      
                      
                      0.08
                      
                      
                      
                      0.08
                      
                      
                      
                      0.22Net
      income per share
                      
                      $
                      0.11
                      
                      
                      $
                      0.12
                      
                      
                      
                      0.17
                      
                      
                      
                      0.26Anti-dilutive
      option shares
                      
                      
                      40,320
                      
                      
                      
                      —
                      
                      
                      
                      43,878
                      
                      
                      
                      —


9




BEACON
FEDERAL BANCORP, INC.




On
January 1, 2009, the Company adopted FSP EITF 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities.” This FSP requires that unvested restricted stock awards that
contain non-forfeitable rights to dividends are participating securities and are
included in the EPS computation using the two-class method. Prior period EPS
data is adjusted retrospectively. The Company’s weighted-average shares
outstanding and net income per common share for the three and six months ended
June 30, 2009 were computed in accordance with this FSP. Prior period per share
amounts were not impacted materially.


10




BEACON
FEDERAL BANCORP, INC.




NOTE
4 – SECURITIES




The
amortized cost, unrealized gross gains and losses and fair values of securities
at June 30, 2009 were as follows:


June
      30, 2009
                
                Amortized
                  Cost
                
                
                Gross
                  Unrealized
                  Gains
                
                
                Gross
                  Unrealized
                  Losses
                
                
                Fair
                  ValueHeld
      to maturity:Debt
      securities:Mortgage-backed
      securities
                
                $
                5,475
                
                
                $
                94
                
                
                $
                (16
                )
                
                $
                5,553Collateralized
      mortgage obligations
                
                
                12,936
                
                
                
                110
                
                
                
                (749
                )
                
                
                12,297Total
                
                $
                18,411
                
                
                $
                204
                
                
                $
                (765
                )
                
                $
                17,850Available
      for sale:Debt
      securities:Treasuries
                
                $
                100
                
                
                $
                2
                
                
                $
                —
                
                
                $
                102Agencies
                
                
                15,974
                
                
                
                —
                
                
                
                (99
                )
                
                
                15,875Pooled
      trust preferred securities
                
                
                13,167
                
                
                
                —
                
                
                
                (9,251
                )
                
                
                3,916Mortgage-backed
      securities
                
                
                42,503
                
                
                
                1,535
                
                
                
                —
                
                
                
                44,038Collateralized
      mortgage obligations
                
                
                88,464
                
                
                
                1,570
                
                
                
                (8,999
                )
                
                
                81,035Total
                
                $
                160,208
                
                
                $
                3,107
                
                
                $
                (18,349
                )
                
                $
                144,966




Maturities
of debt securities at June 30, 2009 are summarized as follows:


Held
      to Maturity
                                              
                                              
                                              Available
      for SaleAmortized
                                                Cost
                                              
                                              
                                              Fair
                                                Value
                                              
                                              
                                              Amortized
                                                Cost
                                              
                                              
                                              Fair
                                                ValueDue
      after one through five years
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              11,074
                                              
                                              
                                              $
                                              10,993Due
      after five through ten years
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              5,000
                                              
                                              
                                              
                                              4,984Due
      after ten years
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              13,167
                                              
                                              
                                              
                                              3,916—
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              29,241
                                              
                                              
                                              
                                              19,893Mortgage-backed
      securities
                                              
                                              
                                              5,475
                                              
                                              
                                              
                                              5,553
                                              
                                              
                                              
                                              42,503
                                              
                                              
                                              
                                              44,038Collateralized
      mortgage obligations
                                              
                                              
                                              12,936
                                              
                                              
                                              
                                              12,297
                                              
                                              
                                              
                                              88,464
                                              
                                              
                                              
                                              81,035$
                                              18,411
                                              
                                              
                                              $
                                              17,850
                                              
                                              
                                              $
                                              160,208
                                              
                                              
                                              $
                                              144,966




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


11




BEACON
FEDERAL BANCORP, INC.




The
amortized cost, unrealized gross gains and losses and fair values of securities
at December 31, 2008 were as follows:


December
      31, 2008
                
                Amortized
                  Cost
                
                
                Gross
                  Unrealized
                  Gains
                
                
                Gross
                  Unrealized
                  Losses
                
                
                Fair
                  ValueHeld
      to maturity:Debt
      securities:Mortgage-backed
      securities
                
                $
                6,291
                
                
                $
                67
                
                
                $
                (61
                )
                
                $
                6,297Collateralized
      mortgage obligations
                
                
                17,024
                
                
                
                77
                
                
                
                (1,443
                )
                
                
                15,658Total
                
                $
                23,315
                
                
                $
                144
                
                
                $
                (1,504
                )
                
                $
                21,955Available
      for sale:Debt
      securities:Treasuries
                
                $
                100
                
                
                $
                3
                
                
                $
                —
                
                
                $
                103Agencies
                
                
                3,000
                
                
                
                3
                
                
                
                —
                
                
                
                3,003Pooled
      trust preferred securities
                
                
                12,318
                
                
                
                —
                
                
                
                (7,535
                )
                
                
                4,783Mortgage-backed
      securities
                
                
                47,508
                
                
                
                1,144
                
                
                
                (10
                )
                
                
                48,642Collateralized
      mortgage obligations
                
                
                90,627
                
                
                
                1,222
                
                
                
                (8,577
                )
                
                
                83,272Total
                
                $
                153,553
                
                
                $
                2,372
                
                
                $
                (16,122
                )
                
                $
                139,803




Proceeds
from sale of securities available for sale, gross realized gains and gross
realized losses amounted to $129, $129 and $0, respectively for the six months
ended June 30, 2008. There were no such sales during the three months ended June
30, 2009 or 2008 or six months ended June 30, 2009.




In April
2009, the FASB issued FSP SFAS No. 115-2 and SFAS No. 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments.” FSP SFAS No. 115-2 and SFAS
No. 124-2 applies to debt securities classified as available-for-sale and
held-to-maturity and makes other-than-temporary impairment guidance more
operational and improves related presentation and disclosure requirements. This
FSP requires that impairment losses related to credit losses will be included in
earnings. Impairments related to other factors will be included in other
comprehensive income, when management asserts it does not have the intent to
sell the security and it is not more likely than not that it will have to sell
the security before its recovery.




For debt
securities held at the beginning of the interim period of adoption for which an
other-than-temporary impairment was previously recognized, if the entity does
not intend to sell and it is not more likely than not that it will be required
to sell the security before recovery of its amortized cost basis, the entity
will recognize the cumulative-effect adjustment, including related tax effects,
to the beginning balance of retained earnings and corresponding adjustment to
accumulated other comprehensive income. This FSP amends SFAS No. 115 and other
related guidance. FSP SFAS No. 115-2 and SFAS No. 124-2 was early adopted,
effective March 31, 2009.


12




BEACON
FEDERAL BANCORP, INC.




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:


Less
      than 12 Months
                                                                          
                                                                          
                                                                          12
      Months or Longer
                                                                          
                                                                          
                                                                          TotalJune
      30, 2009
                                                                          
                                                                          Fair
                                                                            Value
                                                                          
                                                                          
                                                                          Unrealized
                                                                            loss
                                                                          
                                                                          
                                                                          Fair
                                                                            Value
                                                                          
                                                                          
                                                                          Unrealized
                                                                            loss
                                                                          
                                                                          
                                                                          Fair
                                                                            Value
                                                                          
                                                                          
                                                                          Unrealized
                                                                            lossAgencies
                                                                          
                                                                          $
                                                                          15,875
                                                                          
                                                                          
                                                                          $
                                                                          (99
                                                                          )
                                                                          
                                                                          $
                                                                          —
                                                                          
                                                                          
                                                                          $
                                                                          —
                                                                          
                                                                          
                                                                          $
                                                                          15,875
                                                                          
                                                                          
                                                                          $
                                                                          (99
                                                                          )Pooled
      trust preferred securities
                                                                          
                                                                          
                                                                          —
                                                                          
                                                                          
                                                                          
                                                                          —
                                                                          
                                                                          
                                                                          
                                                                          3,916
                                                                          
                                                                          
                                                                          
                                                                          (9,251
                                                                          )
                                                                          
                                                                          
                                                                          3,916
                                                                          
                                                                          
                                                                          
                                                                          (9,251
                                                                          )Mortgage-backed
      securities
                                                                          
                                                                          
                                                                          —
                                                                          
                                                                          
                                                                          
                                                                          —
                                                                          
                                                                          
                                                                          
                                                                          2,010
                                                                          
                                                                          
                                                                          
                                                                          (16
                                                                          )
                                                                          
                                                                          
                                                                          2,010
                                                                          
                                                                          
                                                                          
                                                                          (16
                                                                          )Collateralized
      mortgage obligations
                                                                          
                                                                          
                                                                          5,674
                                                                          
                                                                          
                                                                          
                                                                          (66
                                                                          )
                                                                          
                                                                          
                                                                          23,068
                                                                          
                                                                          
                                                                          
                                                                          (9,682
                                                                          )
                                                                          
                                                                          
                                                                          28,742
                                                                          
                                                                          
                                                                          
                                                                          (9,748
                                                                          )$
                                                                          21,549
                                                                          
                                                                          
                                                                          $
                                                                          (165
                                                                          )
                                                                          
                                                                          $
                                                                          28,994
                                                                          
                                                                          
                                                                          $
                                                                          (18,949
                                                                          )
                                                                          
                                                                          $
                                                                          50,543
                                                                          
                                                                          
                                                                          $
                                                                          (19,114
                                                                          )Less
      than 12 Months
                                                                          
                                                                          
                                                                          12
      Months or Longer
                                                                          
                                                                          
                                                                          TotalDecember
      31, 2008
                                                                          
                                                                          Fair
                                                                            Value
                                                                          
                                                                          
                                                                          Unrealized
                                                                            loss
                                                                          
                                                                          
                                                                          Fair
                                                                            Value
                                                                          
                                                                          
                                                                          Unrealized
                                                                            loss
                                                                          
                                                                          
                                                                          Fair
                                                                            Value
                                                                          
                                                                          
                                                                          Unrealized
                                                                            lossPooled
      trust preferred securities
                                                                          
                                                                          $
                                                                          4,783
                                                                          
                                                                          
                                                                          $
                                                                          (7,535
                                                                          )
                                                                          
                                                                          $
                                                                          —
                                                                          
                                                                          
                                                                          $
                                                                          —
                                                                          
                                                                          
                                                                          $
                                                                          4,783
                                                                          
                                                                          
                                                                          $
                                                                          (7,535
                                                                          )Mortgage-backed
      securities
                                                                          
                                                                          
                                                                          6,276
                                                                          
                                                                          
                                                                          
                                                                          (32
                                                                          )
                                                                          
                                                                          
                                                                          1,616
                                                                          
                                                                          
                                                                          
                                                                          (39
                                                                          )
                                                                          
                                                                          
                                                                          7,892
                                                                          
                                                                          
                                                                          
                                                                          (71
                                                                          )Collateralized
      mortgage obligations
                                                                          
                                                                          
                                                                          21,029
                                                                          
                                                                          
                                                                          
                                                                          (5,612
                                                                          )
                                                                          
                                                                          
                                                                          9,087
                                                                          
                                                                          
                                                                          
                                                                          (4,408
                                                                          )
                                                                          
                                                                          
                                                                          30,116
                                                                          
                                                                          
                                                                          
                                                                          (10,020
                                                                          )$
                                                                          32,088
                                                                          
                                                                          
                                                                          $
                                                                          (13,179
                                                                          )
                                                                          
                                                                          $
                                                                          10,703
                                                                          
                                                                          
                                                                          $
                                                                          (4,447
                                                                          )
                                                                          
                                                                          $
                                                                          42,791
                                                                          
                                                                          
                                                                          $
                                                                          (17,626
                                                                          )




No
assurance can be made that the credit quality of the securities with unrealized
losses at June 30, 2009 will not deteriorate in the future which may require
future reductions in income for OTTI credit losses.




Agencies (4 issues). The
unrealized losses on the Company’s agencies 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 it is not more likely
than not that 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-temporarily impaired credit related losses at June 30,
2009.




Pooled Trust Preferred Securities
(PTPS) (6 issues). The unrealized losses on the Company’s pooled trust
preferred securities, which are backed by banking 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 it is not
more likely than not that 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-temporarily impaired credit related losses at June
30, 2009.


13




BEACON
FEDERAL BANCORP, INC.




Our PTPS
were rated “BBB+”, or lower, and the lowest was rated “Ca”, as discussed
below.




Mortgage-backed Securities (2 issues)
and Privately-Issued Collateralized Mortgage Obligations (14 issues). The
unrealized losses on the Company’s mortgage-backed securities and
privately-issued 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 it is not
more likely than not that 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-temporarily impaired credit related losses at June
30, 2009.




Eight
privately issued CMOs were rated “AAA” and six issues were rated less than
investment grade with the lowest rated Caa2, as discussed below.




Other-Than-Temporary
Impairments. In estimating other-than-temporary impairment (“OTTI”)
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 is it 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 (see “Recent
Accounting Pronouncements” for discussion of authoritative accounting literature
as it relates to other-than-temporary impairments).




OTTI
credit losses recognized in non-interest expense during the three months ended
(QTD) and six months ended (YTD) June 30, 2009 and OTTI non-credit losses
recognized in accumulated other comprehensive loss (AOCL) at June 30, 2009 were
summarized as follows:


OTTI
      Credit Loss
                          June
      30, 2009
                        
                        
                        Non-Credit
                          Loss
      in AOCL
                          June
      30, 2009Fair
                          ValueDescription/Rating
                        
                        
                        Number
                        
                        
                        QTD
                        
                        
                        YTDTrust
      preferred securities:Ca
                        
                        
                        
                        1
                        
                        
                        $
                        200
                        
                        
                        $
                        418
                        
                        
                        $
                        635
                        
                        
                        $
                        1,166Caa1
                        
                        
                        
                        1
                        
                        
                        
                        80
                        
                        
                        
                        72
                        
                        
                        
                        72
                        
                        
                        
                        6072
                        
                        
                        
                        280
                        
                        
                        
                        490
                        
                        
                        
                        707
                        
                        
                        
                        1,773Collateralized
      mortgage obligations:Caa2
                        
                        
                        
                        1
                        
                        
                        
                        1,349
                        
                        
                        
                        —
                        
                        
                        
                        207
                        
                        
                        
                        1,793B3
                        
                        
                        
                        1
                        
                        
                        
                        1,373
                        
                        
                        
                        48
                        
                        
                        
                        48
                        
                        
                        
                        2,5792
                        
                        
                        
                        2,722
                        
                        
                        
                        48
                        
                        
                        
                        255
                        
                        
                        
                        4,3724
                        
                        
                        $
                        3,002
                        
                        
                        $
                        538
                        
                        
                        $
                        962
                        
                        
                        $
                        6,145




The
Company recognized an OTTI credit loss on trust preferred securities of $490 and
$707 during the three and six months ended June 30, 2009, respectively. The
Company used a discounted cash flow (“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 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 EITF 99-20. The
increase in the defaults and deferrals contributed to the OTTI credit loss. For
those trust preferred securities with OTTI credit losses, defaults and deferrals
provided by a third-party broker increased by $59.0 million and $86.3 million
for the three and six months ended June 30, 2009, respectively.


14




BEACON
FEDERAL BANCORP, INC.




The
Company recognized an OTTI credit loss on collateralized mortgage obligations of
$48 and $255 during the three and six months ended June 30, 2009, respectively.
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” (not high quality), the Company discounts the
expected cash flows at the current yield used to accrete the beneficial interest
in accordance with EITF 99-20. The increase in the percentage of loans greater
than 90 days delinquent contributed to the OTTI credit loss. For those
collateralized mortgage obligations with OTTI credit losses, the percentage of
loans greater than 90 days delinquent provided by a third-party broker increased
from 14% on average at December 31, 2008 to 18% on average at June 30,
2009.




The
largest OTTI credit loss for any single issue was $635 for the six months ended
June 30, 2009 and represented 46.5% of its amortized cost. The percentage of
OTTI credit loss to amortized cost for the other three issues ranged from 1.2%
to 10.5%. These OTTI credit losses resulted more from the Company’s credit
analysis than the extent of decline in value of the securities.




An OTTI
loss of $273 and $801 related to FNMA and FHLMC perpetual preferred stock was
recorded during the three and six months ended June 30, 2008, respectively. The
Company’s FNMA and FHLMC preferred stock was sold in December 2008.




The
following table summarizes the change in OTTI credit related losses on
securities, exclusive of tax effects, for the six months ended June 30,
2009:


Credit
      related impairments with a portion recognized in other comprehensive
      loss:Balance
      at January 1, 2009
                  
                  $
                  —Cumulative
      effect adjustment:Total
      OTTI credit related losses at January 1, 2009
                  
                  
                  4,596Less:
      adoption of FSP SFAS No. 115-2 in other comprehensive loss
                  
                  
                  3,010Balance
      at January 1, 2009, as adjusted
                  
                  
                  1,586Credit
      related impairments on portions of OTTI previously recognized in other
      comprehensive loss
                  
                  
                  962Balance
      at June 30, 2009
                  
                  $
                  2,548


15




BEACON
FEDERAL BANCORP, INC.




NOTE
5 – LOANS, FORECLOSED ASSETS AND REPOSESSED ASSETS




Activity
in the allowance for loan losses was as follows:


Three
      Months Ended
                  June
      30,
                
                
                Six
      Months Ended
                  June
      30,2009
                
                
                2008
                
                
                2009
                
                
                2008Beginning
      balance
                
                $
                12,568
                
                
                $
                7,537
                
                
                $
                10,546
                
                
                $
                6,827Provision
      for loan losses
                
                
                1,900
                
                
                
                1,530
                
                
                
                4,470
                
                
                
                2,430Loans
      charged off
                
                
                (321
                )
                
                
                (971
                )
                
                
                (938
                )
                
                
                (1,241
                )Recoveries
                
                
                114
                
                
                
                64
                
                
                
                183
                
                
                
                144Ending
      balance
                
                $
                14,261
                
                
                $
                8,160
                
                
                $
                14,261
                
                
                $
                8,160Ratios:Annualized
      net charge-offs to average loans outstanding
                
                
                0.10
                %
                
                
                0.48
                %
                
                
                0.19
                %
                
                
                0.30
                %Allowance
      for loan losses to nonperforming loans at end of period
                
                
                104.98
                %
                
                
                210.09
                %
                
                
                104.98
                %
                
                
                210.09
                %Allowance
      for loan losses to total loans at end of period
                
                
                1.76
                %
                
                
                1.08
                %
                
                
                1.76
                %
                
                
                1.08
                %


16




BEACON
FEDERAL BANCORP, INC.




Following
is a summary of nonperforming assets, impaired loans and other related
data:


June
      30,
                  2009
                
                
                December
      31,
                  2008Nonaccrual
      loans
                
                $
                9,531
                
                
                $
                3,711Loans
      past due over 90 days still accruing
                
                
                4,054
                
                
                
                975Total
      nonaccrual loans and loans past due over 90 days and still
      accruing
                
                
                13,585
                
                
                
                4,686Foreclosed
      and repossessed assets
                
                
                115
                
                
                
                149Total
      nonperforming assets
                
                $
                13,700
                
                
                $
                4,835Ratios:Nonperforming
      loans to total loans
                
                
                1.67
                %
                
                
                0.60
                %Nonperforming
      assets to total assets
                
                
                1.31
                %
                
                
                0.47
                %Impaired
      loans (in nonaccrual loans)
                
                $
                5,890
                
                
                $
                2,439Impaired
      loans (not in nonaccrual loans)
                
                
                648
                
                
                
                —Total
      impaired loans
                
                $
                6,538
                
                
                $
                2,439Allowance
      for losses on impaired loans
                
                $
                2,511
                
                
                $
                610Impaired
      loans with no allowance
                
                $
                —
                
                
                $
                —Average
      balance of impaired loans
                
                $
                4,837
                
                
                $
                1,338Interest
      income recognized
                
                $
                57
                
                
                $
                22




At June
30, 2009, there were no troubled debt restructurings (loans for which a portion
of interest or principal had been forgiven and loans modified at interest rates
materially less than current market rates). In addition, there were no loans
that were not currently classified as nonaccrual, 90 days past due or impaired
but where known information about possible credit problems of the borrower
caused management to have serious concerns as to the ability of the borrower to
comply with present loan repayment terms and that may result in disclosure as
nonaccrual, 90 days past due or impaired.




NOTE
6 – CAPITAL LEASE




During
June 2009, the Company entered into a capital lease for the building occupied at
6611 Manlius Center Road, East Syracuse, New York. The lease term is for 25
years with two, five-year lease renewal options. The expense for the three and
six months ended June 30, 2009 was considered immaterial.


17




BEACON
FEDERAL BANCORP, INC.




Following
is a summary of future minimum lease payments, exclusive of real estate taxes
and operating expenses, under the capital lease together with the present value
of net minimum lease payments as of June 30, 2009:


June
      30,
                        2009July
      1, 2009 through December 31, 2009
                      
                      $
                      333January
      1, 2010 through December 31, 2010
                      
                      
                      665January
      1, 2011 through December 31, 2011
                      
                      
                      665January
      1, 2012 through December 31, 2012
                      
                      
                      665January
      1, 2013 through December 31, 2013
                      
                      
                      665January
      1, 2014 through December 31, 2014
                      
                      
                      699Thereafter
                      
                      
                      15,371Total
      minimum lease payments
                      
                      
                      19,063Less
      amount representing interest
                      
                      
                      8,455Present
      value of net minimum lease
                      
                      $
                      10,608




NOTE
7 – MORTGAGE SERVICING RIGHTS




Mortgage
loans, including securitized loans, serviced for others at June 30, 2009 and
December 31, 2008 were $105,642 and $64,705, respectively. On January 1, 2009,
the Company adopted the subsequent measurement provisions under SFAS No. 156,
“Accounting for Servicing of Financial Assets,” and transferred its mortgage
servicing rights from a class using the amortization method to the fair value
method. There was no cumulative effect adjustment recognized at the adoption
date, since the carrying value approximated the fair value of the mortgage
servicing rights.




Mortgage
servicing rights, included in other assets, are summarized as
follows:


Six
      Months Ended
                  June
      30,2009
                
                
                2008Beginning
      balance
                
                $
                313
                
                
                $
                —Additions
                
                
                490
                
                
                
                —Disposals
                
                
                —
                
                
                
                —Change
      in fair value in non-interest expense
                
                
                (34
                )
                
                
                —Ending
      balance
                
                $
                769
                
                
                $
                —




Fair
value is based on a valuation model that calculates the present value of
estimated future net servicing income. The valuation model includes assumptions
that market participants would use in estimating future net servicing income,
including the discount rate, prepayment rate, ancillary income, float earnings
rate, inflation rate, cost to service, acquisition costs and delinquency
rates.


18




BEACON
FEDERAL BANCORP, INC.




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 agreements to
sell residential loans up to $60.0 million to the FHLB of New York.
Approximately $48.6 million has been sold through June 30, 2009. Under the
agreement, the Bank has a maximum credit enhancement of $1.7 million at June 30,
2009.




NOTE
8 – EQUITY INCENTIVE PLAN




Equity Incentive
Plan: As authorized by
the Beacon Federal Bancorp, Inc. 2008 Equity Incentive Plan (the “2008 Plan”),
the Board of Directors granted 444,134 shares of non-incentive stock options and
265,884 shares of common stock as restricted stock awards to directors, officers
and employees on November 26, 2008. The 2008 Plan authorizes the award of up to
739,643 shares pursuant to grants of stock options and up to 295,857 shares of
common stock may be issued as restricted stock awards, subject to restrictions,
to directors, officers and employees of the Company and the Bank. The Plan
provides for the grant of stock options, stock appreciation rights and
restricted stock. Options expire ten years from the date of the grant. All stock
options and stock awards granted are vested over a three-year
period.




The
Company follows SFAS No. 123R, “Share-Based Payment,” using the modified
prospective method. Under this method compensation expense is recognized based
on the fair value of awards granted, which includes restricted stock and stock
options, at the grant date and is recognized on a straight-line basis over the
requisite service period, generally defined as the vesting period.




The
Company has estimated the fair value of awards granted under its stock option
plan to be $1.60 utilizing the Black-Scholes pricing model. There were no awards
granted during the three or six months ended June 30, 2009 or 2008.




Stock
option compensation expense is as follows:


Three
      Months Ended
                                      June
      30,
                                    
                                    
                                    Six
      Months Ended
                                      June
      30,2009
                                    
                                    
                                    2008
                                    
                                    
                                    2009
                                    
                                    
                                    2008Pre-tax
                                    
                                    $
                                    71
                                    
                                    
                                    
                                    —
                                    
                                    
                                    $
                                    129
                                    
                                    
                                    
                                    —After-tax
                                    
                                    
                                    43
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    78
                                    
                                    
                                    
                                    —Basic
      and diluted earnings per share
                                    
                                    $
                                    0.01
                                    
                                    
                                    
                                    —
                                    
                                    
                                    $
                                    0.01
                                    
                                    
                                    
                                    —




At June
30, 2009, the total unrecognized expense related to non-vested stock options was
approximately $559 and is expected to be recognized over the weighted-average
period of 2.30 years.


19




BEACON
FEDERAL BANCORP, INC.




A summary
of the Company’s stock option activity under the Plan for the six months ended
June 30, 2009 is as follows:


Number
                                      of
      Shares
                                    
                                    
                                    Weighted-
                                      Average
                                      Exercise
                                      Price
                                    
                                    
                                    Weighted-
                                      Average
                                      Remaining
                                      Contractual
                                      Term
      in
                                      Years
                                    
                                    
                                    Aggregate
                                      Intrinsic
                                      ValueOutstanding
      at January 1, 2009
                                    
                                    
                                    444,134
                                    
                                    
                                    $
                                    8.23
                                    
                                    
                                    
                                    9.90
                                    
                                    
                                    $
                                    —Granted
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Exercised
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Expired
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Forfeited
                                    
                                    
                                    (2,500
                                    )
                                    
                                    
                                    8.23
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Outstanding
      at June 30, 2009
                                    
                                    
                                    441,634
                                    
                                    
                                    $
                                    8.23
                                    
                                    
                                    
                                    9.40
                                    
                                    
                                    $
                                    —Exercisable
      at June 30, 2009
                                    
                                    
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    $
                                    —Vested
      at June 30, 2009
                                    
                                    
                                    36,000
                                    
                                    
                                    $
                                    8.23
                                    
                                    
                                    
                                    9.40
                                    
                                    
                                    $
                                    —At
      June 30, 2009 share options expected to vest in the future
                                    
                                    
                                    398,174
                                    
                                    
                                    $
                                    8.23
                                    
                                    
                                    
                                    9.40
                                    
                                    
                                    $
                                    —A
      summary of the Company’s restricted stock award expense is as
      follows:
  Three
      Months EndedJune
      30,
                                                              
                                                              
                                                              Six
      Months EndedJune
      30,2009
                                                              
                                                              
                                                              2008
                                                              
                                                              
                                                              2009
                                                              
                                                              
                                                              2008Pre-tax
                                                              
                                                              $
                                                              230
                                                              
                                                              
                                                              $
                                                              —
                                                              
                                                              
                                                              $
                                                              412
                                                              
                                                              
                                                              $
                                                              —After-tax
                                                              
                                                              
                                                              138
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              247
                                                              
                                                              
                                                              
                                                              —Basic
      and diluted earnings per share
                                                              
                                                              $
                                                              0.02
                                                              
                                                              
                                                              $
                                                              —
                                                              
                                                              
                                                              $
                                                              0.04
                                                              
                                                              
                                                              $
                                                              —




At June
30, 2009, the total unrecognized expense related to restricted stock awards was
approximately $1.7 million and is expected to be recognized over the
weighted-average period of 2.30 years.




A summary
of the Company’s non-vested stock award activity for the period ended June 30,
2009 is as follows:


Number
                                      of
                                      Nonvested
                                      Shares
                                    
                                    
                                    Weighted-
                                      Average
                                      Grant
      Date
                                      Fair
      ValueNonvested
      at January 1, 2009
                                    
                                    
                                    265,884
                                    
                                    
                                    $
                                    8.23Granted
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —Vested
                                    
                                    
                                    (25,000
                                    )
                                    
                                    
                                    8.23Forfeited
                                    
                                    
                                    (1,250
                                    )
                                    
                                    
                                    8.23Nonvested
      at June 30, 2009
                                    
                                    
                                    239,634
                                    
                                    
                                    $
                                    8.23


20




BEACON
FEDERAL BANCORP, INC.




NOTE
9 – INCOME TAXES




We
adopted the provisions of FASB Interpretation (“FIN”) No. 48, “Accounting for
Uncertainty in Income Taxes - an interpretation of FASB No. 109,” effective
January 1, 2007. There was no cumulative effect on adoption of FIN 48. At June
30, 2009, the Company had $190 of unrecognized tax benefits, which would affect
the effective tax rate if recognized. The Company does not anticipate that the
total unrecognized tax benefits will change significantly in the next twelve
months. 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, 2005 through December 31, 2007 remain open
to examination by these jurisdictions. We recognize interest and penalties
related to tax positions in income tax expense.




NOTE
10 – FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS




Fair
Value Measurements




General. The Company follows the provisions of
SFAS No. 157, “Fair Value Measurements,” for financial assets and liabilities.
Effective January 1, 2009, the Company adopted the provisions of Financial
Accounting Standards Board Staff Position (FSP) No. 157-2, “Effective Date of
FASB Statement No. 157,” for non-financial assets and liabilities that are not
recognized or disclosed at fair value in the financial statements. In addition,
the Company adopted FSP SFAS No. 157-4, “Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly” (See Note 4 to Consolidated
Financial Statements for discussion of the early adoption of FSP SFAS No. 115-2
and SFAS No. 124-2).




SFAS No.
157 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.
Available for sale securities 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. Assumptions used in the analysis include
the 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 EITF
99-20.


21




BEACON
FEDERAL BANCORP, INC.




Trading
account assets consist of the securitization of 30 year mortgage loans. When the
Company securitizes mortgage loans, it may hold a portion of the securities
issued, including subordinated and other residual interests and interest-only
strips, all of which are interests that continue to be held by the Company.
Interests in securitized mortgage loans that continue to be held by the Company,
excluding servicing assets, if any, are classified as either securities
available for sale or trading assets and are recorded at their allocated
carrying amounts based on the relative fair value of the assets sold and
interests that continue to be held by the Company, utilizing Level 2 inputs.
These interests are subsequently carried at fair value, which is based on
independent, third party market prices, market prices for similar assets, or
discounted cash flow analyses. If market prices are not available, fair value is
derived by management’s best estimates of key assumptions, including credit
losses, loan prepayment rates and discount rates commensurate with the risks
involved.




Mortgage
loans originated and intended for sale in the secondary market are carried at
the lower of aggregate cost or market, utilizing Level 2 inputs as determined
based on expected proceeds from outstanding commitments from
investors.




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 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.




The
Company had outstanding forward sales contracts of $9.5 million in notional
value, matched against $10.4 million of interest rate lock commitments at June
30, 2009. The interest rate lock commitments included in other assets and
forward sales contracts recognized in other liabilities amounted to $92 and $16,
respectively, at June 30, 2009 and were accounted for at fair value as an
undesignated derivative under SFAS No. 133, with a $92 fair value gain on the
interest rate lock commitments and a $16 fair value loss on the mandatory
forward sales contracts recognized in non-interest income for the six months
ended June 30, 2009. 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 have enough sources of liquidity to satisfy future cash
requirements as they relate to these derivative instruments.


22




BEACON
FEDERAL BANCORP, INC.




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. Commercial 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.




Non-financial
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 2 units
based on observable market data less costs to sell when acquired, establishing a
new cost basis. Foreclosed assets also include properties for which the Bank has
taken physical possession, even though formal foreclosure proceedings have not
taken place.




Financial 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 June 30, 2009, segregated by the level of the inputs within
the hierarchy used to measure fair value:


Assets
                    
                    Quoted
      Prices in
                      Active
      Markets
                      for
      Identical
                      Assets
                      (Level
      1)
                    
                    
                    Significant
                      Other
                      Observable
                      Inputs
                      (Level
      2)
                    
                    
                    Significant
                      Unobservable
                      Inputs
                      (Level
      3)
                    
                    
                    Total
                      Fair
                      ValueAvailable
      for sale securities:Debt
      securities:U.S.
      Treasury and agencies
                    
                    $
                    102
                    
                    
                    
                    15,875
                    
                    
                    
                    —
                    
                    
                    
                    15,977Pooled
      trust preferred securities
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    3,916
                    
                    
                    
                    3,916Mortgage-backed
      securities
                    
                    
                    —
                    
                    
                    
                    44,038
                    
                    
                    
                    —
                    
                    
                    
                    44,038Collateralized
      mortgage obligations
                    
                    
                    —
                    
                    
                    
                    81,035
                    
                    
                    
                    —
                    
                    
                    
                    81,035$
                    102
                    
                    
                    $
                    140,948
                    
                    
                    $
                    3,916
                    
                    
                    $
                    144,966Loans
      held for sale
                    
                    $
                    —
                    
                    
                    $
                    3,301
                    
                    
                    $
                    —
                    
                    
                    $
                    3,301Mortgage
      servicing rights
                    
                    $
                    —
                    
                    
                    $
                    769
                    
                    
                    $
                    —
                    
                    
                    $
                    769Loan
      commitment derivatives
                    
                    $
                    —
                    
                    
                    $
                    92
                    
                    
                    $
                    —
                    
                    
                    $
                    92LiabilitiesSales
      contract derivatives
                    
                    $
                    —
                    
                    
                    $
                    16
                    
                    
                    $
                    —
                    
                    
                    $
                    16




23




BEACON
FEDERAL BANCORP, INC.




The
following table summarizes financial assets measured at fair value on a
recurring basis at December 31, 2008, segregated by the level of the inputs
within the hierarchy used to measure fair value:


Assets
                  
                  Quoted
      Prices in
                    Active
      Markets
                    for
      Identical
                    Assets
                    (Level
      1)
                  
                  
                  Significant
                    Other
                    Observable
                    Inputs
                    (Level
      2)
                  
                  
                  Significant
                    Unobservable
                    Inputs
                    (Level
      3)
                  
                  
                  Total
                    Fair
                    ValueTrading
      account assets
                  
                  $
                  —
                  
                  
                  $
                  23,337
                  
                  
                  $
                  —
                  
                  
                  $
                  23,337Available
      for sale securities:Debt
      securities:U.S.
      Treasury and agencies
                  
                  $
                  —
                  
                  
                  $
                  3,106
                  
                  
                  $
                  —
                  
                  
                  $
                  3,106Pooled
      trust preferred securities
                  
                  
                  —
                  
                  
                  
                  4,783
                  
                  
                  
                  —
                  
                  
                  
                  4,783Mortgage-backed
      securities
                  
                  
                  —
                  
                  
                  
                  48,642
                  
                  
                  
                  —
                  
                  
                  
                  48,642Collateralized
      mortgage obligations
                  
                  
                  —
                  
                  
                  
                  83,272
                  
                  
                  
                  —
                  
                  
                  
                  83,272$
                  —
                  
                  
                  $
                  139,803
                  
                  
                  $
                  —
                  
                  
                  $
                  139,803




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:


Balance
      at January 1, 2009
                        
                        $
                        —Transfer
      from Level 2 to Level 3 input category at March 31, 2009
                        
                        
                        3,874Unrealized
      gains recognized in other comprehensive loss
                        
                        
                        259Decrease
      in unrealized losses due to recognition of OTTI credit
    losses
                        
                        
                        490OTTI
      credit related losses recognized in non-interest expense
                        
                        
                        (707
                        )Balance
      at June 30, 2009
                        
                        $
                        3,916




Financial Assets Measured at Fair
Value on a Non-Recurring Basis. Assets measured at fair value on a
non-recurring basis at June 30, 2009 include impaired loans of $6,538, utilizing
level 3 inputs. The impaired loans are collateral dependent and the allowance
for losses on the impaired loans was $2,511 at June 30, 2009.


24




BEACON
FEDERAL BANCORP, INC.




The
activity in the allowance for losses on impaired loans during the six months
ended June 30, 2009 was as follows:


Balance
      at January 1, 2009
                  
                  $
                  610Provision
      for loan losses
                  
                  
                  1,926Loans
      charged off
                  
                  
                  (25
                  )Recoveries
                  
                  
                  —Balance
      at June 30, 2009
                  
                  $
                  2,511




Assets
measured at fair value on a non-recurring basis at December 31, 2008 include
mortgage servicing rights of $313, utilizing level 2 inputs. There were impaired
loans of $2,439 at December 31, 2008.




Non-financial Assets Measured at Fair
Value on a Non-Recurring Basis. Non-financial assets measured on a
non-recurring basis at June 30, 2009 include foreclosed and repossessed assets
of $115,000 at June 30, 2009. There was no provision for losses on these assets
during the three and six months ended June 30, 2009.




Financial
Instruments




Carrying
amount and estimated fair values of financial instruments were as
follows:


June
      30,
                    2009
                  
                  December
      31,
                    2008Carrying
                    Amount
                  
                  Fair
                    Value
                  
                  Carrying
                    Amount
                  
                  Fair
                    ValueFinancial
      assets:Cash
      and cash equivalents
                  
                  $
                  25,034
                  
                  $
                  25,034
                  
                  $
                  18,297
                  
                  $
                  18,297Interest-bearing
      deposits
                  
                  
                  536
                  
                  
                  536
                  
                  
                  536
                  
                  
                  536Trading
      account assets
                  
                  
                  —
                  
                  
                  —
                  
                  
                  23,337
                  
                  
                  23,337Securities
      held to maturity
                  
                  
                  18,411
                  
                  
                  17,850
                  
                  
                  23,315
                  
                  
                  21,955Securities
      available for sale
                  
                  
                  144,966
                  
                  
                  144,966
                  
                  
                  139,803
                  
                  
                  139,803Loans
      held for sale
                  
                  
                  3,301
                  
                  
                  3,301
                  
                  
                  1,536
                  
                  
                  1,536Loans,
      net
                  
                  
                  802,108
                  
                  
                  810,012
                  
                  
                  770,695
                  
                  
                  782,919FHLB
      stock
                  
                  
                  12,452
                  
                  
                  N/A
                  
                  
                  13,080
                  
                  
                  N/AAccrued
      interest receivable
                  
                  
                  3,684
                  
                  
                  3,684
                  
                  
                  3,985
                  
                  
                  3,985Financial
      liabilities:Deposits
                  
                  
                  658,510
                  
                  
                  663,219
                  
                  
                  626,467
                  
                  
                  632,809Federal
      Home Loan Bank advances
                  
                  
                  208,641
                  
                  
                  220,042
                  
                  
                  218,641
                  
                  
                  234,217Securities
      sold under agreement to repurchase
                  
                  
                  70,000
                  
                  
                  75,988
                  
                  
                  70,000
                  
                  
                  79,089Accrued
      interest payable
                  
                  $
                  1,533
                  
                  $
                  1,533
                  
                  $
                  2,098
                  
                  $
                  2,098


25




BEACON
FEDERAL BANCORP, INC.




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.




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 June
30, 2009 and for the three and six months ended June 30, 2009 and 2008 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, 2008, 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.




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.


26




BEACON
FEDERAL BANCORP, INC.




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.




Economic
Conditions.The national economy,
as well as the local economy, continue to weaken. The economy has been marked by
higher unemployment rates, rising numbers of foreclosures, declining home prices
and contractions in business and consumer credit. The national unemployment rate
rose to 9.5% in June 2009 from 4.9% at the end of 2007. The unemployment rate in
the Company’s market area in New York is slightly below the national average.
The Federal Open Market Committee has responded by reducing the federal funds
rate from 4.25 % at December 11, 2007 to the current rate between 0.00% and
0.25%. The reduction in the federal funds rate has increased the Company’s net
interest margin and net interest income. However, price competition for loans
and deposits has increased.




Financial
institutions have been affected by the lack of liquidity and credit
deterioration, resulting in depressed valuations and failures of certain banks.
In October 2008, the Emergency Economic Stabilization Act of 2008 (“ESSA”) was
enacted, providing for $700 billion in funding to the U.S. Treasury to restore
liquidity and stability to the U.S. financial system and includes extensive tax,
energy and disaster relief provisions.




In
December 2008, we elected to not participate in the U.S. Treasury Capital
Purchase Program and at June 30, 2009 Beacon Federal was categorized as “well
capitalized” under regulatory capital requirements.




In
February 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was
enacted, providing for tax cuts, expansion of unemployment benefits, social
welfare provisions, and spending programs for education, health care and
infrastructure.




Operating
Results. Net
income decreased to $694,000 for the three months ended June 30, 2009 from
$833,000 for the three months ended June 30, 2008. Net income decreased to $1.1
million for the six months ended June 30, 2009 from $1.8 million for the six
months ended June 30, 2008. The decrease in net income reflected an increased
provision for loan losses and an increase in non-interest expense, partially
offset by an increase in net interest income and non-interest income and lower
income taxes.




Financial
Condition.Total assets increased
$24.8 million to $1.05 billion at June 30, 2009 from $1.02 billion at December
31, 2008. The increase was the result of a $6.7 million increase in cash and
cash equivalents, a $31.4 million increase in net loans, a $1.8 million increase
in loans held for sale and an $8.9 million increase in premises and equipment,
partially offset by a $23.3 million decrease in trading account assets. The
increase in assets was funded by a $32.0 million increase in deposits, partially
offset by a $10.0 million decrease in borrowings. Equity decreased $5.0 million,
or 4.9%, to $97.1 million at June 30, 2009 from $102.1 million at December 31,
2008.


27




BEACON
FEDERAL BANCORP, INC.




Critical
Accounting Policies




We
consider accounting policies that require management to exercise significant
judgment or discretion or make significant assumptions that have, or could have,
a material impact on the carrying value of certain assets or on income, to be
critical accounting policies. We consider the following to be our critical
accounting policies:




Allowance for
Loan Losses.The allowance for loan
losses is the estimated amount considered necessary to cover probable incurred
credit losses inherent in the loan portfolio at the balance sheet date. The
allowance is established through the provision for loan losses, which is charged
against income. In determining the allowance for loan losses, management makes
significant estimates. The methodology for determining the allowance for loan
losses is considered a critical accounting policy by management due to the high
degree of judgment involved, the subjectivity of the assumptions utilized and
the potential for changes in the economic environment that could result in
changes to the amount of the recorded allowance for loan losses.




A
substantial amount of our loan portfolio is collateralized by real estate.
Appraisals of the underlying value of property securing loans and discounted
cash flow valuations of properties are critical in determining the amount of the
allowance required for specific loans. Assumptions for appraisals and discounted
cash flow valuations are instrumental in determining the value of properties.
Overly optimistic assumptions or negative changes to assumptions could
significantly affect the valuation of a property securing a loan and the related
allowance. The assumptions supporting such appraisals and discounted cash flow
valuations are carefully reviewed by management to determine that the resulting
values reasonably reflect amounts realizable on the related loans.




Management
performs a quarterly evaluation of the adequacy of the allowance for loan
losses. Consideration is given to a variety of factors in establishing this
estimate including, but not limited to, current economic conditions, delinquency
statistics, geographic and industry concentrations, the adequacy of the
underlying collateral, the financial strength of the borrower, results of
internal and external loan reviews and other relevant factors. This evaluation
is inherently subjective, as it requires material estimates that may be
susceptible to significant revision based on changes in economic and real estate
market conditions.




The
analysis of the allowance for loan losses has two components: specific and
general allocations. Specific allocations are made for loans that are determined
to be impaired. Impairment is measured by determining the present value of
expected future cash flows or, for collateral-dependent loans, the fair value of
the collateral adjusted for market conditions and selling expenses. The general
allocation is determined by segregating the remaining loans by type of loan,
risk weighting (if applicable) and payment history. We also analyze historical
loss experience, delinquency trends, general economic conditions and geographic
and industry concentrations. This analysis establishes factors that are applied
to the loan groups to determine the amount of the general allocations. Actual
loan losses may be significantly more than the allowance for loan losses we have
established, which could have a material negative effect on our financial
results.




Securities
Impairment.We periodically perform
analyses to determine whether there has been an other- than-temporary decline in
the value of one or more of our securities. Our available-for-sale securities
portfolio is carried at estimated fair value, with any unrealized gains or
losses, net of taxes, reported as accumulated other comprehensive income or loss
in stockholders’ equity. Our held-to-maturity securities portfolio, consisting
of debt securities for which we have a positive intent and ability to hold to
maturity, is carried at amortized cost. We conduct a quarterly review and
evaluation of the securities portfolio to determine if the value of any security
has declined below its cost or amortized cost, and whether such decline is
other-than-temporary. If such decline is deemed other-than-temporary, we adjust
the cost basis of the security by writing down the security to estimated fair
market value through a charge to current period operations. The market values of
our securities are affected by changes in interest rates.


28




BEACON
FEDERAL BANCORP, INC.




Comparison
of Financial Condition at June 30, 2009 and December 31, 2008




Cash and Cash
equivalents.Cash and cash
equivalents increased $6.7 million. The Company is retaining higher levels of
cash and cash equivalents due to the limited borrowing capacity with the Federal
Home Loan Bank of New York (discussed below) and for funding short-term growth.
The Company can utilize alternative sources of financing, including brokered
deposits.




Trading Account
Assets.Proceeds received from
sale of trading account assets, which consisted of 30-year mortgages, were
initially retained in cash and cash equivalents and later used to fund purchases
of agency securities and originations of loans.




Securities.
Securities available for sale increased to $145.0 million at June 30, 2009 from
$139.8 million at December 31, 2008. The increase in securities available for
sale reflected the purchases of $26.0 million in excess of maturities of $21.3
million. Securities held to maturity decreased $4.9 million to $18.4 million at
June 30, 2009.




Loans,Net. Net loans increased $31.4
million, or 4.1%, to $802.1 million at June 30, 2009 from $770.7 million at
December 31, 2008, reflecting strong business relationships maintained by our
loan staff in their local markets.




Premises and
Equipment,Net.Premises and equipment,
net increased primarily as a result of the Company entering into a $7.8 million
capital lease for the new building constructed at 6611 Manlius Center Road, in
East Syracuse, New York.




Other
Assets. Federal
Home Loan Bank of New York stock decreased $628,000 to $12.5 million at June 30,
2009 as a result of a lower level of FHLB advances outstanding, which required
redemption of the stock. Accrued interest receivable decreased due primarily to
a lower yield on loans and timing of interest receipts, partially offset by a
higher loan balance and a higher yield on securities.




Deposits.
Deposits increased $32.0 million, or 5.1%, to $658.5 million at June 30, 2009
from $626.5 million at December 31, 2008, due to the success of promotional
efforts throughout the period to attract additional deposits. Certificate of
deposit accounts increased by $19.1 million and represented the largest dollar
increase in our deposit accounts. Savings accounts, checking accounts, money
market accounts and non-interest bearing demand accounts increased by $4.5
million, $4.7 million, $2.0 million and $1.7 million, respectively.




Borrowings. FHLB advances are utilized
to the extent that liquidity needs are not met by cash received from customer
deposits. FHLB advances decreased $10.0 million, or 4.6%, to $208.6 million at
June 30, 2009 from $218.6 million at December 31, 2008. Retail certificates of
deposit were generally utilized to a greater degree during the quarter because
the Company has temporarily lost its ability to borrow additional amounts from
the FHLB due to loan repayments, payoffs and downgrades of certain securities
collateral. The Company is attempting to pledge additional assets, other than
single-family loans and securities, in order to increase its borrowing capacity
with the FHLB.


29




BEACON
FEDERAL BANCORP, INC.




Stockholders’
Equity.
Stockholders’ equity decreased $5.0 million, or 4.9%, to $97.1 million at June
30, 2009 from $102.1 million at December 31, 2008. The decrease reflected the
repurchase of $7.3 million of common stock, increase in unrealized losses on
securities of $955,000 and cash dividends of $589,000, partially offset by net
income of $1.1 million, release of ESOP shares of $291,000 and stock options and
awards expense of $541,000.




As a
result of the early adoption of FSP SFAS No. 115-2 and SFAS No. 124-2,
“Recognition and Presentation of Other-Than-Temporary Impairments,” a cumulative
effect adjustment of $1.9 million was recognized at March 31, 2009 to increase
retained earnings and other comprehensive loss. This adjustment had no impact on
total stockholders’ equity, but increased regulatory capital by $1.9
million.




Comparison
of Operating Results for the Three Months Ended June 30, 2009 and
2008




Interest
Income. Interest income decreased $280,000, or 2.0%, to $13.6 million for
the three months ended June 30, 2009 from $13.9 million for the three months
ended June 30, 2008. The decrease resulted generally from lower average balances
on securities and lower yields on securities and interest-earning deposits,
which primarily consisted of the FHLB of New York daily time
account.




Interest
income on loans was $11.4 million for both the three months ended June 30, 2009
and 2008. The effect of a higher average balance was offset by a lower average
yield. The average balance on loans increased to $812.4 million for the three
months ended June 30, 2009 from $749.4 million for the three months ended June
30, 2008, reflecting our continued emphasis on loan growth. The average yield on
loans declined 50 basis points to 5.62% for the three months ended June 30,
2009, 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 2009 period compared to the 2008 period.




Interest
income on securities, including FHLB stock, decreased $192,000, or 7.8%, to $2.2
million for the three months ended June 30, 2009 from $2.4 million for the three
months ended June 30, 2008, reflecting a lower average balance of such
securities (to $166.8 million from $178.6 million) as well as lower average
yields on such securities to 5.42% from 5.50%.




Interest
earned on interest-earning deposits at other financial institutions decreased to
$12,000 for the three months ended June 30, 2009 from $75,000 for the same
period a year ago, reflecting lower yields on such interest-earning assets,
partially offset by higher average balances.




Interest
Expense. Interest expense decreased $1.0 million, or 13.3%, to $6.7
million for the three months ended June 30, 2009 from $7.7 million for the three
months ended June 30, 2008. The decrease in interest expense reflected primarily
lower average rates on deposits, partially offset by higher balances of
deposits.




Interest
expense on deposits decreased $740,000, or 15.9%, to $3.9 million for the three
months ended June 30, 2009 from $4.6 million for the three months ended June 30,
2008, reflecting a lower average rate, partially offset by a higher average
balance. The average rate paid on such deposits decreased to 2.54% for the
current quarter from 3.57% for the comparable period in 2008. The average
balance of deposits increased to $619.7 million for the three months ended June
30, 2009 from $525.3 million for the three months ended June 30,
2008.


30




BEACON
FEDERAL BANCORP, INC.




Interest
expense on money market accounts decreased to $766,000 from $1.1 million,
reflecting substantially lower average rates on such accounts (2.08% in the 2009
period compared to 3.40% in the 2008 period), partially offset by higher average
balances on such accounts ($147.4 million compared to $125.9 million). Interest
expense on certificates of deposit also decreased to $2.9 million for the three
months ended June 30, 2009 from $3.2 million for the three months ended June 30,
2008, due primarily to a lower average rate (3.28% compared to 4.42%), partially
offset by higher average balances of such deposits ($357.6 million compared to
$291.1 million). At June 30, 2009 and December 31, 2008, we had $69.6 million
and $77.5 million, respectively, in brokered deposits. Brokered deposits are
highly susceptible to withdrawal at maturity if the rates we pay on such
deposits are not competitive.




Interest
expense on borrowings decreased to $2.8 million for the three months ended June
30, 2009 from $3.1 million for the three months ended June 30, 2008, due
primarily to a lower average rate. The interest rates paid on such borrowings
decreased to 4.00% from 4.26%. The average rates decreased as a result of a
lower rate environment and a greater weight of borrowings in reverse repurchase
agreements, which rates were generally more attractive than FHLB advances with
similar terms.




Net Interest
Income. Net interest income increased $745,000, or 12.0%, to $6.9 million
for the three months ended June 30, 2009 from $6.2 million for the three months
ended June 30, 2008. The increase in net interest income was due to a higher
interest rate spread and overall asset growth. Our net interest rate spread
increased to 2.44% for the June 2009 quarter from 2.14% for the June 2008
quarter and the net interest margin increased to 2.77% from 2.65%. The higher
interest rate spread was attributable to a lower cost of funds. The cost of
funds decreased 82 basis points, while the yield on interest-earning assets
declined by 52 basis points.




Net
interest-earning assets decreased to $108.6 million for the three months ended
June 30, 2009 from $125.8 million for the three months ended June 30, 2008. The
decline in net interest-earning assets was principally related to the realized
and unrealized losses recognized on the Company’s securities portfolio in the
past twelve months and, to a lesser extent, repurchase of common
stock.




Provision for
Loan Losses. We establish provisions for loan losses, which are charged
to operations, in order to maintain the allowance for loan losses at a level we
consider necessary to absorb credit losses incurred in the loan portfolio that
are both probable and reasonably estimable at the balance sheet date. In
determining the level of the allowance for loan losses, we consider past and
current loss experience, evaluations of real estate collateral, current economic
conditions, volume and type of lending, adverse situations that may affect a
borrower’s ability to repay a loan and the levels of nonperforming and other
classified loans. The amount of the allowance is based on estimates and the
ultimate losses may vary from such estimates as more information becomes
available or economic conditions change. We assess the allowance for loan losses
on a quarterly basis and make provisions for loan losses as required in order to
maintain the allowance.




We
recorded a provision for loan losses of $1.9 million for the three months ended
June 30, 2009 compared to a provision for loan losses of $1.5 million for the
three months ended June 30, 2008. The provision for loan losses resulted from an
increase in nonperforming commercial real estate and commercial business loans,
an increase in classified loans and an overall growth of the loan
portfolio.




Components
of the provision for loan losses included a general allowance for each type of
loan based on historical loan loss experience, and related qualitative
adjustments to historical experience to reflect current probable and incurred
losses, and the risks associated with increased commercial lending. The
provision reflected net charge-offs of $207,000 for the three months ended June
30, 2009, compared to net charge-offs of $907,000 for the three months ended
June 30, 2008.


31




BEACON
FEDERAL BANCORP, INC.




The
allowance for loan losses was $14.3 million, or 1.76% of total loans at June 30,
2009 compared to $10.5 million, or 1.36%, of total loans at December 31, 2008.
Total nonperforming loans were $13.6 million at June 30, 2009 compared to $4.7
million at December 31, 2008. We used the same methodology in assessing the
allowances for both periods. To the best of our knowledge, we have recorded all
losses that are both probable and reasonable to estimate as of June 30,
2009.




Non-Interest
Income. Non-interest income increased to $1.4 million for the three
months ended June 30, 2009 from $1.1 million for the three months ended June 30,
2008. Other non-interest income increased by $153,000 to $248,000 for the three
months ended June 30, 2009, as a result of a change in fair value of the
Company’s derivative financial instruments (forward sales contracts and loan
commitments) and a higher level of loan servicing fees and other miscellaneous
fee income. The changes in the cash surrender value of the Company’s BOLI
investment decreased by $77,000, when compared to the same period last year, due
to a lower asset yield. Gain on sale of loans increased by $164,000 to $224,000
for the three months ended June 30, 2009 as a result of a higher volume of loans
sold in the secondary market. The Company received $27.7 million from proceeds
of loans sold for the three months ended June 30, 2009, compared to $9.3 million
in the same prior period.




Non-Interest
Expense. Non-interest expense increased $1.1 million, or 25.4%, to $5.3
million for the three months ended June 30, 2009 from $4.2 million for the three
months ended June 30, 2008. The increase reflected a significantly higher FDIC
premium expense. In addition, an increase in OTTI credit losses on securities,
provision for loss on servicing asset, occupancy and equipment expense, audit
and examination expenses were partially offset by lower other non-interest
expense.




Salaries
and employee benefits increased by $84,000 due primarily to the recognition of
stock option and stock award expenses of $71,000 and $230,000, respectively, for
the three months ended June 30, 2009, partially offset by lower accrued bonuses.
There were no stock option or stock award expenses during the same quarter for
2008. Occupancy and equipment expense increased due primarily to higher
depreciation expense on furniture, fixtures and equipment. Audit and examination
expense increased due to higher costs incurred with the independent audit and
OTS examination.




FDIC
premium expense increased by $753,000 to $847,000 for the three months ended
June 30, 2009 due primarily to the accrual of the FDIC special assessment of
$500,000, and to a lesser degree, growth of the Bank, and a higher regular,
risk-based assessment which considers the supervisory rating and certain
financial ratios of each financial institution.




The FDIC
adopted a final rule that increases the current initial base assessment rates to
a range of 12 to 45 basis points, effective April 1, 2009. In addition, changes
were made to the FDIC’s risk-based assessment system. Regular assessments will
be higher for institutions that rely on certain brokered deposits to fund rapid
asset growth. Additional adjustments will be made for the Company’s unsecured
debt and secured liabilities.




On May
22, 2009, the FDIC issued a final rule that imposed a special 5 basis point
assessment on each institution’s assets minus Tier 1 capital as of June 30,
2009, payable to the FDIC on September 30, 2009. If after June 30, 2009, the
reserve ratio of the Deposit Insurance Fund falls to a level that the Board of
the FDIC (“the Board”) believes would adversely affect public confidence or to a
level close to or below zero at the end of any quarter, the Board may impose an
additional special assessment of up to 5 basis points as of the end of any such
quarter (with earliest assessment being September 30, 2009, with collection on
December 30, 2009) on each institution’s assets minus Tier 1 capital for that
quarter.


32




BEACON
FEDERAL BANCORP, INC.




The
Company recognized an OTTI loss of $538,000 on one collateralized mortgage
obligation and two trust preferred securities during the June 2009 quarter,
compared to an OTTI loss of $273,000 on FNMA and FHLMC preferred stock issues
during the June 2008 quarter. See Note 4 of Notes to Consolidated Financial
Statements for further information regarding the impairment losses on
securities.




Other
non-interest expense decreased by $174,000 to $732,000 for the three months
ended June 30, 2009 as a result of primarily higher expenses incurred in the
June 2008 quarter, which included a provision for losses of $69,000 on secondary
market loan commitments, fees paid to outside information technology consultants
and personnel recruitment costs.




Income Tax
Expense. The
provision for income taxes was $402,000 for the three months ended June 30,
2009, compared to $684,000 for the three months ended June 30, 2008. The
decrease was due to a lower level of pre-tax income and effective tax rate. Our
effective tax rate was 36.7% for the three months ended June 30, 2009 compared
to 45.1% for the three months ended June 30, 2008. The effective tax rate was
primarily lower due to the nondeductible OTTI loss on securities during the
three months ended June 30, 2008.




Comparison
of Operating Results for the Six Months Ended June 30, 2009 and
2008




Interest
Income. Interest income decreased $104,000, or .4%, to $27.5 million for
the six months ended June 30, 2009 from $27.6 million for the six months ended
June 30, 2008. The decrease resulted generally from lower yields on
interest-earning deposits, which primarily consisted of the FHLB of New York
daily time account.




Interest
income on loans was $22.7 million for both the six months ended June 30, 2009
and 2008. The effect of a higher average balance was offset by a lower average
yield. The average balance on loans increased to $804.6 million for the six
months ended June 30, 2009 from $735.6 million for the six months ended June 30,
2008, reflecting our continued emphasis on loan growth. The average yield on
loans declined 51 basis points to 5.70% for the six months ended June 30, 2009,
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
2009 period compared to the 2008 period.




Interest
income on securities, including FHLB stock, increased $166,000, or 3.7%, to $4.7
million for the six months ended June 30, 2009 from $4.5 million for the six
months ended June 30, 2008, reflecting a higher average balance of such
securities (to $171.5 million from $168.7 million) as well as higher average
yields on such securities to 5.54% from 5.43%.




Interest
on interest-earning deposits at other financial institutions decreased to
$28,000 for the six months ended June 30, 2009 from $305,000 for the same period
a year ago, reflecting lower yields on such interest-earning assets, which
consisted primarily of the FHLB daily time account, partially offset by higher
average balances.




Interest
Expense. Interest expense decreased $2.0 million, or 12.7%, to $13.8
million for the six months ended June 30, 2009 from $15.8 million for the six
months ended June 30, 2008. The decrease in interest expense reflected primarily
lower average rates on deposits, partially offset by higher balances of
deposits.


33




BEACON
FEDERAL BANCORP, INC.




Interest
expense on deposits decreased $1.5 million, or 15.4%, to $8.2 million for the
six months ended June 30, 2009 from $9.7 million for the six months ended June
30, 2008, reflecting a lower average rate, partially offset by a higher average
balance. The average rate paid on such deposits decreased to 2.69% for the six
months ended June 30, 2009 from 3.80% for the comparable period in 2008. The
average balance of deposits increased to $613.1 million for the six months ended
June 30, 2009 from $511.4 million for the six months ended June 30,
2008.




Interest
expense on money market accounts decreased to $1.7 million from $2.4 million,
reflecting substantially lower average rates on such accounts (2.28% in the 2009
period compared to 3.75% in the 2008 period), partially offset by higher average
balances on such accounts ($147.9 million compared to $126.0 million). Interest
expense on certificates of deposit also decreased to $6.0 million for the six
months ended June 30, 2009 from $6.5 million for the six months ended June 30,
2008, due primarily to a lower average rate (3.41% compared to 4.62%), partially
offset by higher average balances of such deposits ($353.6 million compared to
$281.5 million). At June 30, 2009 and December 31, 2008, we had $69.6 million
and $77.5 million, respectively, in brokered deposits.




Interest
expense on borrowings decreased to $5.6 million for the six months ended June
30, 2009 from $6.1 million for the six months ended June 30, 2008. The decrease
was due primarily to a lower average rate. The interest rates paid on such
borrowings decreased to 4.02% from 4.32%. The average rates decreased as a
result of a lower rate environment and a greater weight of borrowings in reverse
repurchase agreements, which rates were generally more attractive than FHLB
advances with similar terms.




Net Interest
Income. Net interest income increased $1.9 million, or 16.1%, to $13.7
million for the six months ended June 30, 2009 from $11.8 million for the six
months ended June 30, 2008. The increase in net interest income was due to a
higher interest rate spread and overall asset growth. Our net interest rate
spread increased to 2.42% for the six months ended June 30, 2009 from 2.02% for
the six months ended June 30, 2008 and the net interest margin increased to
2.75% from 2.56%. The higher interest rate spread was attributable to a lower
cost of funds. The cost of funds decreased 87 basis points, while the yield on
interest-earning assets declined by 47 basis points.




Net
interest-earning assets decreased to $106.4 million for the six months ended
June 30, 2009 from $125.9 million for the six months ended June 30, 2008. The
decline in net interest-earning assets was principally related to the realized
and unrealized losses recognized on the Company’s securities portfolio in the
past twelve months and, to a lesser extent, repurchase of common
stock.




Provision for
Loan Losses. We recorded a provision for loan losses of $4.5 million for
the six months ended June 30, 2009 compared to a provision for loan losses of
$2.4 million for the six months ended June 30, 2008. The provision for loan
losses resulted from an increase in nonperforming commercial real estate and
commercial business loans, an increase in classified loans and an overall growth
of the loan portfolio.




The
provision reflected net charge-offs of $755,000 for the six months ended June
30, 2009, compared to net charge-offs of $1.1 million for the six months ended
June 30, 2008 and $1.9 million increase in allowance for losses on impaired
loans.




The
allowance for loan losses was $14.3 million, or 1.76% of total loans at June 30,
2009 compared to $10.5 million, or 1.36%, of total loans at December 31, 2008.
Total nonperforming loans were $13.6 million at June 30, 2009 compared to $4.7
million at December 31, 2008. We used the same methodology in assessing the
allowances for both periods.


34




BEACON
FEDERAL BANCORP, INC.




Non-Interest
Income. Non-interest income increased to $2.6 million for the six months
ended June 30, 2009 from $2.2 million for the six months ended June 30, 2008.
Other non-interest income increased by $239,000 to $407,000 for the six months
ended June 30, 2009, as a result of a change in fair value of the Company’s
derivative financial instruments (forward sales contracts and loan commitments)
and a higher level of loan servicing fees and other miscellaneous fee income.
The changes in the cash surrender value of the Company’s BOLI investment
decreased by $163,000, when compared to the same period last year, due to a
lower asset yield. Gain on sale of loans increased by $289,000 to $387,000 for
the six months ended June 30, 2009 as a result of a higher volume of loans sold
in the secondary market. The Company received $52.5 million from proceeds of
loans sold for the six months ended June 30, 2009, compared to $14.5 million in
the same prior period. During the six months ended June 30, 2008, the Bank
recognized a gain of $129,000 as a result of a sale of its equity investment in
Visa, Inc., acquired as part of the restructuring that resulted in Visa, Inc.
issuing common stock to members of Visa U.S.A. Service charges increased by
$77,000 to $1.4 million for the six months ended June 30, 2009, reflecting
higher deposit-related fees.




Non-Interest
Expense. Non-interest expense increased $1.5 million, or 18.4%, to $10.0
million for the six months ended June 30, 2009 from $8.5 million for the six
months ended June 30, 2008. The increase reflected higher FDIC premium expenses,
salaries and employee benefits, occupancy and equipment expense, a prepayment
penalty on FHLB advances, a provision for loss on servicing assets and a higher
OTTI loss on securities, as compared to the same period in 2008, partially
offset by a decrease in other non-interest expense.




Salaries
and employee benefits increased by $373,000 due primarily to the recognition of
stock option and stock award expenses of $129,000 and $412,000, respectively,
for the six months ended June 30, 2009, partially offset by lower accrued
bonuses. There were no stock option or award expenses during the same period for
2008. Occupancy and equipment expense increased due primarily to higher
depreciation expense on furniture, fixtures and equipment.




FDIC
premium expense increased by $825,000 to $1.0 million for the six months ended
June 30, 2009 due primarily to the accrual of the FDIC special assessment of
$500,000, and to a lesser degree, the growth of the Bank, and a higher regular,
risk-based assessment which considers the supervisory rating and certain
financial ratios of each financial institution.




The
Company recognized an OTTI loss of $962,000 on two collateralized mortgage
obligations and two trust preferred securities during the six months ended June
30, 2009, compared to an OTTI loss of $801,000 on FNMA and FHLMC preferred stock
issues during the six months ended June 30, 2008. See Note 4 of Notes to
Consolidated Financial Statements for further information regarding the
impairment losses on securities.




During
the six months ended June 30, 2009, the Company recognized in non-interest
expense a $241,000 prepayment penalty on $10.0 million of fixed-rate FHLB
advances. The prepayment penalty on FHLB advances was incurred to improve the
Company’s net interest margin and allow short-term funding of anticipated growth
in the near term.


35




BEACON
FEDERAL BANCORP, INC.




Other
non-interest expense decreased by $114,000 to $1.5 million for the six months
ended June 30, 2009 as a result of primarily higher expenses incurred in the
June 2008 comparable period, which included a provision for losses of $69,000 on
secondary market loan commitments and personnel recruitment costs.




Income Tax
Expense. The
provision for income taxes was $633,000 for the six months ended June 30, 2009,
compared to $1.3 million for the six months ended June 30, 2008. The decrease
was due to a lower level of pre-tax income and effective tax rate. Our effective
tax rate was 35.9% for the six months ended June 30, 2009 compared to 42.5% for
the six months ended June 30, 2008. The effective tax rate was primarily lower
due to the nondeductible OTTI loss on securities during the six months ended
June 30, 2008.


36




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. Non-accrual 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 June 30,2009
                                                          
                                                          
                                                          2008Average
                                                            Outstanding
                                                            Balance
                                                          
                                                          
                                                          Interest
                                                            Earned/Paid
                                                          
                                                          
                                                          Yield
      /
                                                            Rate
                                                          
                                                          
                                                          Average
                                                            Outstanding
                                                            Balance
                                                          
                                                          
                                                          Interest
                                                            Earned/Paid
                                                          
                                                          
                                                          Yield
      /
                                                            Rate(Dollars
      in thousands)Interest-earning
      assets:Loans
                                                          
                                                          $
                                                          812,442
                                                          
                                                          
                                                          $
                                                          11,385
                                                          
                                                          
                                                          
                                                          5.62
                                                          %
                                                          
                                                          $
                                                          749,376
                                                          
                                                          
                                                          $
                                                          11,410
                                                          
                                                          
                                                          
                                                          6.12
                                                          %Securities
                                                          
                                                          
                                                          154,342
                                                          
                                                          
                                                          
                                                          2,079
                                                          
                                                          
                                                          
                                                          5.40
                                                          
                                                          
                                                          
                                                          165,750
                                                          
                                                          
                                                          
                                                          2,211
                                                          
                                                          
                                                          
                                                          5.37FHLB
      stock
                                                          
                                                          
                                                          12,496
                                                          
                                                          
                                                          
                                                          177
                                                          
                                                          
                                                          
                                                          5.68
                                                          
                                                          
                                                          
                                                          12,870
                                                          
                                                          
                                                          
                                                          237
                                                          
                                                          
                                                          
                                                          7.41Interest-earning
      deposits
                                                          
                                                          
                                                          27,633
                                                          
                                                          
                                                          
                                                          12
                                                          
                                                          
                                                          
                                                          0.17
                                                          
                                                          
                                                          
                                                          12,165
                                                          
                                                          
                                                          
                                                          75
                                                          
                                                          
                                                          
                                                          2.48Total
      interest-earning assets
                                                          
                                                          
                                                          1,006,913
                                                          
                                                          
                                                          
                                                          13,653
                                                          
                                                          
                                                          
                                                          5.44
                                                          
                                                          
                                                          
                                                          940,161
                                                          
                                                          
                                                          
                                                          13,933
                                                          
                                                          
                                                          
                                                          5.96Non-interest-earning
      assets
                                                          
                                                          
                                                          26,216
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          19,366Total
      assets
                                                          
                                                          $
                                                          1,033,129
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          959,527Interest-bearing
      liabilities:Savings
                                                          
                                                          $
                                                          60,851
                                                          
                                                          
                                                          
                                                          46
                                                          
                                                          
                                                          
                                                          0.30
                                                          
                                                          
                                                          $
                                                          62,520
                                                          
                                                          
                                                          
                                                          89
                                                          
                                                          
                                                          
                                                          0.57Money
      market accounts
                                                          
                                                          
                                                          147,451
                                                          
                                                          
                                                          
                                                          766
                                                          
                                                          
                                                          
                                                          2.08
                                                          
                                                          
                                                          
                                                          125,940
                                                          
                                                          
                                                          
                                                          1,064
                                                          
                                                          
                                                          
                                                          3.40NOW
      accounts
                                                          
                                                          
                                                          53,826
                                                          
                                                          
                                                          
                                                          189
                                                          
                                                          
                                                          
                                                          1.41
                                                          
                                                          
                                                          
                                                          45,778
                                                          
                                                          
                                                          
                                                          312
                                                          
                                                          
                                                          
                                                          2.74Time
      accounts
                                                          
                                                          
                                                          357,594
                                                          
                                                          
                                                          
                                                          2,924
                                                          
                                                          
                                                          
                                                          3.28
                                                          
                                                          
                                                          
                                                          291,118
                                                          
                                                          
                                                          
                                                          3,200
                                                          
                                                          
                                                          
                                                          4.42Total
      deposits
                                                          
                                                          
                                                          619,722
                                                          
                                                          
                                                          
                                                          3,925
                                                          
                                                          
                                                          
                                                          2.54
                                                          
                                                          
                                                          
                                                          525,356
                                                          
                                                          
                                                          
                                                          4,665
                                                          
                                                          
                                                          
                                                          3.57FHLB
      advances
                                                          
                                                          
                                                          208,641
                                                          
                                                          
                                                          
                                                          2,236
                                                          
                                                          
                                                          
                                                          4.30
                                                          
                                                          
                                                          
                                                          249,007
                                                          
                                                          
                                                          
                                                          2,782
                                                          
                                                          
                                                          
                                                          4.49Reverse
      repurchase agreements
                                                          
                                                          
                                                          70,000
                                                          
                                                          
                                                          
                                                          549
                                                          
                                                          
                                                          
                                                          3.15
                                                          
                                                          
                                                          
                                                          40,000
                                                          
                                                          
                                                          
                                                          288
                                                          
                                                          
                                                          
                                                          2.91Total
      interest-bearing liabilities
                                                          
                                                          
                                                          898,363
                                                          
                                                          
                                                          
                                                          6,710
                                                          
                                                          
                                                          
                                                          3.00
                                                          
                                                          
                                                          
                                                          814,363
                                                          
                                                          
                                                          
                                                          7,735
                                                          
                                                          
                                                          
                                                          3.82Non-interest-bearing
      deposits
                                                          
                                                          
                                                          32,744
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          28,057Other
      non-interest-bearing liabilities
                                                          
                                                          
                                                          6,503
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          3,598Total
      liabilities
                                                          
                                                          
                                                          937,610
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          846,018Stockholders’
      equity
                                                          
                                                          
                                                          95,519
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          113,509Total
      liabilities and equity
                                                          
                                                          $
                                                          1,033,129
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          959,527Net
      interest income
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          6,943
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          6,198Net
      interest rate spread
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          2.44
                                                          %
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          2.14
                                                          %Net
      interest-earning assets
                                                          
                                                          $
                                                          108,550
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          125,798Net
      interest margin
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          2.77
                                                          %
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          2.65
                                                          %Average
      of interest-earning assets to interest-bearing liabilities
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          112.08
                                                          %
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          115.45
                                                          %


37




BEACON
FEDERAL BANCORP, INC.


For
      the Six Months Ended June 30,2009
                                                              
                                                              
                                                              2008Average
                                                                Outstanding
                                                                Balance
                                                              
                                                              
                                                              Interest
                                                                Earned/Paid
                                                              
                                                              
                                                              Yield
      /
                                                                Rate
                                                              
                                                              
                                                              Average
                                                                Outstanding
                                                                Balance
                                                              
                                                              
                                                              Interest
                                                                Earned/Paid
                                                              
                                                              
                                                              Yield
      /
                                                                Rate(Dollars
      in thousands)Interest-earning
      assets:Loans
                                                              
                                                              $
                                                              804,576
                                                              
                                                              
                                                              $
                                                              22,727
                                                              
                                                              
                                                              
                                                              5.70
                                                              %
                                                              
                                                              $
                                                              735,602
                                                              
                                                              
                                                              $
                                                              22,720
                                                              
                                                              
                                                              
                                                              6.21
                                                              %Securities
                                                              
                                                              
                                                              158,745
                                                              
                                                              
                                                              
                                                              4,434
                                                              
                                                              
                                                              
                                                              5.63
                                                              
                                                              
                                                              
                                                              156,165
                                                              
                                                              
                                                              
                                                              4,144
                                                              
                                                              
                                                              
                                                              5.34FHLB
      stock
                                                              
                                                              
                                                              12,772
                                                              
                                                              
                                                              
                                                              276
                                                              
                                                              
                                                              
                                                              4.36
                                                              
                                                              
                                                              
                                                              12,541
                                                              
                                                              
                                                              
                                                              400
                                                              
                                                              
                                                              
                                                              6.41Interest-earning
      deposits
                                                              
                                                              
                                                              25,330
                                                              
                                                              
                                                              
                                                              28
                                                              
                                                              
                                                              
                                                              0.22
                                                              
                                                              
                                                              
                                                              19,587
                                                              
                                                              
                                                              
                                                              305
                                                              
                                                              
                                                              
                                                              3.13Total
      interest-earning assets
                                                              
                                                              
                                                              1,001,423
                                                              
                                                              
                                                              
                                                              27,465
                                                              
                                                              
                                                              
                                                              5.53
                                                              
                                                              
                                                              
                                                              923,895
                                                              
                                                              
                                                              
                                                              27,569
                                                              
                                                              
                                                              
                                                              6.00Non-interest-earning
      assets
                                                              
                                                              
                                                              27,273
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              18,488Total
      assets
                                                              
                                                              $
                                                              1,028,696
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              $
                                                              942,383Interest-bearing
      liabilities:Savings
                                                              
                                                              $
                                                              58,814
                                                              
                                                              
                                                              
                                                              104
                                                              
                                                              
                                                              
                                                              0.36
                                                              
                                                              
                                                              $
                                                              60,663
                                                              
                                                              
                                                              
                                                              178
                                                              
                                                              
                                                              
                                                              0.59Money
      market accounts
                                                              
                                                              
                                                              147,927
                                                              
                                                              
                                                              
                                                              1,671
                                                              
                                                              
                                                              
                                                              2.28
                                                              
                                                              
                                                              
                                                              125,999
                                                              
                                                              
                                                              
                                                              2,352
                                                              
                                                              
                                                              
                                                              3.75NOW
      accounts
                                                              
                                                              
                                                              52,736
                                                              
                                                              
                                                              
                                                              411
                                                              
                                                              
                                                              
                                                              1.57
                                                              
                                                              
                                                              
                                                              43,219
                                                              
                                                              
                                                              
                                                              653
                                                              
                                                              
                                                              
                                                              3.04Time
      accounts
                                                              
                                                              
                                                              353,588
                                                              
                                                              
                                                              
                                                              5,986
                                                              
                                                              
                                                              
                                                              3.41
                                                              
                                                              
                                                              
                                                              281,541
                                                              
                                                              
                                                              
                                                              6,473
                                                              
                                                              
                                                              
                                                              4.62Total
      deposits
                                                              
                                                              
                                                              613,065
                                                              
                                                              
                                                              
                                                              8,172
                                                              
                                                              
                                                              
                                                              2.69
                                                              
                                                              
                                                              
                                                              511,422
                                                              
                                                              
                                                              
                                                              9,656
                                                              
                                                              
                                                              
                                                              3.80FHLB
      advances
                                                              
                                                              
                                                              211,990
                                                              
                                                              
                                                              
                                                              4,530
                                                              
                                                              
                                                              
                                                              4.31
                                                              
                                                              
                                                              
                                                              249,007
                                                              
                                                              
                                                              
                                                              5,565
                                                              
                                                              
                                                              
                                                              4.49Reverse
      repurchase agreements
                                                              
                                                              
                                                              70,000
                                                              
                                                              
                                                              
                                                              1,092
                                                              
                                                              
                                                              
                                                              3.15
                                                              
                                                              
                                                              
                                                              37,582
                                                              
                                                              
                                                              
                                                              575
                                                              
                                                              
                                                              
                                                              3.08Total
      interest-bearing liabilities
                                                              
                                                              
                                                              895,055
                                                              
                                                              
                                                              
                                                              13,794
                                                              
                                                              
                                                              
                                                              3.11
                                                              
                                                              
                                                              
                                                              798,011
                                                              
                                                              
                                                              
                                                              15,796
                                                              
                                                              
                                                              
                                                              3.98Non-interest-bearing
      deposits
                                                              
                                                              
                                                              31,665
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              26,991Other
      non-interest-bearing liabilities
                                                              
                                                              
                                                              2,717
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              3,255Total
      liabilities
                                                              
                                                              
                                                              929,437
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              828,257Stockholders’
      equity
                                                              
                                                              
                                                              99,259
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              114,126Total
      liabilities and equity
                                                              
                                                              $
                                                              1,028,696
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              $
                                                              942,383Net
      interest income
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              $
                                                              13,671
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              $
                                                              11,773Net
      interest rate spread
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              2.42
                                                              %
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              2.02
                                                              %Net
      interest-earning assets
                                                              
                                                              $
                                                              106,368
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              $
                                                              125,884Net
      interest margin
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              2.75
                                                              %
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              2.56
                                                              %Average
      of interest-earning assets to interest-bearing liabilities
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              111.88
                                                              %
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              115.77
                                                              %


38




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 six months ended June 30, 2009, our liquidity ratio averaged
18.9%. We believe that we have enough sources of liquidity to satisfy our short-
and long-term liquidity needs as of June 30, 2009. 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 June 30, 2009, cash and cash equivalents totaled $25.0
million. Securities classified as available-for-sale, which provide additional
sources of liquidity, totaled $145.0 million at June 30, 2009. On that date, we
had $208.6 million in advances outstanding and $1.7 million in limited recourse
obligations related to loans sold, with the ability to borrow an additional $5.4
million.




The
Company is retaining higher levels of cash and cash equivalents due to the
limited borrowing capacity with the Federal Home Loan Bank of New York and for
funding short-term growth. The Company can utilize alternative sources of
financing, including brokered deposits. Our cash flows are derived from
operating activities, investing activities and financing activities as reported
in our Consolidated Statements of Cash Flows included in our Consolidated
Financial Statements.




At June
30, 2009, we had $47.7 million in loan commitments outstanding. In addition to
commitments to originate loans, we had $62.5 million in unused lines of credit
to borrowers. Certificates of deposit due within one year of June 30, 2009
totaled $263.8 million, or 40.1% 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 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 June 30, 2009. 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 six months ended
June 30, 2009, we originated $194.6 million of loans, and during the six months
ended June 30, 2008, we originated $234.5 million of loans. We purchased $26.0
million of securities during the six months ended June 30, 2009, compared to
$95.4 million for the six months ended June 30, 2008.




Financing
activities consist primarily of activity in deposit accounts and Federal Home
Loan Bank advances. We experienced a net increase in total deposits of $32.0
million for the six months ended June 30, 2009 and a net increase in total
deposits and securities sold under agreement to repurchase of $70.0 million and
$20.0 million, respectively, for the six months ended June 30, 2008. Deposit
flows are affected by the overall level of interest rates, the interest rates
and products offered by us and our local competitors, and by other
factors.




Federal
Home Loan Bank advances decreased by $10.0 million for the six months ended June
30, 2009, compared to an increase of $22.2 million for the six months ended June
30, 2008. Federal Home Loan Bank advances have primarily been used to fund loan
demand. At June 30, 2009, we had the ability to borrow up to $215.7 million from
the Federal Home Loan Bank of New York.


39




BEACON
FEDERAL BANCORP, INC.




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 June 30, 2009 the Bank met all capital adequacy requirements.




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 June 30, 2009 and
December 31, 2008, 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:


Actual
                                
                                
                                For
      Capital
                                  Adequacy
      Purposes
                                
                                
                                To
      Be Well
                                  Capitalized
      Under
                                  Prompt
      Corrective
                                  Action
      ProvisionsJune 30, 2009 (Dollars in
      Thousands)
                                
                                Amount
                                
                                
                                Ratio
                                
                                
                                Amount
                                
                                
                                Ratio
                                
                                
                                Amount
                                
                                
                                RatioEquity
                                
                                $
                                79,566Unrealized
      loss on securities as a result of cumulative effect
    adjustment
                                
                                
                                1,866Unrealized
      loss on AFS securities
                                
                                
                                7,340Tier
      1 (Core) Capital and Tangible Capital
                                
                                
                                88,772
                                
                                
                                
                                8.36
                                %
                                
                                $
                                15,922
                                
                                
                                
                                1.50
                                %General
      valuation allowance 1)
                                
                                
                                9,717Deduction
      for low-level recourse
                                
                                
                                (1,664
                                )Total
      Capital to risk-weighted assets
                                
                                $
                                96,825
                                
                                
                                
                                12.33
                                %
                                
                                $
                                62,813
                                
                                
                                
                                8.00
                                %
                                
                                $
                                78,516
                                
                                
                                
                                10.00
                                %Tier
      1 (Core) Capital to risk-weighted assets
                                
                                $
                                87,108
                                
                                
                                
                                11.09
                                %
                                
                                $
                                31,407
                                
                                
                                
                                4.00
                                %
                                
                                $
                                47,110
                                
                                
                                
                                6.00
                                %Tier
      1 (Core) Capital to adjusted total assets
                                
                                $
                                88,772
                                
                                
                                
                                8.36
                                %
                                
                                $
                                42,458
                                
                                
                                
                                4.00
                                %
                                
                                $
                                53,073
                                
                                
                                
                                5.00
                                %




1)
Limited to 1.25% of risk-weighted assets.


40




BEACON
FEDERAL BANCORP, INC.


Actual
                          
                          
                          For
      Capital
                            Adequacy
      Purposes
                          
                          
                          To
      Be Well
                            Capitalized
      Under
                            Prompt
      Corrective
                            Action
      ProvisionsDecember 31, 2008 (Dollars in
      Thousands)
                          
                          Amount
                          
                          
                          Ratio
                          
                          
                          Amount
                          
                          
                          Ratio
                          
                          
                          Amount
                          
                          
                          RatioEquity
                          
                          $
                          76,634Unrealized
      loss on AFS securities
                          
                          
                          8,251Tier
      1 (Core) Capital and Tangible Capital
                          
                          
                          84,885
                          
                          
                          
                          8.20
                          %
                          
                          $
                          15,528
                          
                          
                          
                          1.50
                          %General
      valuation allowance 1)
                          
                          
                          9,018Deduction
      for low-level recourse
                          
                          
                          (1,507
                          )Total
      Capital to risk-weighted assets
                          
                          $
                          92,396
                          
                          
                          
                          12.81
                          %
                          
                          $
                          57,712
                          
                          
                          
                          8.00
                          %
                          
                          $
                          72,140
                          
                          
                          
                          10.00
                          %Tier
      1 (Core) Capital to risk-weighted assets
                          
                          $
                          83,378
                          
                          
                          
                          11.56
                          %
                          
                          $
                          28,856
                          
                          
                          
                          4.00
                          %
                          
                          $
                          43,284
                          
                          
                          
                          6.00
                          %Tier
      1 (Core) Capital to adjusted total assets
                          
                          $
                          84,885
                          
                          
                          
                          8.20
                          %
                          
                          $
                          41,407
                          
                          
                          
                          4.00
                          %
                          
                          $
                          51,579
                          
                          
                          
                          5.00
                          %




1)
Limited to 1.25% of risk-weighted assets.


41




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 June 30, 2009, classified assets included substandard
loans of $13.9 million and doubtful loans of $3.4 million. Substandard loans and
doubtful loans were $6.4 million and $700,000, respectively, at December 31,
2008. As of June 30, 2009, we had $17.6 million of loans designated as special
mention, compared to $19.8 million at December 31, 2008.




As of
June 30, 2009, our largest borrower under the substandard asset category had
loans secured by undeveloped land located in New York, with a principal balance
of $3.0 million. As of June 30, 2009, our largest doubtful loan was secured by a
commercial property located in Upstate New York, with a principal balance of
$1.9 million. As of June 30, 2009, our largest loan designated as special
mention was secured by a commercial property located in New Hampshire, with a
principal balance of $3.4 million.




Off-Balance
Sheet Arrangements




Commitments.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 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:


June
      30, 2009
                                                            
                                                            
                                                            December
      31, 2008Fixed
                                                              Rate
                                                            
                                                            
                                                            Variable
                                                              Rate
                                                            
                                                            
                                                            Fixed
                                                              Rate
                                                            
                                                            
                                                            Variable
                                                              Rate(Dollars
      in Thousands)Commitments
      to make loans
                                                            
                                                            $
                                                            35,626
                                                            
                                                            
                                                            $
                                                            12,080
                                                            
                                                            
                                                            $
                                                            20,090
                                                            
                                                            
                                                            $
                                                            7,829Unused
      lines of credit
                                                            
                                                            $
                                                            4,608
                                                            
                                                            
                                                            $
                                                            57,895
                                                            
                                                            
                                                            $
                                                            6,296
                                                            
                                                            
                                                            $
                                                            55,773Range
      of fixed-rate commitments
                                                            
                                                            
                                                            3.25%-7.25
                                                            %
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            
                                                            4.49%-15.00
                                                            %
                                                            
                                                            
                                                            —




The
following instruments are considered financial guarantees under FASB
Interpretation 45. These instruments are carried at fair value. The contract
amount and fair value of these instruments were as follows:


June
      30, 2009
                                                                            
                                                                            
                                                                            December
      31, 2008Contract
                                                                              Amount
                                                                            
                                                                            
                                                                            Fair
                                                                              Value
                                                                            
                                                                            
                                                                            Contract
                                                                              Amount
                                                                            
                                                                            
                                                                            Fair
                                                                              Value(Dollars
      in Thousands)Standby
      letters of credit
                                                                            
                                                                            $
                                                                            1,041
                                                                            
                                                                            
                                                                            $
                                                                            —
                                                                            
                                                                            
                                                                            $
                                                                            882
                                                                            
                                                                            
                                                                            $
                                                                            —Limited
      recourse obligations related to loans sold
                                                                            
                                                                            $
                                                                            1,664
                                                                            
                                                                            
                                                                            $
                                                                            —
                                                                            
                                                                            
                                                                            $
                                                                            1,507
                                                                            
                                                                            
                                                                            $
                                                                            —




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 agreements to
sell residential loans up to $60.0 million to the FHLB of New York.
Approximately $48.6 million has been sold through June 30, 2009. Under the
agreement, the Bank has a maximum credit enhancement of $1.7 million at June 30,
2009. 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.


42




BEACON
FEDERAL BANCORP, INC.




Recent
Accounting Pronouncements




The
following paragraphs summarize recent accounting pronouncements:




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements- an amendment of ARB No. 51.” SFAS No. 160
improves the relevance, comparability, and transparency of the financial
information that an entity provides in its consolidated financial statements by
establishing accounting and reporting standards for a noncontrolling interest or
minority interest, the portion of equity in a subsidiary not attributable,
directly or indirectly, to a parent.




In
December 2007, the FASB issued SFAS No. 141 (revised 2007) (R), “Business
Combinations.” SFAS No. 141 (R) improves the relevance, representational
faithfulness, and comparability of the financial information that an entity
provides in its financial reports regarding business combinations and its
effects.




SFAS No.
160 and SFAS No. 141 (R) are effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2008. SFAS No. 160 and
SFAS No. 141 (R) were adopted January 1, 2009 and did not have a material impact
on the Company’s financial position or results of operation. At June 30, 2009,
the Company did not have a noncontrolling interest.




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment of FASB Statement No. 133.” SFAS No. 161
requires enhanced disclosures about an entity’s derivative and hedging
activities and improves the transparency of financial reporting. SFAS No. 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with earlier application encouraged. SFAS No.
161 was adopted January 1, 2009 and did not have a material impact on the
Company’s financial position or results of operation.




In
February 2008, the FASB issued FASB Staff Position (FSP) SFAS No. 157-2,
“Effective Date of FASB Statement No. 157.” The Bank adopted this FSP for
non-financial assets and liabilities that are not recognized or disclosed at
fair value in the financial statements, effective January 1, 2009. The FSP did
not have a material impact on the Company’s financial condition or results of
operation.




In April
2009, the FASB issued FSP SFAS No. 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly.” FSP SFAS No. 157-4
provides factors to determine whether there has been a significant decrease in
the volume and level of activity for the asset or liability and circumstances
that may indicate that a transaction is not orderly. In those instances,
adjustments to the transactions or quoted prices may be necessary to estimate
fair value with SFAS No. 157. This FSP does not apply to Level 1 inputs. FSP
SFAS No. 157 also requires additional disclosures, including inputs and
valuation techniques used, and changes thereof, to measure the fair value. FSP
SFAS No. 157-4 is effective for interim and annual reporting periods ending
after June 15, 2009. Early adoption is permitted for periods ending after March
15, 2009. This FSP amends SFAS No. 157 and supersedes FSP SFAS No. 157-3. FSP
SFAS No. 157-4 was early adopted, effective March 31, 2009, and did not have a
material impact on the Company’s financial position or results of
operation.


43




BEACON
FEDERAL BANCORP, INC.




In April
2009, the FASB issued FSP SFAS No. 115-2 and SFAS No. 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments.” FSP SFAS No. 115-2 and SFAS
No. 124-2 applies to debt securities classified as available-for-sale and
held-to-maturity and makes other-than-temporary impairment guidance more
operational and improves related presentation and disclosure requirements. This
FSP requires that impairment losses related to credit losses will be included in
earnings. Impairments related to other factors will be included in other
comprehensive income, when management asserts it does not have the intent to
sell the security and it is not more likely than not that it will have to sell
the security before its recovery.




For debt
securities held at the beginning of the interim period of adoption for which an
other-than-temporary impairment was previously recognized, if the entity does
not intend to sell and it is not more likely than not that it will be required
to sell the security before recovery of its amortized cost basis, the entity
will recognize the cumulative-effect adjustment, including related tax effects,
to the beginning balance of retained earnings and corresponding adjustment to
accumulated other comprehensive income. FSP SFAS No. 115-2 and SFAS No. 124-2 is
effective for interim and annual periods ending after June 15, 2009. This FSP
amends SFAS No. 115 and other related guidance. Early adoption is permitted for
periods ending after March 15, 2009. FSP SFAS No. 115-2 and SFAS No. 124-2 was
early adopted, effective March 31, 2009.




A
cumulative effect adjustment of $1.9 million was recognized to retained earnings
with the offset to other comprehensive loss. The initial adoption of this FSP
had no impact on stockholders’ equity, but increased regulatory capital by $1.9
million. During the three and six months ended June 30, 2009, the Company
recognized other-than-temporary impairment charges of $538,000 and $962,000,
respectively, in income related to credit losses on securities.




In April
2009, the FASB issued FSP SFAS No. 107-1 and APB No. 28-1, “Interim Disclosures
about Fair Value of Financial Instruments.” This FSP requires public entities to
disclose the fair values of financial instruments for interim reporting periods.
FSP SFAS No. 107-1 and APB No. 28-1 is effective for interim reporting periods
after June 15, 2009. The Company adopted this FSP as of June 30,
2009.




In April
2009, the FASB issued FSP SFAS No. 141 (R)-1, “Accounting for Assets Acquired
and Liabilities Assumed in a Business Combination That Arise from
Contingencies.” This FSP amends and clarifies application issues regarding the
initial recognition, measurement, accounting and disclosure of assets and
liabilities arising from contingencies in a business combination. FSP SFAS No.
141 (R)-1 is effective for business combinations that occur during the first
annual reporting period beginning after December 15, 2008. FSP SFAS No. 141
(R)-1 was adopted January 1, 2009 and did not have a material impact on the
Company’s financial position or results of operation.




In May
2009, the FASB issued SFAS No. 165, “Subsequent Events.” SFAS No. 165
establishes principles for accounting for and disclosures for events that occur
after the balance sheet date but before financial statements are issued or are
available to be issued. SFAS No. 165 is effective for interim and annual periods
ending after June 15, 2009. SFAS No. 165 did not have a material impact on the
Company’s financial position or results of operation.




In
June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets- an amendment of SFAS No. 140” and SFAS No. 167, “Amendments to FASB
Interpretation No. 46 (R).” SFAS No. 166 improves the relevance,
representational faithfulness, and comparability of the financial information
that an entity provides in its financial reports regarding a transfer of
financial assets and its effects. SFAS No. 167 improves financial reporting for
companies involved with variable interest entities. The Company is currently
reviewing the applications of SFAS No. 166 and SFAS No. 167. SFAS No. 166 and
SFAS No. 167 are effective as of the beginning of an entity’s first fiscal year
that begins after November 15, 2009.


44




BEACON
FEDERAL BANCORP, INC.




In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards
Codificationand
the Hierarchy of Generally Accepted Accounting Principles - a replacement of
FASB Statement No. 162.” The FASB Accounting Standards Codification will become
the source of authoritative U.S. generally accepted accounting principles (GAAP)
recognized by FASB to be applied to nongovernmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (SEC) under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. SFAS No. 168 is effective for all interim and annual periods
ending after September 15, 2009.




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, 2008 for discussion of interest rate
risk at December 31, 2008.




ITEM
4T. 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 disclosures 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 and 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.




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.


45




BEACON
FEDERAL BANCORP, INC.




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, 2008 for discussion of risk factors at
December 31, 2008.




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




The
following table provides information regarding the Company’s purchases of its
equity securities during the three months ended June 30, 2009:


Period
                
                (a)
                  Total
      Number
                  of
      Shares
                  (or
      Units)
                  Purchased
                
                
                (b)
                  Average
      Price
                  Paid
      per
                  Share
                  (or
      Unit)
                
                
                (c)
                  Total
      Number of
                  Shares
      (or Units)
                  Purchased
      as
                  Part
      of Publicly
                  Announced
      Plans
                  or
      Programs
                
                
                (d)
                  Maximum
      Number
                  (or
      Approximate
                  Dollar
      Value) of
                  Shares
      (or Units)
                  That
      May Yet Be
                  Purchased
      Under the
                  Plans
      or Programs)April
      1, 2009 through April 30, 2009
                
                
                363,963
                
                
                $
                8.31
                
                
                
                363,963
                
                
                
                —May
      1, 2009 through May 31, 2009
                
                
                125,000
                
                
                $
                9.15
                
                
                
                125,000
                
                
                
                220,765June
      1, 2009 through June 30, 2009
                
                
                8,955
                
                
                $
                9.07
                
                
                
                8,955
                
                
                
                211,810Total
                
                
                497,918
                
                
                $
                8.53
                
                
                
                497,918




On May 5,
2009, the Board of Directors authorized the Company’s third stock repurchase
program of 345,765 shares.


46




BEACON
FEDERAL BANCORP, INC.




PART
II - OTHER INFORMATION (continued)




Item
3 - Defaults upon Senior Securities.




Not
applicable.




Item
4 - Submission of Matters to a Vote of Security Holders.


(a)
            On
      May 21, 2009 the Company held its Annual Meeting of
      Stockholders.(b)
            At
      the meeting, John W. Altmeyer and Thomas Driscoll were elected, each to
      serve a three- year term.(c)
            Stockholders
      voted on the following matters:




(i)
                The
      election of the following directors of the Company:DIRECTOR:
                
                FOR
                
                ABSTAINJohn
      W. Altmeyer
                6,484,280
                
                242,775Thomas
      Driscoll
                6,482,578
                
                244,477





(ii)
                  The
      ratification of the appointment of Crowe Horwath LLP as auditors for the
      Company for the fiscal year ended December 31, 2009:VOTES
                  
                  FOR
                  
                  AGAINST
                  
                  ABSTAIN6,727,055
                  
                  6,704,457
                  
                  12,283
                  
                  10,315




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)4.0
                
                Form
      of Common Stock Certificate of Beacon Federal Bancorp, Inc. (1)10.1
                
                Form
      of Employee Stock Ownership Plan (1)10.2
                
                Employment
      Agreement with Ross J. Prossner (2)10.3
                
                Employment
      Agreement with J. David Hammond (2)10.4
                
                Employment
      Agreement with Darren T. Crossett (2)10.5
                
                Employment
      Agreement with Randy Wiley (4)10.6
                
                Form
      of Change in Control Agreement (2)10.7
                
                Beacon
      Federal Excess Benefit Plan (3)10.8
                
                Beacon
      Federal Annual Cash Incentive Plan (1)


47




BEACON
FEDERAL BANCORP, INC.




PART
II - OTHER INFORMATION (continued)


10.9
                  Beacon
      Federal Supplemental Executive Retirement Plan (5)10.10
                  Beacon
      Federal 2008 Equity Incentive Plan (6)21.0
                  Subsidiaries
      of Registrant (1)31.1
                  Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
                  Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232.0
                  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)
                Field
      with the Securities and Exchange Commission on October 4, 2007 on Form
      8K.(3)
                Filed
      with the Securities and Exchange Commission on October 31, 2008 on Form
      8K.(4)
                Filed
      with the Securities and Exchange Commission on July 3, 2008 on Form
      8K.(5)
                Filed
      with the Securities and Exchange Commission on December 28,
      2007.(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.


48




BEACON
FEDERAL BANCORP, INC.




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:
      August 10,
      2009
                                      BY:
                                      /s/
      Ross J. ProssnerRoss
      J. Prossner, President and Chief Executive OfficerBY:
                                      /s/
      Lisa M. JonesLisa
      M. Jones, Vice-President and Principal Financial and
                                        Accounting
      Officer








49