----

----

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

| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|------------------------------------------------------------------------------------------|

|                                                                                                   |   |
|--------------------------------------------------------------------------------------------------------|--------|
| For the transition period from __________________to __________________Commission file number 001-33713 |

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

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

|   | 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 |   |             |   |   |

|                                    |   |                         |   |
|-----------------------------------------|--------|------------------------------|--------|
| Class                                   |   | Outstanding November 3, 2010 |   |
| Common Stock, par value $0.01 per share |   | 6,450,854                    |   |

----

| PART I – FINANCIAL INFORMATION |                                                                                              | PAGE NO. |
|--------------------------------------|---------------------------------------------------------------------------------------------------|----------|
|                                 |                                                                                              |     |   |   |
| Item 1.                              | Financial Statements                                                                              |     | 3 |   |
|                                 |                                                                                              |     |   |   |
|                                 | Consolidated Balance Sheets                                                                       |     | 3 |   |
|                                 |                                                                                              |     |   |   |
|                                 | Consolidated Statements of Operations                                                             |     | 4 |   |
|                                 |                                                                                              |     |   |   |
|                                 | Consolidated Statements of Stockholders’ Equity and Comprehensive Income                    |     | 5 |   |
|                                 |                                                                                              |     |   |   |
|                                 | Consolidated Statements of Cash Flows                                                             |     | 6 |   |
|                                 |                                                                                              |     |   |   |
|                                 | Notes to Consolidated Financial Statements                                                        |     | 8 |   |
|                                 |                                                                                              |     |   |   |
| Item 2.                              | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |     | 31 |   |
|                                 |                                                                                              |     |   |   |
| Item 3.                              | Quantitative and Qualitative Disclosures About Market Risk                                        |     | 45 |   |
|                                 |                                                                                              |     |   |   |
| Item 4.                              | Controls and Procedures                                                                           |     | 45 |   |
|                                 |                                                                                              |     |   |   |
| PART II – OTHER INFORMATION    |                                                                                              |     |   |
|                                 |                                                                                              |     |   |   |
| Item 1.                              | Legal Proceedings                                                                                 |     | 46 |   |
|                                 |                                                                                              |     |   |   |
| Item 1A. Risk Factors                |                                                                                              | 46       |   |
|                                 |                                                                                              |     |   |   |
| Item 2.                              | Unregistered Sales of Equity Securities and Use of Proceeds                                       |     | 46 |   |
|                                 |                                                                                              |     |   |   |
| Item 3.                              | Defaults Upon Senior Securities                                                                   |     | 46 |   |
|                                 |                                                                                              |     |   |   |
| Item 4.                              | (Removed and Reserved)                                                                            |     | 46 |   |
|                                 |                                                                                              |     |   |   |
| Item 5.                              | Other Information                                                                                 |     | 46 |   |
|                                 |                                                                                              |     |   |   |
| Item 6.                              | Exhibits                                                                                          |     | 46 |   |
|                                 |                                                                                              |     |   |   |
| Signatures                           |                                                                                              | 48       |   |
|                                 |                                                                                              |     |   |   |
| Certifications                       |                                                                                              |     |   |

----

|                                                                                                                                                              |   | September 30, |      |   | December 31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|-----------|--------|--------------|--------|
|                                                                                                                                                              |   | 2010          |      |   | 2009         |   |
|                                                                                                                                                              |   | (Unaudited)   |      |
| ASSETS                                                                                                                                                            |   |          |      |   |         |   |   |   |
|                                                                                                                                                              |   |          |      |   |         |   |   |   |
| Cash and cash equivalents - cash and due from financial institutions                                                                                              |   | $             | 12,762    |   |         | $      | 12,993 |   |
| Interest-bearing deposits in other financial institutions                                                                                                         |   |          | -         |   |         |   | 170 |   |
| Securities available for sale                                                                                                                                     |   |          | 176,827   |   |         |   | 167,238 |   |
| Securities held to maturity (fair value of $12,017 and $14,500, respectively)                                                                                     |   |          | 11,714    |   |         |   | 14,561 |   |
| Loans held for sale                                                                                                                                               |   |          | 1,900     |   |         |   | 940 |   |
| Loans, net of allowance for loan losses of $19,555 and $15,631, respectively                                                                                      |   |          | 802,975   |   |         |   | 816,061 |   |
| Federal Home Loan Bank (“FHLB”) of New York stock                                                                                                     |   |          | 10,427    |   |         |   | 11,487 |   |
| Premises and equipment, net                                                                                                                                       |   |          | 12,295    |   |         |   | 12,604 |   |
| Accrued interest receivable                                                                                                                                       |   |          | 3,512     |   |         |   | 3,888 |   |
| Foreclosed and repossessed assets                                                                                                                                 |   |          | 806       |   |         |   | 797 |   |
| Bank-owned life insurance (“BOLI”)                                                                                                                    |   |          | 10,586    |   |         |   | 10,488 |   |
| Other assets                                                                                                                                                      |   |          | 15,080    |   |         |   | 15,670 |   |
|       Total assets                                                                                                                  |   | $             | 1,058,884 |   |         | $      | 1,066,897 |   |
|                                                                                                                                                              |   |          |      |   |         |   |   |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                        |   |          |      |   |         |   |   |   |
|                                                                                                                                                              |   |          |      |   |         |   |   |   |
| Deposits                                                                                                                                                          |   | $             | 697,131   |   |         | $      | 693,297 |   |
| Federal Home Loan Bank advances                                                                                                                                   |   |          | 171,624   |   |         |   | 191,094 |   |
| Securities sold under agreement to repurchase                                                                                                                     |   |          | 70,000    |   |         |   | 70,000 |   |
| Accrued interest payable and other liabilities                                                                                                                    |   |          | 3,886     |   |         |   | 3,511 |   |
| Capital lease obligation                                                                                                                                          |   |          | 7,739     |   |         |   | 7,736 |   |
|       Total liabilities                                                                                                             |   |          | 950,380   |   |         |   | 965,638 |   |
| Commitments and contingencies (Note 9)                                                                                                                            |   |          |      |   |         |   |   |   |
| Preferred stock, $.01 par value, 50,000,000 shares authorized; none issued or outstanding                                                                         |   |          |      |   |         |   |   |   |
| Common stock, $.01 par value, 100,000,000 shares authorized; 7,644,854 and 7,653,565 shares issued; 6,443,458 and 6,533,378 shares outstanding, respectively |   |          | 76        |   |         |   | 76 |   |
| Additional paid-in capital                                                                                                                                        |   |          | 73,787    |   |         |   | 73,156 |   |
| Retained earnings-substantially restricted                                                                                                                        |   |          | 50,048    |   |         |   | 47,019 |   |
| Unearned Employee Stock Ownership Plan (“ESOP”) shares                                                                                                |   |          | (3,463    | )      |         |   | (3,997 | ) |
| Accumulated other comprehensive loss, net                                                                                                                         |   |          | (1,663    | )      |         |   | (5,462 | ) |
| Treasury stock, 1,201,396 and 1,120,187 shares at cost, respectively                                                                                              |   |          | (10,281   | )      |         |   | (9,533 | ) |
|       Total stockholders’ equity                                                                                              |   |          | 108,504   |   |         |   | 101,259 |   |
|       Total liabilities and stockholders’ equity                                                                              |   | $             | 1,058,884 |   |         | $      | 1,066,897 |   |
|                                                                                                                                                              |   |          |      |   |         |   |   |   |

----

|                                                                                    |   | Three Months Ended |   |   | Nine Months Ended |   |
|-----------------------------------------------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|
|                                                                                    |   | September 30,      |   |   | September 30,     |   |
|                                                                                    |   | 2010               |   |   | 2009              |   |   | 2010 |   |   | 2009 |   |
| Interest and dividend income:                                                           |   | (Unaudited)        |   |   | (Unaudited)       |   |
|    Loans, including fees                                                 |   | $                  | 11,577 |   |              | $      | 11,606 |   |   | $ | 34,640 |   |   | $ | 34,333 |   |
|    Securities                                                            |   |               | 1,842  |   |              |   | 2,178 |   |   |   | 5,737 |   |   |   | 6,612 |   |
|    FHLB stock                                                            |   |               | 130    |   |              |   | 175 |   |   |   | 417 |   |   |   | 451 |   |
|    Federal funds sold and other                                          |   |               | 5      |   |              |   | 8 |   |   |   | 15 |   |   |   | 36 |   |
|       Total interest income                               |   |               | 13,554 |   |              |   | 13,967 |   |   |   | 40,809 |   |   |   | 41,432 |   |
| Interest expense:                                                                       |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
|    Deposits                                                              |   |               | 2,771  |   |              |   | 3,801 |   |   |   | 8,826 |   |   |   | 11,973 |   |
|    FHLB advances                                                         |   |               | 1,986  |   |              |   | 2,244 |   |   |   | 5,985 |   |   |   | 6,774 |   |
|    Securities sold under agreement to repurchase                         |   |               | 683    |   |              |   | 555 |   |   |   | 2,026 |   |   |   | 1,647 |   |
|    Lease obligation                                                      |   |               | 196    |   |              |   | 186 |   |   |   | 588 |   |   |   | 186 |   |
|       Total interest expense                              |   |               | 5,636  |   |              |   | 6,786 |   |   |   | 17,425 |   |   |   | 20,580 |   |
|       Net interest income                                 |   |               | 7,918  |   |              |   | 7,181 |   |   |   | 23,384 |   |   |   | 20,852 |   |
| Provision for loan losses                                                               |   |               | 1,930  |   |              |   | 1,300 |   |   |   | 5,210 |   |   |   | 5,770 |   |
|       Net interest income after provision for loan losses |   |               | 5,988  |   |              |   | 5,881 |   |   |   | 18,174 |   |   |   | 15,082 |   |
| Noninterest income:                                                                     |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
|    Service charges                                                       |   |               | 870    |   |              |   | 772 |   |   |   | 2,472 |   |   |   | 2,199 |   |
|    Commission and fee income                                             |   |               | 372    |   |              |   | 261 |   |   |   | 688 |   |   |   | 548 |   |
|    Change in cash surrender value of BOLI                                |   |               | 54     |   |              |   | 23 |   |   |   | 98 |   |   |   | 92 |   |
|    Gain on sale of loans                                                 |   |               | 52     |   |              |   | 152 |   |   |   | 266 |   |   |   | 539 |   |
|    Other-than-temporary impairment (OTTI) credit loss on securities      |   |               | (634   | )      |              |   | (192 | ) |   |   | (1,016 | ) |   |   | (1,154 | ) |
|    OTTI loss on cost method equity investment                            |   |               | -      |   |              |   | (95 | ) |   |   | - |   |   |   | (95 | ) |
|    Other                                                                 |   |               | 273    |   |              |   | 227 |   |   |   | 880 |   |   |   | 634 |   |
|       Total noninterest income                            |   |               | 987    |   |              |   | 1,148 |   |   |   | 3,388 |   |   |   | 2,763 |   |
| Noninterest expense:                                                                    |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
|    Salaries and employee benefits                                        |   |               | 2,633  |   |              |   | 2,252 |   |   |   | 7,931 |   |   |   | 6,858 |   |
|    Occupancy and equipment                                               |   |               | 586    |   |              |   | 531 |   |   |   | 1,770 |   |   |   | 1,225 |   |
|    Advertising and marketing                                             |   |               | 112    |   |              |   | 143 |   |   |   | 316 |   |   |   | 360 |   |
|    Telephone, delivery and postage                                       |   |               | 177    |   |              |   | 195 |   |   |   | 531 |   |   |   | 550 |   |
|    Supplies                                                              |   |               | 42     |   |              |   | 59 |   |   |   | 147 |   |   |   | 190 |   |
|    Audit and examination                                                 |   |               | 194    |   |              |   | 198 |   |   |   | 627 |   |   |   | 489 |   |
|    FDIC premium expense                                                  |   |               | 315    |   |              |   | 378 |   |   |   | 932 |   |   |   | 1,388 |   |
|    Other                                                                 |   |               | 1,098  |   |              |   | 1,018 |   |   |   | 3,043 |   |   |   | 2,767 |   |
|       Total noninterest expense                           |   |               | 5,157  |   |              |   | 4,774 |   |   |   | 15,297 |   |   |   | 13,827 |   |
| Income before income taxes                                                              |   |               | 1,818  |   |              |   | 2,255 |   |   |   | 6,265 |   |   |   | 4,018 |   |
| Income tax expense                                                                      |   |               | 662    |   |              |   | 856 |   |   |   | 2,331 |   |   |   | 1,489 |   |
|       Net income                                          |   | $                  | 1,156  |   |              | $      | 1,399 |   |   | $ | 3,934 |   |   | $ | 2,529 |   |
| Basic and diluted earnings per share                                                    |   | $                  | 0.19   |   |              | $      | 0.22 |   |   | $ | 0.64 |   |   | $ | 0.38 |   |
|                                                                                    |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| OTTI credit loss on securities:                                                         |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Total OTTI loss on securities                                                           |   | $                  | 689    |   |              | $      | 192 |   |   | $ | 1,115 |   |   | $ | 1,174 |   |
| Portion of OTTI loss recognized in other comprehensive loss before income taxes         |   |               | (55    | )      |              |   | - |   |   |   | (99 | ) |   |   | (20 | ) |
| OTTI credit loss on securities                                                          |   | $                  | 634    |   |              | $      | 192 |   |   | $ | 1,016 |   |   | $ | 1,154 |   |
|                                                                                    |   |               |   |   |              |   |   |   |   |   |   |   |   |   |   |   |

----

|                                                                                                                                                                      |   |               |    |   |              |   |    |   |   |   |    |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|--------|-------------------|--------|---------|--------|--------|--------|---------|--------|
|                                                                                                                                                                      |   | Three Months Ended |    |   | Nine Months Ended |   |
|                                                                                                                                                                      |   | September 30,      |    |   | September 30,     |   |
|                                                                                                                                                                      |   | 2010               |    |   | 2009              |   |    | 2010   |   |   | 2009    |   |
|                                                                                                                                                                      |   | (Unaudited)        |    |   | (Unaudited)       |   |
| Common Stock                                                                                                                                                              |   | $                  | 76      |   |              | $      | 76      |   |   | $      | 76      |   |   | $ | 76 |   |
|                                                                                                                                                                      |   |               |    |   |              |   |    |   |   |   |    |   |   |   |   |   |
| Additional paid-in capital:                                                                                                                                               |   |               |    |   |              |   |    |   |   |   |    |   |   |   |   |   |
|    Balance at beginning of period                                                                                                                          |   |               | 73,546  |   |              |   | 72,646  |   |   |   | 73,156  |   |   |   | 72,160 |   |
|    Earned ESOP shares                                                                                                                                      |   |               | (4      | )      |              |   | -       |   |   |   | (38     | )      |   |   | (55 | ) |
|    Amortization of stock-based compensation expense                                                                                                        |   |               | 245     |   |              |   | 294     |   |   |   | 669     |   |   |   | 835 |   |
|      Balance at end of period                                                                                                                    |   |               | 73,787  |   |              |   | 72,940  |   |   |   | 73,787  |   |   |   | 72,940 |   |
|                                                                                                                                                                      |   |               |    |   |              |   |    |   |   |   |    |   |   |   |   |   |
| Retained earnings:                                                                                                                                                        |   |               |    |   |              |   |    |   |   |   |    |   |   |   |   |   |
|    Balance at beginning of period                                                                                                                          |   |               | 49,191  |   |              |   | 45,240  |   |   |   | 47,019  |   |   |   | 44,699 |   |
|    Net income                                                                                                                                              |   |               | 1,156   |   |              |   | 1,399   |   |   |   | 3,934   |   |   |   | 2,529 |   |
|    Cash dividends, $.05, $.05, $.15 and $.14 per share, respectively                                                                                       |   |               | (299    | )      |              |   | (311    | )      |   |   | (905    | )      |   |   | (900 | ) |
|      Balance at end of period                                                                                                                    |   |               | 50,048  |   |              |   | 46,328  |   |   |   | 50,048  |   |   |   | 46,328 |   |
|                                                                                                                                                                      |   |               |    |   |              |   |    |   |   |   |    |   |   |   |   |   |
| Unearned ESOP shares:                                                                                                                                                     |   |               |    |   |              |   |    |   |   |   |    |   |   |   |   |   |
|    Balance at beginning of period                                                                                                                          |   |               | (3,641  | )      |              |   | (4,387  | )      |   |   | (3,997  | )      |   |   | (4,733 | ) |
|    Earned ESOP shares                                                                                                                                      |   |               | 178     |   |              |   | -       |   |   |   | 534     |   |   |   | 346 |   |
|      Balance at end of period                                                                                                                    |   |               | (3,463  | )      |              |   | (4,387  | )      |   |   | (3,463  | )      |   |   | (4,387 | ) |
|                                                                                                                                                                      |   |               |    |   |              |   |    |   |   |   |    |   |   |   |   |   |
| Accumulated other comprehensive loss, net:                                                                                                                                |   |               |    |   |              |   |    |   |   |   |    |   |   |   |   |   |
|    Balance at beginning of period                                                                                                                          |   |               | (3,201  | )      |              |   | (9,206  | )      |   |   | (5,462  | )      |   |   | (10,117 | ) |
|    Net change in unrealized gains (losses) on available for sale securities, net of taxes of $1,047, $2,132, $2,572 and $2,747 respectively                |   |               | 1,571   |   |              |   | 3,198   |   |   |   | 3,859   |   |   |   | 4,121 |   |
|    OTTI non-credit related loss on securities for which a portion of the OTTI has been recognized in income, net of taxes of $22, $39 and $8, respectively |   |               | (33     | )      |              |   | -       |   |   |   | (60     | )      |   |   | (12 | ) |
|      Balance at end of period                                                                                                                    |   |               | (1,663  | )      |              |   | (6,008  | )      |   |   | (1,663  | )      |   |   | (6,008 | ) |
|                                                                                                                                                                      |   |               |    |   |              |   |    |   |   |   |    |   |   |   |   |   |
| Treasury stock:                                                                                                                                                           |   |               |    |   |              |   |    |   |   |   |    |   |   |   |   |   |
|    Balance at beginning of period                                                                                                                          |   |               | (9,643  | )      |              |   | (7,314  | )      |   |   | (9,533  | )      |   |   | - |   |
|    Repurchase of 68,768; 98,135; 81,209 and 979,169 shares of common stock, respectively                                                                   |   |               | (638    | )      |              |   | (920    | )      |   |   | (748    | )      |   |   | (8,234 | ) |
|      Balance at end of period                                                                                                                    |   |               | (10,281 | )      |              |   | (8,234  | )      |   |   | (10,281 | )      |   |   | (8,234 | ) |
| Total stockholders’ equity                                                                                                                                          |   | $                  | 108,504 |   |              | $      | 100,715 |   |   | $      | 108,504 |   |   | $ | 100,715 |   |
|                                                                                                                                                                      |   |               |    |   |              |   |    |   |   |   |    |   |   |   |   |   |
| Comprehensive income:                                                                                                                                                     |   |               |    |   |              |   |    |   |   |   |    |   |   |   |   |   |
|    Net income                                                                                                                                              |   | $                  | 1,156   |   |              | $      | 1,399   |   |   | $      | 3,934   |   |   | $ | 2,529 |   |
|    Net change in unrealized gains (losses) on available for sale securities, net of taxes of $1,047, $2,132, $2,572 and $2,747 respectively           |   |               | 1,571   |   |              |   | 3,198   |   |   |   | 3,859   |   |   |   | 4,121 |   |
|    OTTI non-credit related loss on securities for which a portion of the OTTI has been recognized in income, net of taxes of $22, $39 and $8, respectively |   |               | (33     | )      |              |   | -       |   |   |   | (60     | )      |   |   | (12 | ) |
| Comprehensive income                                                                                                                                                      |   | $                  | 2,694   |   |              | $      | 4,597   |   |   | $      | 7,733   |   |   | $ | 6,638 |   |
|                                                                                                                                                                      |   |               |    |   |              |   |    |   |   |   |    |   |   |   |   |   |
| See accompanying notes to consolidated financial statements.                                                                                                              |   |               |    |   |              |   |    |   |   |   |    |   |   |   |   |   |

----

|                                                                                                                   |   | Nine Months Ended |    |
|------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                                   |   | September 30,     |    |
|                                                                                                                   |   | 2010              |    |   | 2009 |   |
| Cash flows from operating activities:                                                                                  |   | (Unaudited)       |    |
|    Net income                                                                                           |   | $                 | 3,934   |   |   | $ | 2,529 |   |
|    Adjustments to reconcile net income to net cash provided by operating activities:               |   |              |    |   |   |   |   |   |
|          Provision for loan losses                                        |   |              | 5,210   |   |   |   | 5,770 |   |
|          Change in fair value of servicing assets                         |   |              | 326     |   |   |   | 150 |   |
|          Depreciation and amortization                                    |   |              | 1,061   |   |   |   | 616 |   |
|          ESOP expense                                                     |   |              | 496     |   |   |   | 291 |   |
|          Amortization of stock-based compensation expense                 |   |              | 669     |   |   |   | 835 |   |
|          Amortization of net deferred loan costs                          |   |              | 1,962   |   |   |   | 1,875 |   |
|          Net amortization of premiums and discounts on securities         |   |              | 306     |   |   |   | 4 |   |
|          Gain on sale of loans                                            |   |              | (266    | ) |   |   | (539 | ) |
|          Other-than-temporary impairment loss on securities               |   |              | 1,016   |   |   |   | 1,249 |   |
|          Originations of loans held for sale                              |   |              | (29,220 | ) |   |   | (84,366 | ) |
|          Proceeds from loans held for sale                                |   |              | 28,526  |   |   |   | 84,677 |   |
|          Proceeds from sale of trading account assets                     |   |              | -       |   |   |   | 23,337 |   |
|          Increase in cash surrender value of BOLI                         |   |              | (98     | ) |   |   | (92 | ) |
|          Net change in:                                                   |   |              |    |   |   |   |   |   |
|             Accrued interest receivable                    |   |              | 376     |   |   |   | 176 |   |
|             Other assets                                   |   |              | (2,271  | ) |   |   | (1,066 | ) |
|             Accrued interest payable and other liabilities |   |              | 378     |   |   |   | (163 | ) |
|             Net cash provided by operating activities      |   |              | 12,405  |   |   |   | 35,283 |   |
| Cash flows from investing activities:                                                                                  |   |              |    |   |   |   |   |   |
|    Purchase of FHLB stock                                                                               |   |              | (886    | ) |   |   | (644 | ) |
|    Redemption of FHLB stock                                                                             |   |              | 1,946   |   |   |   | 1,484 |   |
|    Securities held to maturity:                                                                         |   |              |    |   |   |   |   |   |
|       Maturities, prepayments and calls                                                  |   |              | 2,785   |   |   |   | 7,598 |   |
|    Securities available for sale:                                                                       |   |              |    |   |   |   |   |   |
|       Purchases                                                                          |   |              | (60,301 | ) |   |   | (65,544 | ) |
|       Proceeds from maturity or call                                                     |   |              | 55,786  |   |   |   | 33,799 |   |
|    Maturities of interest-bearing deposits                                                              |   |              | 170     |   |   |   | 100 |   |
|    Loan originations and payments, net                                                                  |   |              | 5,402   |   |   |   | (50,607 | ) |
|    Purchase of premises and equipment                                                                   |   |              | (752    | ) |   |   | (2,224 | ) |
|    Proceeds from sale of foreclosed and repossessed assets                                              |   |              | 503     |   |   |   | 1,127 |   |
|            Net cash provided by (used for) investing activities |   | $                 | 4,653   |   |   | $ | (74,911 | ) |

----

|                                                                                                       |   |              |    |   |   |   |
|------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|--------|--------|--------|
|                                                                                                       |   | Nine Months Ended |    |
|                                                                                                       |   | September 30,     |    |
|                                                                                                       |   | 2010              |    |   | 2009   |   |
| Cash flows from financing activities:                                                                      |   | (Unaudited)       |    |
|    Net change in deposits                                                                   |   | $                 | 3,834   |   |   | $      | 54,563 |   |
|    Proceeds from FHLB advances                                                              |   |              | 36,300  |   |   |   | 18,000 |   |
|    Repayment of FHLB advances                                                               |   |              | (55,770 | )      |   |   | (30,547 | ) |
|    Repayment of lease obligation                                                            |   |              | -       |   |   |   | (69 | ) |
|    Cash dividends                                                                           |   |              | (905    | )      |   |   | (900 | ) |
|    Repurchase of common stock                                                               |   |              | (748    | )      |   |   | (8,234 | ) |
|          Net cash (used for) provided by financing activities |   |              | (17,289 | )      |   |   | 32,813 |   |
| Net change in cash and cash equivalents                                                                    |   |              | (231    | )      |   |   | (6,815 | ) |
| Cash and cash equivalents at beginning of period                                                           |   |              | 12,993  |   |   |   | 18,297 |   |
| Cash and cash equivalents at end of period                                                                 |   | $                 | 12,762  |   |   | $      | 11,482 |   |
| Supplemental cash flow information:                                                                        |   |              |    |   |   |   |   |   |
|    Interest paid                                                                            |   | $                 | 17,489  |   |   | $      | 21,164 |   |
|    Income taxes paid                                                                        |   | $                 | 4,559   |   |   | $      | 3,129 |   |
|    Real estate and repossessions acquired in settlement of loans                            |   | $                 | 561     |   |   | $      | 1,289 |   |
| Supplemental schedule of non-cash investing and financing activities:                                      |   |              |    |   |   |   |   |   |
|    Building acquired with capital lease obligation                                          |   | $                 | -       |   |   | $      | 7,800 |   |
|                                                                                                       |   |              |    |   |   |   |   |   |
| See accompanying notes to consolidated financial statements.                                               |   |              |    |   |   |   |   |   |

----

----

----

----

|                                                                           |   |                            |   |   |                           |   |   |   |   |   |   |   |
|--------------------------------------------------------------------------------|--------|---------------------------------|--------|--------|--------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                           |   | Three Months EndedSeptember 30, |   |   | Nine Months EndedSeptember 30, |   |
|                                                                           |   | 2010                            |   |   | 2009                           |   |   | 2010   |   |   | 2009   |   |
|                                                                           |   |                            |   |   |                           |   |   |   |   |   |   |   |
| Basic earnings per share:                                                      |   |                            |   |   |                           |   |   |   |   |   |   |   |
|                                                                           |   |                            |   |   |                           |   |   |   |   |   |   |   |
| Net income                                                                     |   | $                               | 1,156  |   |                           | $      | 1,399  |   |   | $      | 3,934  |   |   | $ | 2,529 |   |
| Less dividends paid:                                                           |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Common stock                                                                   |   |                            | 292    |   |                           |   | 298    |   |   |   | 883    |   |   |   | 863 |   |
| Participating securities                                                       |   |                            | 7      |   |                           |   | 13     |   |   |   | 22     |   |   |   | 37 |   |
|                                                                           |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Undistributed earnings                                                         |   | $                               | 857    |   |                           | $      | 1,088  |   |   | $      | 3,029  |   |   | $ | 1,629 |   |
|                                                                           |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average basic shares outstanding                                      |   |                            | 5,967  |   |                           |   | 6,031  |   |   |   | 5,982  |   |   |   | 6,336 |   |
| Add: weighted-average participating securities outstanding                     |   |                            | 146    |   |                           |   | 266    |   |   |   | 146    |   |   |   | 266 |   |
| Total weighted-average basic shares and participating securities outstanding   |   |                            | 6,113  |   |                           |   | 6,297  |   |   |   | 6,128  |   |   |   | 6,602 |   |
|                                                                           |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Distributed earnings per share                                                 |   | $                               | 0.05   |   |                           | $      | 0.05   |   |   | $      | 0.15   |   |   | $ | 0.14 |   |
| Undistributed earnings per share                                               |   |                            | 0.14   |   |                           |   | 0.17   |   |   |   | 0.49   |   |   |   | 0.24 |   |
| Net income per share                                                           |   | $                               | 0.19   |   |                           | $      | 0.22   |   |   | $      | 0.64   |   |   | $ | 0.38 |   |
|                                                                           |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Diluted earnings per share:                                                    |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
|                                                                           |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Undistributed earnings                                                         |   | $                               | 857    |   |                           | $      | 1,088  |   |   | $      | 3,029  |   |   | $ | 1,629 |   |
|                                                                           |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Total weighted-average basic shares and participating securities outstanding   |   |                            | 6,113  |   |                           |   | 6,297  |   |   |   | 6,128  |   |   |   | 6,602 |   |
| Add: Dilutive stock options                                                    |   |                            | 28     |   |                           |   | 3      |   |   |   | 9      |   |   |   | - |   |
| Total weighted-average diluted shares and participating securities outstanding |   |                            | 6,141  |   |                           |   | 6,300  |   |   |   | 6,137  |   |   |   | 6,602 |   |
|                                                                           |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
|                                                                           |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Distributed earnings per share                                                 |   | $                               | 0.05   |   |                           | $      | 0.05   |   |   | $      | 0.15   |   |   | $ | 0.14 |   |
| Undistributed earnings per share                                               |   |                            | 0.14   |   |                           |   | 0.17   |   |   |   | 0.49   |   |   |   | 0.24 |   |
| Net income per share                                                           |   | $                               | 0.19   |   |                           | $      | 0.22   |   |   | $      | 0.64   |   |   | $ | 0.38 |   |
|                                                                           |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Anti-dilutive option shares                                                    |   |                            | 19     |   |                           |   | -      |   |   |   | 9      |   |   |   | 13 |   |

----

|                                                    |   |          |    |   |                 |   |   |                  |   |   |      |   |
|---------------------------------------------------------|--------|---------------|---------|--------|----------------------|--------|--------|-----------------------|--------|--------|-----------|--------|
| September 30, 2010                                      |   | AmortizedCost |    |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | FairValue |   |
|                                                    |   |          |    |   |                 |   |   |                  |   |   |      |   |
| Held to maturity:                                       |   |          |    |   |                 |   |   |                  |   |   |      |   |
| Debt securities:                                        |   |          |    |   |                 |   |   |                  |   |   |      |   |
| Mortgage-backed securities - Residential                |   | $             | 3,948   |   |                 | $      | 141    |                  |   | $      | (3        | )      |   | $ | 4,086 |   |
| Collateralized mortgage obligations - Private issuer    |   |          | 5,265   |   |                 |   | 56     |                  |   |   | (81       | )      |   |   | 5,240 |   |
| Collateralized mortgage obligations - Government agency |   |          | 2,501   |   |                 |   | 190    |                  |   |   | -         |   |   |   | 2,691 |   |
| Total                                                   |   | $             | 11,714  |   |                 | $      | 387    |                  |   | $      | (84       | )      |   | $ | 12,017 |   |
|                                                    |   |          |    |   |                 |   |   |                  |   |   |      |   |   |   |   |   |
| Available for sale:                                     |   |          |    |   |                 |   |   |                  |   |   |      |   |   |   |   |   |
| Debt securities:                                        |   |          |    |   |                 |   |   |                  |   |   |      |   |   |   |   |   |
| Treasuries                                              |   | $             | 100     |   |                 | $      | -      |                  |   | $      | -         |   |   | $ | 100 |   |
| Agencies                                                |   |          | 6,004   |   |                 |   | 65     |                  |   |   | -         |   |   |   | 6,069 |   |
| Pooled trust preferred securities                       |   |          | 11,918  |   |                 |   | -      |                  |   |   | (6,272    | )      |   |   | 5,646 |   |
| Mortgage-backed securities - Residential                |   |          | 44,264  |   |                 |   | 1,928  |                  |   |   | (39       | )      |   |   | 46,153 |   |
| Collateralized mortgage obligations - Private issuer    |   |          | 18,024  |   |                 |   | 365    |                  |   |   | (1,544    | )      |   |   | 16,845 |   |
| Collateralized mortgage obligations - Government agency |   |          | 99,186  |   |                 |   | 2,835  |                  |   |   | (7        | )      |   |   | 102,014 |   |
| Total                                                   |   | $             | 179,496 |   |                 | $      | 5,193  |                  |   | $      | (7,862    | )      |   | $ | 176,827 |   |

----

|                                                    |   |          |    |   |                 |   |   |                  |   |   |      |   |
|---------------------------------------------------------|--------|---------------|---------|--------|----------------------|--------|--------|-----------------------|--------|--------|-----------|--------|
| December 31, 2009                                       |   | AmortizedCost |    |   | GrossUnrealizedGains |   |   | GrossUnrealizedLosses |   |   | FairValue |   |
|                                                    |   |          |    |   |                 |   |   |                  |   |   |      |   |
| Held to maturity:                                       |   |          |    |   |                 |   |   |                  |   |   |      |   |
| Debt securities:                                        |   |          |    |   |                 |   |   |                  |   |   |      |   |
| Mortgage-backed securities - Residential                |   | $             | 4,850   |   |                 | $      | 116    |                  |   | $      | -         |   |   | $ | 4,966 |   |
| Collateralized mortgage obligations - Private issuer    |   |          | 6,652   |   |                 |   | 5      |                  |   |   | (323      | )      |   |   | 6,334 |   |
| Collateralized mortgage obligations - Government agency |   |          | 3,059   |   |                 |   | 141    |                  |   |   |      |   |   |   | 3,200 |   |
| Total                                                   |   | $             | 14,561  |   |                 | $      | 262    |                  |   | $      | (323      | )      |   | $ | 14,500 |   |
|                                                    |   |          |    |   |                 |   |   |                  |   |   |      |   |   |   |   |   |
| Available for sale:                                     |   |          |    |   |                 |   |   |                  |   |   |      |   |   |   |   |   |
| Debt securities:                                        |   |          |    |   |                 |   |   |                  |   |   |      |   |   |   |   |   |
| Treasuries                                              |   | $             | 100     |   |                 | $      | 1      |                  |   | $      | -         |   |   | $ | 101 |   |
| Agencies                                                |   |          | 26,002  |   |                 |   | 21     |                  |   |   | (51       | )      |   |   | 25,972 |   |
| Pooled trust preferred securities                       |   |          | 12,755  |   |                 |   | -      |                  |   |   | (7,743    | )      |   |   | 5,012 |   |
| Mortgage-backed securities - Residential                |   |          | 39,629  |   |                 |   | 1,646  |                  |   |   | (22       | )      |   |   | 41,253 |   |
| Collateralized mortgage obligations - Private issuer    |   |          | 23,242  |   |                 |   | 13     |                  |   |   | (4,955    | )      |   |   | 18,300 |   |
| Collateralized mortgage obligations - Government agency |   |          | 74,512  |   |                 |   | 2,164  |                  |   |   | (76       | )      |   |   | 76,600 |   |
| Total                                                   |   | $             | 176,240 |   |                 | $      | 3,845  |                  |   | $      | (12,847   | )      |   | $ | 167,238 |   |

|                                                    |   |             |   |   |               |   |
|---------------------------------------------------------|--------|------------------|--------|--------|--------------------|--------|
|                                                    |   | Held to Maturity |   |   | Available for Sale |   |
| September 30, 2010                                      |   | AmortizedCost    |   |   | FairValue          |   |   | AmortizedCost |   |   | FairValue |   |
|                                                    |   |             |   |   |               |   |   |   |   |   |   |   |
| Due within one year                                     |   | $                | -      |   |               | $      | - |   |   | $ | - |   |   | $ | - |   |
| Due after one through five years                        |   |             | -      |   |               |   | - |   |   |   | 6,104 |   |   |   | 6,169 |   |
| Due after five through ten years                        |   |             | -      |   |               |   | - |   |   |   | - |   |   |   | - |   |
| Due after ten years                                     |   |             | -      |   |               |   | - |   |   |   | 11,918 |   |   |   | 5,646 |   |
|                                                    |   |             | -      |   |               |   | - |   |   |   | 18,022 |   |   |   | 11,815 |   |
| Mortgage-backed securities - Residential                |   |             | 3,948  |   |               |   | 4,086 |   |   |   | 44,264 |   |   |   | 46,153 |   |
| Collateralized mortgage obligations - Private issuer    |   |             | 5,265  |   |               |   | 5,240 |   |   |   | 18,024 |   |   |   | 16,845 |   |
| Collateralized mortgage obligations - Government agency |   |             | 2,501  |   |               |   | 2,691 |   |   |   | 99,186 |   |   |   | 102,014 |   |
|                                                    |   | $                | 11,714 |   |               | $      | 12,017 |   |   | $ | 179,496 |   |   | $ | 176,827 |   |

----

|                                          |   |                |   |   |                |   |   |      |   |   |           |   |   |      |    |   |           |   |
|-----------------------------------------------|--------|---------------------|--------|--------|---------------------|--------|--------|-----------|--------|--------|----------------|--------|--------|-----------|---------|--------|----------------|--------|
|                                          |   | Less than 12 Months |   |   | 12 Months or Longer |   |   | Total     |   |
| September 30, 2010                            |   | FairValue           |   |   | Unrealizedloss      |   |   | FairValue |   |   | Unrealizedloss |   |   | FairValue |    |   | Unrealizedloss |   |
|                                          |   |                |   |   |                |   |   |      |   |   |           |   |   |      |    |   |           |   |
| Pooled trust preferred securities             |   | $                   | -      |   |                | $      | -      |      |   | $      | 5,646          |   |   | $         | (6,272  | )      |           | $      | 5,646 |   |   | $ | (6,272 | ) |
| Mortgage backed securities - Residential      |   |                | 7,657  |   |                |   | (39    | )         |   |   | 965            |   |   |      | (3      | )      |           |   | 8,622 |   |   |   | (42 | ) |
| CMOs - Private issuer                         |   |                | -      |   |                |   | -      |      |   |   | 14,944         |   |   |      | (1,625  | )      |           |   | 14,944 |   |   |   | (1,625 | ) |
| CMOs - Government Agency                      |   |                | 5,076  |   |                |   | (7     | )         |   |   | -              |   |   |      | -       |   |           |   | 5,076 |   |   |   | (7 | ) |
|                                          |   | $                   | 12,733 |   |                | $      | (46    | )         |   | $      | 21,555         |   |   | $         | (7,900  | )      |           | $      | 34,288 |   |   | $ | (7,946 | ) |
|                                          |   |                |   |   |                |   |   |      |   |   |           |   |   |      |    |   |           |   |   |   |   |   |   |   |
|                                          |   | Less than 12 Months |   |   | 12 Months or Longer |   |   | Total     |   |
| December 31, 2009                             |   | FairValue           |   |   | Unrealizedloss      |   |   | FairValue |   |   | Unrealizedloss |   |   | FairValue |    |   | Unrealizedloss |   |
|                                          |   |                |   |   |                |   |   |      |   |   |           |   |   |      |    |   |           |   |   |   |   |   |   |   |
| Agencies                                      |   | $                   | 5,953  |   |                | $      | (51    | )         |   | $      | -              |   |   | $         | -       |   |           | $      | 5,953 |   |   | $ | (51 | ) |
| Pooled trust preferred securities        |   |                | -      |   |                |   | -      |      |   |   | 5,012          |   |   |      | (7,743  | )      |           |   | 5,012 |   |   |   | (7,743 | ) |
| Mortgage backed securities - Residential |   |                | 3,263  |   |                |   | (22    | )         |   |   | -              |   |   |      | -       |   |           |   | 3,263 |   |   |   | (22 | ) |
| CMOs - Private issuer                         |   |                | 574    |   |                |   | (3     | )         |   |   | 20,142         |   |   |      | (5,275  | )      |           |   | 20,716 |   |   |   | (5,278 | ) |
| CMOs - Government Agency                      |   |                | 9,801  |   |                |   | (76    | )         |   |   | -              |   |   |      | -       |   |           |   | 9,801 |   |   |   | (76 | ) |
|                                          |   | $                   | 19,591 |   |                | $      | (152   | )         |   | $      | 25,154         |   |   | $         | (13,018 | )      |           | $      | 44,745 |   |   | $ | (13,170 | ) |

----

|                            |   |   |   |   |           |   |        |       |   |   |            |   |   |               |   |
|---------------------------------|--------|--------|--------|--------|----------------|--------|-------------|------------|--------|--------|-----------------|--------|--------|--------------------|--------|
| Description                     |   | Class  |   |   | Amortized Cost |   |        | Fair Value |   |   | Unrealized Loss |   |   | LowestCreditRating |   |
| CMOs - Private Issuer:          |   |   |   |   |           |   |        |       |   |   |            |   |   |               |   |
| CWALT 2006-19CB                 |   |   | A14    |   |           | $      | 3,554       |       |   | $      | 3,071           |   |   | $                  | (483   | ) |   |  C |   |
| CWALT 2005-J11                  |   |   | 1A10   |   |           |   | 2,449       |       |   |   | 2,247           |   |   |               | (202   | ) |   | Caa1 |   |
| ARMT 2005-3                     |   |   | 4A1    |   |           |   | 2,963       |       |   |   | 2,526           |   |   |               | (437   | ) |   | Caa1 |   |
| JPMMT 2007-S3                   |   |   | 2A3    |   |           |   | 2,357       |       |   |   | 2,307           |   |   |               | (50    | ) |   |  C |   |
| First Horizon ALT 2006          |   |   | FA4    |   |           |   |  2,265 |       |   |   |  1,892     |   |   |               | (373   | )  |   |  C |   |
|                            |   |   |   |   |           |   |        |       |   |   |            |   |   |               |   |   |   |   |   |   |
| Trust Preferred Securities:     |   |   |   |   |           |   |        |       |   |   |            |   |   |               |   |   |   |   |   |   |
| Alesco Preferred Funding IV     |   |   | B-1    |   |           |   | 637         |       |   |   | 205             |   |   |               | (432   | ) |   | Ca |   |
| Alesco Preferred Funding Ltd    |   |   | A-1    |   |           |   | 2,333       |       |   |   | 1,378           |   |   |               | (955   | ) |   | BB+ |   |
| US Capital Funding III 12/01/35 |   |   | A-2    |   |           |   | 2,966       |       |   |   | 900             |   |   |               | (2,066 | ) |   | Baa2 |   |
| US Capital Funding I 05/01/34   |   |   | B-2    |   |           |   | 616         |       |   |   | 70              |   |   |               | (546   | ) |   |  C |   |

----

----

|                                 |   |      |   |   |                               |   |   |                                     |   |   |               |   |   |                  |   |   |   |   |
|--------------------------------------|--------|-----------|--------|--------|------------------------------------|--------|--------|------------------------------------------|--------|--------|--------------------|--------|--------|-----------------------|--------|--------|--------|--------|
|                                 |   | FairValue |   |   | OTTI Credit LossSeptember 30, 2010 |   |   | Non-CreditLoss in AOCLSeptember 30, 2010 |   |   | LowestCreditRating |   |   | Default / Delinquency |   |
| Description                          |   |      |   | QTD    |                               |   | YTD    |                                     |   |   |               |   |   |                  |
| Trust preferred securities:          |   |      |   |   |                               |   |   |                                     |   |   |               |   |   |                  |   |   |   |   |
| US Capital Funding III 12/01/35      |   | $         | 900    |   |                               | $      | -      |                                     |   | $      | 6                  |   |   | $                     | 2,066  |   |   | Baa2   |   |   |   | 27.7 | % |
| Alesco Preferred Funding IV          |   |      | 205    |   |                               |   | 226    |                                     |   |   | 454                |   |   |                  | 432    |   |   | Ca     |   |   |   | 39.0 | % |
| US Capital Funding I 05/01/34        |   |      | 70     |   |                               |   | 71     |                                     |   |   | 71                 |   |   |                  | 546    |   |   | C      |   |   |   | 16.8 | % |
|                                 |   |      | 1,175  |   |                               |   | 297    |                                     |   |   | 531                |   |   |                  | 3,044  |   |   |   |   |   |   |   |   |   |
| Collateralized mortgage obligations: |   |      |   |   |                               |   |   |                                     |   |   |               |   |   |                  |   |   |   |   |   |   |   |   |   |   |
| GMAC 2003-J9                         |   |      | 1,434  |   |                               |   | 35     |                                     |   |   | 35                 |   |   |                  | -      |   |   | Aaa    |   |   |   | 4.3 | % |
| CWALT 2005-J11                       |   |      | 2,247  |   |                               |   | -      |                                     |   |   | 46                 |   |   |                  | 202    |   |   | Caa1   |   |   |   | 19.9 | % |
| CWALT 2006-19CB                      |   |      | 3,071  |   |                               |   | 35     |                                     |   |   | 104                |   |   |                  | 483    |   |   | C      |   |   |   | 23.7 | % |
| First Horizon Alt 2006               |   |      | 1,892  |   |                               |   | 267    |                                     |   |   | 267                |   |   |                  | 373    |   |   | C      |   |   |   | 24.1 | % |
| JPMMT 2007-S3                        |   |      | 2,307  |   |                               |   | -      |                                     |   |   | 33                 |   |   |                  | 50     |   |   | C      |   |   |   | 20.8 | % |
|                                 |   |      | 10,951 |   |                               |   | 337    |                                     |   |   | 485                |   |   |                  | 1,108  |   |   |   |   |   |   |   |   |   |
|                                 |   | $         | 12,126 |   |                               | $      | 634    |                                     |   | $      | 1,016              |   |   | $                     | 4,152  |   |   |   |   |   |   |   |   |   |

|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 1)     | The discount rate used in assessing OTTI is the purchased yield of a bond, which is constant. Therefore, changes in OTTI are purely a function of changes in the amount and timing of projected future cash flows, but are not influenced by the market’s required rate of return for these cash flows (their discount rate). Fair value measures, however, incorporate the market’s perception of the risk of a bond’s future cash flows. Given that the credit quality of PTPS collateral has deteriorated significantly since the onset of the credit crisis, the riskiness of all PTPS CDO bonds has increased, pushing the discount rates used to value them well above their coupon rates. This risk premium is the primary reason that the fair values of most PTPS CDOs are significantly below their amortized costs. |

----

|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 2)     | During the height of the credit bubble in late 2007 and early 2008, there was tremendous demand for PTPS CDOs, and competition among dealers for PTPS compressed collateral credit spreads to artificially tight levels. When the credit bubble burst, demand for PTPS declined and PTPS credit spreads increased. This increase in credit spreads reduced the fair value of PTPS collateral, which by extension reduced the fair value of PTPS CDOs. |

----

|                                                                                             |   |   |   |
|--------------------------------------------------------------------------------------------------|--------|--------|--------|
| Credit related impairments with a portion recognized in other comprehensive loss:           |   |   |   |
| Balance at January 1, 2010                                                                       |   | $      | 3,293  |   |
| Credit related impairments on portions of OTTI previously recognized in other comprehensive loss |   |   | 1,016  |   |
|  Balance at September 30, 2010                                                              |   | $      | 4,309  |   |

|                      |   |              |    |   |             |   |
|---------------------------|--------|-------------------|---------|--------|------------------|--------|
|                      |   | September 30,2010 |    |   | December 31,2009 |   |
|                      |   |              |    |   |             |   |
| Real estate:              |   |              |    |   |             |   |
| Residential, 1-4 family   |   | $                 | 201,583 |   |             | $      | 219,863 |   |
| Multi-family              |   |              | 23,486  |   |             |   | 23,862 |   |
| Commercial                |   |              | 146,316 |   |             |   | 117,499 |   |
| Construction              |   |              | 24,108  |   |             |   | 19,392 |   |
| Consumer - secured        |   |              | 163,548 |   |             |   | 161,007 |   |
| Consumer - unsecured      |   |              | 7,836   |   |             |   | 7,182 |   |
| Home equity loans         |   |              | 161,359 |   |             |   | 176,988 |   |
| Commercial business loans |   |              | 89,591  |   |             |   | 101,022 |   |
|                      |   |              | 817,827 |   |             |   | 826,815 |   |
| Net deferred loan costs   |   |              | 4,703   |   |             |   | 4,877 |   |
| Allowance for loan losses |   |              | (19,555 | )      |             |   | (15,631 | ) |
|                      |   | $                 | 802,975 |   |             | $      | 816,061 |   |

----

|                                                              |   |                            |   |   |                           |   |
|-------------------------------------------------------------------|--------|---------------------------------|--------|--------|--------------------------------|--------|
|                                                              |   | Three Months EndedSeptember 30, |   |   | Nine Months EndedSeptember 30, |   |
|                                                              |   | 2010                            |   |   | 2009                           |   |   | 2010 |   |   | 2009 |   |
|                                                              |   |                            |   |   |                           |   |
| Beginning balance                                                 |   | $                               | 18,068 |   |                           | $      | 14,261 |   |   | $ | 15,631 |   |   | $ | 10,546 |   |
| Provision for loan losses                                         |   |                            | 1,930  |   |                           |   | 1,300 |   |   |   | 5,210 |   |   |   | 5,770 |   |
| Loans charged off                                                 |   |                            | (514   | )      |                           |   | (544 | ) |   |   | (1,572 | ) |   |   | (1,482 | ) |
| Recoveries                                                        |   |                            | 71     |   |                           |   | 280 |   |   |   | 286 |   |   |   | 463 |   |
| Ending balance                                                    |   | $                               | 19,555 |   |                           | $      | 15,297 |   |   | $ | 19,555 |   |   | $ | 15,297 |   |
|                                                              |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Ratios:                                                           |   |                            |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Annualized net charge-offs to average loans outstanding           |   |                            | 0.21   | %      |                           |   | 0.13 | % |   |   | 0.21 | % |   |   | 0.17 | %  |
| Allowance for loan losses to nonperforming loans at end of period |   |                            | 127.21 | %      |                           |   | 118.86 | % |   |   | 127.21 | % |   |   | 118.86 | %  |
| Allowance for loan losses to total loans at end of period         |   |                            | 2.39   | %      |                           |   | 1.86 | % |   |   | 2.39 | % |   |   | 1.86 | %  |

|                                                                           |   |              |   |   |             |   |
|--------------------------------------------------------------------------------|--------|-------------------|--------|--------|------------------|--------|
|                                                                           |   | September 30,2010 |   |   | December 31,2009 |   |
|                                                                           |   |              |   |
| Nonaccrual loans                                                               |   | $                 | 15,191 |   |             | $      | 12,061 |   |
| Loans past due over 90 days still accruing                                     |   |              | 181    |   |             |   | 827 |   |
| Total nonaccrual loans and loans past due over 90 days and still accruing |   |              | 15,372 |   |             |   | 12,888 |   |
| Foreclosed and repossessed assets                                              |   |              | 806    |   |             |   | 797 |   |
| Total nonperforming assets                                                     |   | $                 | 16,178 |   |             | $      | 13,685 |   |
|                                                                           |   |              |   |   |             |   |   |   |
| Ratios:                                                                        |   |              |   |   |             |   |   |   |
| Nonperforming loans to total loans                                             |   |              | 1.88   | %      |             |   | 1.56 | % |
| Nonperforming assets to total assets                                           |   |              | 1.53   | %      |             |   | 1.28 | % |
|                                                                           |   |              |   |   |             |   |   |   |
| Impaired loans (in nonaccrual loans)                                           |   | $                 | 12,296 |   |             | $      | 10,331 |   |
| Impaired loans on accrual                                                      |   |              | 1,758  |   |             |   | 647 |   |
| Total impaired loans                                                           |   | $                 | 14,054 |   |             | $      | 10,978 |   |
| Allowance for losses on impaired loans                                         |   | $                 | 6,727  |   |             | $      | 4,103 |   |
| Impaired loans with no allowance                                               |   | $                 | -      |   |             | $      | 27 |   |
| Average balance of impaired loans                                              |   | $                 | 11,941 |   |             | $      | 5,102 |   |
| Interest income recognized                                                     |   | $                 | 204    |   |             | $      | 197 |   |

----

|                                                             |   |       |   |   |                      |   |
|------------------------------------------------------------------|--------|------------|--------|--------|---------------------------|--------|
| Type of Concession                                               |   | # of Loans |   |   | Remainingunamortized cost |   |
|                                                             |   |       |   |   |                      |   |
| Commercial loans - non collateral-dependent                      |   |       |   |   |                      |   |
| Interest-only for 6 to 12 months                                 |   |       | 7      |   |                      | $      | 1,399,633 |   |
| Term extended and interest rate reduced (reduced to market rate) |   |       | 2      |   |                      |   | 602,499 |   |
|                                                             |   |       |   |   |                      |   |   |   |
| Commercial loans - collateral-dependent                          |   |       |   |   |                      |   |   |   |
| Interest-only for 6 to 12 months                                 |   |       | 4      |   |                      | $      | 1,317,545 |   |
| Interest-only for 24 months at a below market interest rate      |   |       | 1      |   |                      |   | 2,960,880 |   |
|                                                             |   |       |   |   |                      |   |   |   |
| Residential 1-4 family loan - non collateral-dependent           |   |       |   |   |                      |   |   |   |
| Term extended and interest rate reduced to below market rate     |   |       | 1      |   |                      | $      | 886,292 |   |

----

|                               |   |              |    |   |             |   |
|------------------------------------|--------|-------------------|---------|--------|------------------|--------|
|                               |   | September 30,2010 |    |   | December 31,2009 |   |
|                               |   |              |    |   |             |   |
| Noninterest-bearing checking       |   | $                 | 42,163  |   |             | $      | 32,292 |   |
| Interest-bearing checking accounts |   |              | 48,307  |   |             |   | 51,824 |   |
| Savings accounts                   |   |              | 98,649  |   |             |   | 59,868 |   |
| Money market accounts              |   |              | 150,842 |   |             |   | 155,740 |   |
| Certificates of deposit            |   |              | 357,170 |   |             |   | 393,573 |   |
| Total deposits                     |   | $                 | 697,131 |   |             | $      | 693,297 |   |

----

|                            |   |               |        |   |              |   |   |      |   |   |         |   |
|---------------------------------|--------|--------------------|-------------|--------|-------------------|--------|--------|-----------|--------|--------|--------------|--------|
|                            |   | September 30, 2010 |        |   | December 31, 2009 |   |
|                            |   | FixedRate          |        |   | VariableRate      |   |   | FixedRate |   |   | VariableRate |   |
| Commitments to make loans       |   | $                  | 33,056      |   |              | $      | 15,957 |      |   | $      | 23,785       |   |   | $ | 20,362 |   |
| Unused lines of credit          |   | $                  | 4,219       |   |              | $      | 57,721 |      |   | $      | 6,985        |   |   | $ | 55,367 |   |
| Range of fixed-rate commitments |   |               | 3.25%-15.00 | %      |              |   | -      |      |   |   | 3.25%-15.00  | %      |   |   | - |   |

|                                                    |   |               |   |   |              |   |   |           |   |   |      |   |
|---------------------------------------------------------|--------|--------------------|--------|--------|-------------------|--------|--------|----------------|--------|--------|-----------|--------|
|                                                    |   | September 30, 2010 |   |   | December 31, 2009 |   |
|                                                    |   | ContractAmount     |   |   | FairValue         |   |   | ContractAmount |   |   | FairValue |   |
| Standby letters of credit                               |   | $                  | 1,191  |   |              | $      | -      |           |   | $      | 1,041     |   |   | $ | - |   |
| Limited recourse obligations related to loans sold |   | $                  | 1,664  |   |              | $      | -      |           |   | $      | 1,665     |   |   | $ | - |   |

----

----

----

----

|                                                    |   |                                                       |   |   |                                      |   |    |                                   |   |   |           |   |
|---------------------------------------------------------|--------|------------------------------------------------------------|--------|--------|-------------------------------------------|--------|---------|----------------------------------------|--------|--------|----------------|--------|
| Assets                                                  |   | Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) |   |   | SignificantOtherObservableInputs(Level 2) |   |    | SignificantUnobservableInputs(Level 3) |   |   | TotalFairValue |   |
|                                                    |   |                                                       |   |   |                                      |   |    |                                   |   |   |           |   |
| Available for sale securities:                          |   |                                                       |   |   |                                      |   |    |                                   |   |   |           |   |
| Debt securities:                                        |   |                                                       |   |   |                                      |   |    |                                   |   |   |           |   |
| U.S. Treasury and agencies                              |   | $                                                          | 100    |   |                                      | $      | 6,069   |                                   |   | $      | -              |   |   | $ | 6,169 |   |
| Pooled trust preferred securities                       |   |                                                       | -      |   |                                      |   | -       |                                   |   |   | 5,646          |   |   |   | 5,646 |   |
| Mortgage-backed securities                              |   |                                                       | -      |   |                                      |   | 46,153  |                                   |   |   | -              |   |   |   | 46,153 |   |
| Collateralized mortgage obligations - Private issuer    |   |                                                       | -      |   |                                      |   | 16,845  |                                   |   |   | -              |   |   |   | 16,845 |   |
| Collateralized mortgage obligations - Government agency |   |                                                       | -      |   |                                      |   | 102,014 |                                   |   |   | -              |   |   |   | 102,014 |   |
|                                                    |   | $                                                          | 100    |   |                                      | $      | 171,081 |                                   |   | $      | 5,646          |   |   | $ | 176,827 |   |
|                                                    |   |                                                       |   |   |                                      |   |    |                                   |   |   |           |   |   |   |   |   |
| Loans held for sale                                     |   | $                                                          | -      |   |                                      | $      | 1,900   |                                   |   | $      | -              |   |   | $ | 1,900 |   |
|                                                    |   |                                                       |   |   |                                      |   |    |                                   |   |   |           |   |   |   |   |   |
| Mortgage servicing rights                               |   | $                                                          | -      |   |                                      | $      | 828     |                                   |   | $      | -              |   |   | $ | 828 |   |
|                                                    |   |                                                       |   |   |                                      |   |    |                                   |   |   |           |   |   |   |   |   |
| Loan commitment derivatives                             |   | $                                                          | -      |   |                                      | $      | 102     |                                   |   | $      | -              |   |   | $ | 102 |   |

----

|                                                    |   |                                                       |   |   |                                      |   |    |                                   |   |   |           |   |
|---------------------------------------------------------|--------|------------------------------------------------------------|--------|--------|-------------------------------------------|--------|---------|----------------------------------------|--------|--------|----------------|--------|
|  Assets                                            |   | Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) |   |   | SignificantOtherObservableInputs(Level 2) |   |    | SignificantUnobservableInputs(Level 3) |   |   | TotalFairValue |   |
|                                                    |   |                                                       |   |   |                                      |   |    |                                   |   |   |           |   |
| Securities available for sale:                          |   |                                                       |   |   |                                      |   |    |                                   |   |   |           |   |
| Debt securities:                                        |   |                                                       |   |   |                                      |   |    |                                   |   |   |           |   |
| U.S. Treasury and agencies                              |   | $                                                          | 101    |   |                                      | $      | 25,972  |                                   |   | $      | -              |   |   | $ | 26,073 |   |
| Pooled trust preferred securities                       |   |                                                       | -      |   |                                      |   | -       |                                   |   |   | 5,012          |   |   |   | 5,012 |   |
| Mortgage-backed securities                              |   |                                                       | -      |   |                                      |   | 41,253  |                                   |   |   | -              |   |   |   | 41,253 |   |
| Collateralized mortgage obligations - Private issuer    |   |                                                       | -      |   |                                      |   | 18,300  |                                   |   |   | -              |   |   |   | 18,300 |   |
| Collateralized mortgage obligations - Government agency |   |                                                       | -      |   |                                      |   | 76,600  |                                   |   |   | -              |   |   |   | 76,600 |   |
|                                                    |   | $                                                          | 101    |   |                                      | $      | 162,125 |                                   |   | $      | 5,012          |   |   | $ | 167,238 |   |
|                                                    |   |                                                       |   |   |                                      |   |    |                                   |   |   |           |   |   |   |   |   |
| Loans held for sale                                     |   | $                                                          | -      |   |                                      | $      | 940     |                                   |   | $      | -              |   |   | $ | 940 |   |
|                                                    |   |                                                       |   |   |                                      |   |    |                                   |   |   |           |   |   |   |   |   |
| Mortgage servicing rights                               |   | $                                                          | -      |   |                                      | $      | 900     |                                   |   | $      | -              |   |   | $ | 900 |   |
|                                                    |   |                                                       |   |   |                                      |   |    |                                   |   |   |           |   |   |   |   |   |
| Loan commitment derivatives                             |   | $                                                          | -      |   |                                      | $      | 79      |                                   |   | $      | -              |   |   | $ | 79 |   |
|                                                    |   |                                                       |   |   |                                      |   |    |                                   |   |   |           |   |   |   |   |   |
| Liabilities                                             |   |                                                       |   |   |                                      |   |    |                                   |   |   |           |   |   |   |   |   |
|                                                    |   |                                                       |   |   |                                      |   |    |                                   |   |   |           |   |   |   |   |   |
| Sales contract derivatives                              |   | $                                                          | -      |   |                                      | $      | 17      |                                   |   | $      | -              |   |   | $ | 17 |   |

|                                        |   |   |   |
|---------------------------------------------|--------|--------|--------|
| Balance at January 1, 2010                  |   | $      | 5,012  |   |
| Transfers into Level 3                      |   |   | -      |   |
| Capitalized interest                        |   |   | 64     |   |
| Principal paydowns                          |   |   | (362   | ) |
| Total gains or losses (realized/unrealized) |   |   |   |   |
| Included in earnings                        |   |   | (531   | ) |
| Included in other comprehensive income      |   |   | 1,463  |   |
| Balance at September 30, 2010               |   | $      | 5,646  |   |

----

|                          |   |   |   |
|-------------------------------|--------|--------|--------|
| Balance at January 1, 2010    |   | $      | 4,103  |   |
| Provision for loan losses     |   |   | 3,121  |   |
| Loans charged off             |   |   | (277   | ) |
| Recoveries                    |   |   | (220   | ) |
| Balance at September 30, 2010 |   | $      | 6,727  |   |

|                                          |   |              |    |   |             |   |
|-----------------------------------------------|--------|-------------------|---------|--------|------------------|--------|
|                                          |   | September 30,2010 |    |   | December 31,2009 |   |
|                                          |   | CarryingAmount    |    |   | FairValue        |   |   | CarryingAmount |   |   | FairValue |   |
|                                          |   |              |    |   |             |   |   |   |   |   |   |   |
| Financial assets:                             |   |              |    |   |             |   |   |   |   |   |   |   |
| Cash and cash equivalents                     |   | $                 | 12,762  |   |             | $      | 12,762 |   |   | $ | 12,993 |   |   | $ | 12,993 |   |
| Interest-bearing deposits                     |   |              | -       |   |             |   | - |   |   |   | 170 |   |   |   | 170 |   |
| Securities available for sale                 |   |              | 176,827 |   |             |   | 176,827 |   |   |   | 167,238 |   |   |   | 167,238 |   |
| Securities held to maturity                   |   |              | 11,714  |   |             |   | 12,017 |   |   |   | 14,561 |   |   |   | 14,500 |   |
| Loans held for sale                           |   |              | 1,900   |   |             |   | 1,900 |   |   |   | 940 |   |   |   | 940 |   |
| Loans, net                                    |   |              | 802,975 |   |             |   | 821,377 |   |   |   | 816,061 |   |   |   | 812,186 |   |
| FHLB stock                                    |   |              | 10,427  |   |             |   | N/A |   |   |   | 11,487 |   |   |   | N/A |   |
| Accrued interest receivable                   |   |              | 3,512   |   |             |   | 3,512 |   |   |   | 3,888 |   |   |   | 3,888 |   |
|                                          |   |              |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Financial liabilities:                        |   |              |    |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Deposits                                      |   |              | 697,131 |   |             |   | 704,516 |   |   |   | 693,297 |   |   |   | 699,514 |   |
| Federal Home Loan Bank advances               |   |              | 171,624 |   |             |   | 182,279 |   |   |   | 191,094 |   |   |   | 201,123 |   |
| Securities sold under agreement to repurchase |   |              | 70,000  |   |             |   | 79,476 |   |   |   | 70,000 |   |   |   | 75,829 |   |
| Accrued interest payable                      |   | $                 | 1,498   |   |             | $      | 1,498 |   |   | $ | 1,522 |   |   | $ | 1,522 |   |
|                                          |   |              |    |   |             |   |   |   |   |   |   |   |   |   |   |   |

----

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|                                                                               |   | For the Three Months Ended September 30, |      |
|------------------------------------------------------------------------------------|--------|------------------------------------------|-----------|
|                                                                               |   | 2010                                     |      |   | 2009 |   |
|                                                                          |   | Average Outstanding Balance              |      |   | Interest Earned/Paid |   |   | Yield / Rate |   |   | Average Outstanding Balance |   |   | Interest Earned/Paid |   |   | Yield / Rate |   |
|                                                                               |   | (Dollars in thousands)                   |      |
| Interest-earning assets:                                                           |   |                                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Loans                                                            |   | $                                        | 832,205   |   |   | $ | 11,577 |   |   |   | 5.52 | % |   | $ | 823,122 |   |   | $ | 11,606 |   |   |   | 5.59 | % |
|    Securities                                                       |   |                                     | 188,094   |   |   |   | 1,842 |   |   |   | 3.89 |   |   |   | 178,656 |   |   |   | 2,178 |   |   |   | 4.84 |   |
|    FHLB stock                                                       |   |                                     | 11,106    |   |   |   | 130 |   |   |   | 4.64 |   |   |   | 12,394 |   |   |   | 175 |   |   |   | 5.60 |   |
|    Interest-earning deposits                                        |   |                                     | 9,220     |   |   |   | 5 |   |   |   | 0.22 |   |   |   | 16,312 |   |   |   | 8 |   |   |   | 0.19 |   |
|    Total interest-earning assets                                    |   |                                     | 1,040,625 |   |   |   | 13,554 |   |   |   | 5.17 |   |   |   | 1,030,484 |   |   |   | 13,967 |   |   |   | 5.38 |   |
|    Noninterest-earning assets                                       |   |                                     | 30,640    |   |   |   |   |   |   |   |   |   |   |   | 32,515 |   |   |   |   |   |   |   |   |   |
|         Total assets                       |   | $                                        | 1,071,265 |   |   |   |   |   |   |   |   |   |   | $ | 1,062,999 |   |   |   |   |   |   |   |   |   |
|                                                                               |   |                                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                                      |   |                                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Savings                                                          |   | $                                        | 92,639    |   |   | $ | 165 |   |   |   | 0.71 |   |   | $ | 60,581 |   |   | $ | 45 |   |   |   | 0.29 |   |
|    Money market accounts                                            |   |                                     | 153,584   |   |   |   | 409 |   |   |   | 1.06 |   |   |   | 150,519 |   |   |   | 673 |   |   |   | 1.77 |   |
|    NOW accounts                                                     |   |                                     | 48,256    |   |   |   | 66 |   |   |   | 0.54 |   |   |   | 55,538 |   |   |   | 154 |   |   |   | 1.10 |   |
|    Time accounts                                                    |   |                                     | 362,466   |   |   |   | 2,131 |   |   |   | 2.33 |   |   |   | 374,677 |   |   |   | 2,929 |   |   |   | 3.10 |   |
|         Total deposits                     |   |                                     | 656,945   |   |   |   | 2,771 |   |   |   | 1.67 |   |   |   | 641,315 |   |   |   | 3,801 |   |   |   | 2.35 |   |
|    FHLB advances                                                    |   |                                     | 183,938   |   |   |   | 1,986 |   |   |   | 4.28 |   |   |   | 207,521 |   |   |   | 2,244 |   |   |   | 4.29 |   |
|    Reverse repurchase agreements                                    |   |                                     | 70,000    |   |   |   | 683 |   |   |   | 3.87 |   |   |   | 70,000 |   |   |   | 555 |   |   |   | 3.15 |   |
|    Lease obligation                                                 |   |                                     | 7,738     |   |   |   | 196 |   |   |   | 10.05 |   |   |   | 7,800 |   |   |   | 186 |   |   |   | 9.46 |   |
|         Total interest-bearing liabilities |   |                                     | 918,621   |   |   |   | 5,636 |   |   |   | 2.43 |   |   |   | 926,636 |   |   |   | 6,786 |   |   |   | 2.91 |   |
|                                                                               |   |                                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Noninterest-bearing deposits                                     |   |                                     | 41,306    |   |   |   |   |   |   |   |   |   |   |   | 31,841 |   |   |   |   |   |   |   |   |   |
|    Other noninterest-bearing liabilities                            |   |                                     | 4,175     |   |   |   |   |   |   |   |   |   |   |   | 6,215 |   |   |   |   |   |   |   |   |   |
|         Total liabilities                  |   |                                     | 964,102   |   |   |   |   |   |   |   |   |   |   |   | 964,692 |   |   |   |   |   |   |   |   |   |
|    Stockholders’ equity                                       |   |                                     | 107,163   |   |   |   |   |   |   |   |   |   |   |   | 98,307 |   |   |   |   |   |   |   |   |   |
|         Total liabilities and equity       |   | $                                        | 1,071,265 |   |   |   |   |   |   |   |   |   |   | $ | 1,062,999 |   |   |   |   |   |   |   |   |   |
|                                                                               |   |                                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Net interest income                                              |   |                                     |      |   |   | $ | 7,918 |   |   |   |   |   |   |   |   |   |   | $ | 7,181 |   |   |   |   |   |
|                                                                               |   |                                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Net interest rate spread                                         |   |                                     |      |   |   |   |   |   |   |   | 2.73 | % |   |   |   |   |   |   |   |   |   |   | 2.47 | % |
|                                                                               |   |                                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Net interest-earning assets                                      |   | $                                        | 122,004   |   |   |   |   |   |   |   |   |   |   | $ | 103,848 |   |   |   |   |   |   |   |   |   |
|                                                                               |   |                                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Net interest margin                                              |   |                                     |      |   |   |   |   |   |   |   | 3.02 | % |   |   |   |   |   |   |   |   |   |   | 2.76 | % |
|                                                                               |   |                                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Average of interest-earning assets to interest-bearing liabilities          |   |                                     |      |   |   |   |   |   |   |   | 113.28 | % |   |   |   |   |   |   |   |   |   |   | 111.21 | % |

----

|                                                                                 |   |                                    |      |   |                 |   |
|--------------------------------------------------------------------------------------|--------|-----------------------------------------|-----------|--------|----------------------|--------|
|                                                                                 |   | For the Nine Months Ended September 30, |      |
|                                                                                 |   | 2010                                    |      |   | 2009                 |   |
|                                                                                 |   | Average Outstanding Balance             |      |   | Interest Earned/Paid |   |   | Yield / Rate |   |   | Average Outstanding Balance |   |   | Interest Earned/Paid |   |   | Yield / Rate |   |
|                                                                                 |   | (Dollars in thousands)                  |      |
| Interest-earning assets:                                                             |   |                                    |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Loans                                                              |   | $                                       | 832,614   |   |                 | $      | 34,640 |   |   |   | 5.56 | % |   | $ | 810,826 |   |   | $ | 34,333 |   |   |   | 5.66 | % |
|    Securities                                                         |   |                                    | 184,113   |   |                 |   | 5,737 |   |   |   | 4.17 |   |   |   | 165,462 |   |   |   | 6,612 |   |   |   | 5.34 |   |
|    FHLB stock                                                         |   |                                    | 11,342    |   |                 |   | 417 |   |   |   | 4.92 |   |   |   | 12,645 |   |   |   | 451 |   |   |   | 4.77 |   |
|    Interest-earning deposits                                          |   |                                    | 9,939     |   |                 |   | 15 |   |   |   | 0.20 |   |   |   | 20,971 |   |   |   | 36 |   |   |   | 0.23 |   |
|    Total interest-earning assets                                      |   |                                    | 1,038,008 |   |                 |   | 40,809 |   |   |   | 5.26 |   |   |   | 1,009,904 |   |   |   | 41,432 |   |   |   | 5.49 |   |
|    Noninterest-earning assets                                         |   |                                    | 30,648    |   |                 |   |   |   |   |   |   |   |   |   | 29,815 |   |   |   |   |   |   |   |   |   |
|         Total assets                         |   | $                                       | 1,068,656 |   |                 |   |   |   |   |   |   |   |   | $ | 1,039,719 |   |   |   |   |   |   |   |   |   |
|                                                                                 |   |                                    |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                                        |   |                                    |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Savings                                                            |   | $                                       | 74,621    |   |                 | $      | 285 |   |   |   | 0.51 |   |   | $ | 59,403 |   |   | $ | 148 |   |   |   | 0.33 |   |
|    Money market accounts                                              |   |                                    | 166,547   |   |                 |   | 1,514 |   |   |   | 1.22 |   |   |   | 149,641 |   |   |   | 2,344 |   |   |   | 2.09 |   |
|    NOW accounts                                                       |   |                                    | 48,214    |   |                 |   | 216 |   |   |   | 0.60 |   |   |   | 53,680 |   |   |   | 565 |   |   |   | 1.41 |   |
|    Time accounts                                                      |   |                                    | 367,792   |   |                 |   | 6,811 |   |   |   | 2.48 |   |   |   | 360,694 |   |   |   | 8,916 |   |   |   | 3.30 |   |
|         Total deposits                       |   |                                    | 657,174   |   |                 |   | 8,826 |   |   |   | 1.80 |   |   |   | 623,418 |   |   |   | 11,973 |   |   |   | 2.57 |   |
|    FHLB advances                                                      |   |                                    | 187,826   |   |                 |   | 5,985 |   |   |   | 4.26 |   |   |   | 210,484 |   |   |   | 6,774 |   |   |   | 4.30 |   |
|    Reverse repurchase agreements                                      |   |                                    | 70,001    |   |                 |   | 2,026 |   |   |   | 3.87 |   |   |   | 70,000 |   |   |   | 1,647 |   |   |   | 3.15 |   |
|    Lease obligation                                                   |   |                                    | 7,737     |   |                 |   | 588 |   |   |   | 10.16 |   |   |   | 2,657 |   |   |   | 186 |   |   |   | 9.36 |   |
|         Total interest-bearing liabilities   |   |                                    | 922,738   |   |                 |   | 17,425 |   |   |   | 2.52 |   |   |   | 906,559 |   |   |   | 20,580 |   |   |   | 3.04 |   |
|                                                                                 |   |                                    |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Noninterest-bearing deposits                                       |   |                                    | 37,695    |   |                 |   |   |   |   |   |   |   |   |   | 31,720 |   |   |   |   |   |   |   |   |   |
|    Other noninterest-bearing liabilities                              |   |                                    | 2,711     |   |                 |   |   |   |   |   |   |   |   |   | 5,863 |   |   |   |   |   |   |   |   |   |
|         Total liabilities                    |   |                                    | 963,144   |   |                 |   |   |   |   |   |   |   |   |   | 944,142 |   |   |   |   |   |   |   |   |   |
|    Stockholders’ equity                                         |   |                                    | 105,512   |   |                 |   |   |   |   |   |   |   |   |   | 95,577 |   |   |   |   |   |   |   |   |   |
|         Total liabilities and equity         |   | $                                       | 1,068,656 |   |                 |   |   |   |   |   |   |   |   | $ | 1,039,719 |   |   |   |   |   |   |   |   |   |
|                                                                                 |   |                                    |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Net interest income                                                |   |                                    |      |   |                 | $      | 23,384 |   |   |   |   |   |   |   |   |   |   | $ | 20,852 |   |   |   |   |   |
|                                                                                 |   |                                    |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Net interest rate spread                                           |   |                                    |      |   |                 |   |   |   |   |   | 2.73 | % |   |   |   |   |   |   |   |   |   |   | 2.45 | % |
|                                                                                 |   |                                    |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Net interest-earning assets                                        |   | $                                       | 115,270   |   |                 |   |   |   |   |   |   |   |   | $ | 103,345 |   |   |   |   |   |   |   |   |   |
|                                                                                 |   |                                    |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Net interest margin                                                |   |                                    |      |   |                 |   |   |   |   |   | 3.01 | % |   |   |   |   |   |   |   |   |   |   | 2.76 | % |
|                                                                                 |   |                                    |      |   |                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Average of interest-earning assets to interest-bearing liabilities |   |                                    |      |   |                 |   |   |   |   |   | 112.49 | % |   |   |   |   |   |   |   |   |   |   | 111.40 | % |

----

----

|                                                |   |   |    |   |              |   |   |              |   |   |              |   |   | To Be Well        |   |
|-----------------------------------------------------|--------|--------|---------|--------|-------------------|--------|--------|-------------------|--------|--------|-------------------|--------|--------|-------------------|--------|
|                                                |   |   |    |   |              |   |   |              |   |   |              |   |   | Capitalized Under |   |
|                                                |   |   |    |   |              |   |   | For Capital       |   |   | Prompt Corrective |   |
|                                                |   | Actual |    |   | Adequacy Purposes |   |   | Action Provisions |   |
| September 30, 2010                                  |   | Amount |    |   | Ratio             |   |   | Amount            |   |   | Ratio             |   |   | Amount            |   |   | Ratio |   |
| Equity                                              |   | $      | 95,523  |   |              |   |   |              |   |   |              |   |   |              |   |   |   |   |   |
| Disallowed deferred tax assets                      |   |   | (192    | )      |              |   |   |              |   |   |              |   |   |              |   |   |   |   |   |
| Unrealized loss on AFS securities                   |   |   | 1,661   |   |              |   |   |              |   |   |              |   |   |              |   |   |   |   |   |
| Tier 1 (Core) Capital and Tangible Capital          |   |   | 96,992  |   |              |   | 9.14   | %                 |   | $      | 16,156            |   |   |              | 1.50   | % |   |   |   |   |   |   |
| General valuation allowance  (1)          |   |   | 10,167  |   |              |   |   |              |   |   |              |   |   |              |   |   |   |   |   |   |   |   |
| Deduction for low-level recourse                    |   |   | (1,665  | )      |              |   |   |              |   |   |              |   |   |              |   |   |   |   |   |   |   |   |
| Total Capital to risk-weighted assets               |   | $      | 105,494 |   |              |   | 12.97  | %                 |   | $      | 65,684            |   |   |              | 8.00   | % |   | $ | 82,105 |   |   |   | 10.00 | % |
| Tier 1 (Core) Capital to risk-weighted assets       |   | $      | 95,327  |   |              |   | 11.72  | %                 |   | $      | 32,842            |   |   |              | 4.00   | % |   | $ | 49,263 |   |   |   | 6.00 | % |
| Tier 1 (Core) Capital to adjusted total assets |   | $      | 96,992  |   |              |   | 9.14   | %                 |   | $      | 43,082            |   |   |              | 4.00   | % |   | $ | 53,853 |   |   |   | 5.00 | % |

----

|                                           |   |   |    |   |              |   |   |              |   |   |              |   |   | To Be Well        |   |
|------------------------------------------------|--------|--------|---------|--------|-------------------|--------|--------|-------------------|--------|--------|-------------------|--------|--------|-------------------|--------|
|                                           |   |   |    |   |              |   |   |              |   |   |              |   |   | Capitalized Under |   |
|                                           |   |   |    |   |              |   |   | For Capital       |   |   | Prompt Corrective |   |
|                                           |   | Actual |    |   | Adequacy Purposes |   |   | Action Provisions |   |
| December 31, 2009                              |   | Amount |    |   | Ratio             |   |   | Amount            |   |   | Ratio             |   |   | Amount            |   |   | Ratio |   |
| Equity                                         |   | $      | 86,597  |   |              |   |   |              |   |   |              |   |   |              |   |   |   |   |   |
| Unrealized loss on AFS securities              |   |   | 5,462   |   |              |   |   |              |   |   |              |   |   |              |   |   |   |   |   |
| Tier 1 (Core) Capital and Tangible Capital     |   |   | 92,059  |   |              |   | 8.56   | %                 |   | $      | 16,140            |   |   |              | 1.50   | % |   |   |   |   |   |   |
| General valuation allowance  (1)     |   |   | 10,175  |   |              |   |   |              |   |   |              |   |   |              |   |   |   |   |   |   |   |   |
| Deduction for low-level recourse               |   |   | (1,665  | )      |              |   |   |              |   |   |              |   |   |              |   |   |   |   |   |   |   |   |
| Total Capital to risk-weighted assets          |   | $      | 100,569 |   |              |   | 12.35  | %                 |   | $      | 65,121            |   |   |              | 8.00   | % |   | $ | 81,401 |   |   |   | 10.00 | % |
| Tier 1 (Core) Capital to risk-weighted assets  |   | $      | 90,394  |   |              |   | 11.10  | %                 |   | $      | 32,561            |   |   |              | 4.00   | % |   | $ | 48,841 |   |   |   | 6.00 | % |
| Tier 1 (Core) Capital to adjusted total assets |   | $      | 92,059  |   |              |   | 8.56   | %                 |   | $      | 43,041            |   |   |              | 4.00   | % |   | $ | 53,801 |   |   |   | 5.00 | % |

| Off-Balance Sheet Arrangements |
|--------------------------------|

----

----

|                                         |   |         |   |   |          |   |   |              |   |   |                |   |
|----------------------------------------------|--------|--------------|--------|--------|---------------|--------|--------|-------------------|--------|--------|---------------------|--------|
|                                         |   |         |   |   |          |   |   |              |   |   | (d)                 |   |
|                                         |   |         |   |   |          |   |   | (c)               |   |   | Maximum Number      |   |
|                                         |   |         |   |   |          |   |   | Total Number of   |   |   | (or Approximate     |   |
|                                         |   | (a)          |   |   | (b)           |   |   | Shares (or Units) |   |   | Dollar Value) of    |   |
|                                         |   | Total Number |   |   | Average Price |   |   | Purchased as      |   |   | Shares (or Units)   |   |
|                                         |   | of Shares    |   |   | Paid per      |   |   | Part of Publicly  |   |   | That May Yet Be     |   |
|                                         |   | (or Units)   |   |   | Share         |   |   | Announced Plans   |   |   | Purchased Under the |   |
| Period                                       |   | Purchased    |   |   | (or Unit)     |   |   | or Programs       |   |   | Plans or Programs)  |   |
|                                         |   |         |   |   |          |   |   |              |   |   |                |   |
| July 1, 2010 through July 31, 2010           |   |         | 37,220 |   |          | $      | 8.95   |              |   |   | 37,220              |   |   |   | 277,008 |   |
| August 1, 2010 through August 31, 2010       |   |         | 28,711 |   |          | $      | 9.62   |              |   |   | 28,711              |   |   |   | 248,297 |   |
| September 1, 2010 through September 30, 2010 |   |         | 2,837  |   |          | $      | 10.02  |              |   |   | 2,837               |   |   |   | 245,460 |   |
|   Total                            |   |         | 68,768 |   |          | $      | 9.27   |              |   |   | 68,768              |   |   |   |   |   |

| Not applicable. |
|-----------------|

| (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       | Form of Change in Control Agreement (2) |

----

|   |  10.6 | Beacon Federal Excess Benefit Plan (3)                                                                                          |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------|
|   |  10.7 | Beacon Federal Annual Cash Incentive Plan (1)                                                                                   |
|   |  10.8 | Beacon Federal Supplemental Executive Retirement Plan (4)                                                                       |
|   |  10.9 | Beacon Federal 2008 Equity Incentive Plan (5)                                                                                   |
|   |  21.0 | Subsidiaries of Registrant (1)                                                                                                  |
|   |  31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                              |
|   |  31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                         |
|   |  32.0 | 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 September 5, 2007. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| (3) | Filed with the Securities and Exchange Commission on October 31, 2008 on Form 8K. |
|-----|-----------------------------------------------------------------------------------|

| (4) | Filed with the Securities and Exchange Commission on December 28, 2007. |
|-----|-------------------------------------------------------------------------|

| (5) | 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. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                    | BEACON FEDERAL BANCORP, INC.(Registrant)                |                   |
|-------------------------|---------------------------------------------------------|------------------------|
|                    |                                                    |                   |   |
| DATE: November 10, 2010 | BY:                                                     | Ross J. Prossner  |   |   |
|                    | Ross J. Prossner, President and Chief Executive Officer |

|   | BY:                                                                | Lisa M. Jones   |   |   |
|--------|------------------------------------------------------------------------------|---------------------------|--------|--------|
|   | Lisa M. Jones, Vice-President and Principal Financial and Accounting Officer |