FedFirst Financial Corp - FORM 10-Q

Attached files

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EX-32.2 - CERTIFICATION - FedFirst Financial Corp	ex-32_2.htm
EX-31.2 - CERTIFICATION - FedFirst Financial Corp	ex-31_2.htm
EX-32.1 - CERTIFICATION - FedFirst Financial Corp	ex-32_1.htm
EX-31.1 - CERTIFICATION - FedFirst Financial Corp	ex-31_1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2011

TRANSITION REPORT PERSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number: 0-54124

	FEDFIRST FINANCIAL CORPORATION
	(Exact name of registrant as specified in its charter)

Maryland		80-0578993
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

565 Donner Avenue, Monessen, Pennsylvania		15062
(Address of principal executive offices)		(Zip Code)

	(724) 684-6800
	(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes T No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes £ No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if smaller reporting company)	Smaller reporting company	x

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

As of May 13, 2011, the issuer had 2,991,461 shares of common stock outstanding.

FORM 10-Q

INDEX

Page

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements.	1

Consolidated Statements Of Financial Condition at March 31, 2011 (Unaudited) and December 31, 2010		1

Consolidated Statements Of Operations (Unaudited) for the Three Months Ended March 31, 2011 and 2010		2

Consolidated Statements Of Changes In Stockholders’ Equity And Comprehensive Income for the Three Months Ended March 31, 2011 And 2010 (Unaudited)		3

Consolidated Statements Of Cash Flows for the Three Months Ended March 31, 2011 and 2010 (Unaudited)		4

Notes to the Unaudited Consolidated Financial Statements		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	36

Item 4.	Controls and Procedures.	37

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings.	37

Item 1A.	Risk Factors.	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	37

Item 3.	Defaults Upon Senior Securities.	37

Item 4.	[Removed and Reserved]	37

Item 5.	Other Information.	37

Item 6.	Exhibits.	38

SIGNATURES

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	March 31,			December 31,
	2011			2010
(Dollars in thousands, except share data)	(UNAUDITED)
Assets:

Cash and cash equivalents:
Cash and due from banks	$	1,581		$	1,626
Interest-earning deposits		6,212			7,694
Total cash and cash equivalents		7,793			9,320

Securities available-for-sale		70,211			78,708
Loans, net		237,658			230,055
Federal Home Loan Bank ("FHLB") stock, at cost		6,228			6,556
Accrued interest receivable - loans		1,026			1,038
Accrued interest receivable - securities		335			327
Premises and equipment, net		2,311			2,281
Bank-owned life insurance		8,066			7,998
Goodwill		1,080			1,080
Real estate owned		439			426
Deferred tax assets		2,570			3,017
Other assets		1,644			2,267
Total assets	$	339,361		$	343,073

Liabilities and Stockholders' Equity:

Deposits:
Noninterest-bearing		17,355			15,612
Interest-bearing		200,335			187,950
Total deposits		217,690			203,562

Borrowings		58,381			76,893
Advance payments by borrowers for taxes and insurance		642			455
Accrued interest payable - deposits		245			298
Accrued interest payable - borrowings		238			300
Other liabilities		2,783			2,978
Total liabilities		279,979			284,486

Stockholders' equity
FedFirst Financial Corporation stockholders' equity:
Preferred stock $0.01 par value; 10,000,000 shares authorized; none issued		-			-
Common stock $0.01 par value; 20,000,000 shares authorized; 2,991,461
shares issued and outstanding		30			30
Additional paid-in-capital		42,074			42,016
Retained earnings - substantially restricted		18,321			18,140
Accumulated other comprehensive income (loss), net of deferred taxes
(benefit) of $272 and $(82)		423			(128	)
Unearned Employee Stock Ownership Plan ("ESOP")		(1,512	)		(1,555	)
Total FedFirst Financial Corporation stockholders' equity		59,336			58,503
Noncontrolling interest in subsidiary		46			84
Total stockholders' equity		59,382			58,587
Total liabilities and stockholders' equity	$	339,361		$	343,073

See Notes to the Unaudited Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	For the Three Months
	Ended March 31,
(Dollars in thousands, except per share data)	2011			2010

Interest income:
Loans	$	3,219		$	3,413
Securities		710			948
Other interest-earning assets		3			3
Total interest income		3,932			4,364

Interest expense:
Deposits		711			885
Borrowings		621			979
Total interest expense		1,332			1,864
Net interest income		2,600			2,500

Provision for loan losses		250			200
Net interest income after provision for loan losses		2,350			2,300

Noninterest income:
Fees and service charges		124			122
Insurance commissions		629			746
Income from bank-owned life insurance		68			71
Net loss on sales of available-for-sale securities		(1	)		(5	)
Net loss on sales of real estate owned		(3	)		(14	)
Other		17			6
Total noninterest income		834			926

Noninterest expense:
Compensation and employee benefits		1,601			1,457
Occupancy		354			378
FDIC insurance premiums		86			100
Data processing		124			117
Professional services		179			168
Other		393			362
Total noninterest expense		2,737			2,582

Income before income tax expense and noncontrolling interest in net income of consolidated subsidiary		447			644
Income tax expense		161			237
Net income before noncontrolling interest in net income of consolidated subsidiary		286			407
Noncontrolling interest in net income of consolidated subsidiary		18			33
Net income of FedFirst Financial Corporation	$	268		$	374

Earnings per share (1):
Basic and diluted	$	0.09		$	0.13

Weighted-average shares outstanding (1):
Basic		2,905,642			2,891,441
Diluted		2,911,768			2,891,441

(1)	Prior period earnings per share and weighted average shares outstanding figures were adjusted for comparability using the conversion ratio of 0.4735 due to completion of second step offering on September 21, 2010.

See Notes to the Unaudited Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND

COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED

MARCH 31, 2011 AND 2010 (UNAUDITED)

(Dollars in thousands)	Common Stock		Additional Paid-in-Capital			Retained Earnings		Accumulated Other Comprehensive Gain (Loss)			Unearned ESOP			Common Stock Held in Treasury			Noncontrolling Interest in Subsidiary			Total Stockholders' Equity			Comprehensive Income
Balance at January 1, 2010	$	67	$	29,558		$	17,619	$	(39	)	$	(1,728	)	$	(3,113	)	$	79		$	42,443
Comprehensive income (loss):
Net income		-		-			374		-			-			-			33			407		$	407
Unrealized gain on securities available-for-sale, net of tax of $273		-		-			-		423			-			-			-			423			423
Reclassification adjustment on sales of securities available-for-sale, net of tax ($62)		-		-			-		(96	)		-			-			-			(96	)		(96	)
ESOP shares committed to be released		-		(24	)		-		-			43			-			-			19
Stock-based compensation expense		-		75			-		-			-			-			-			75
Stock awards forfeited		-		5			-		-			-			(5	)		-			-
Distribution to noncontrolling shareholder		-		-			-		-			-			-			(51	)		(51	)
Total comprehensive income																								734
Less: Comprehensive income attributable to the noncontrolling interest in subsidiary																								33
Comprehensive income attributable to FedFirst Financial Corporation																							$	701

Balance at March 31, 2010	$	67	$	29,614		$	17,993	$	288		$	(1,685	)	$	(3,118	)	$	61		$	43,220

(Dollars in thousands)	Common Stock		Additional Paid-in-Capital			Retained Earnings			Accumulated Other Comprehensive Gain (Loss)			Unearned ESOP			Common Stock Held in Treasury		Noncontrolling Interest in Subsidiary			Total Stockholders' Equity			Comprehensive Income
Balance at January 1, 2011	$	30	$	42,016		$	18,140		$	(128	)	$	(1,555	)	$	-	$	84		$	58,587
Comprehensive income (loss):
Net income		-		-			268			-			-			-		18			286		$	286
Unrealized gain on securities available-for-sale, net of tax of $377		-		-			-			586			-			-		-			586			586
Reclassification adjustment on sales of securities available-for-sale, net of tax of $(23)		-		-			-			(35	)		-			-		-			(35	)		(35	)
ESOP shares committed to be released		-		(15	)		-			-			43			-		-			28
Stock-based compensation expense		-		73			-			-			-			-		-			73
Distribution to noncontrolling shareholder		-		-			-			-			-			-		(56	)		(56	)
Dividends paid		-		-			(87	)		-			-			-		-			(87	)
Total comprehensive income																								837
Less: Comprehensive income attributable to the noncontrolling interest in subsidiary																								18
Comprehensive income attributable to FedFirst Financial Corporation																							$	819

Balance at March 31, 2011	$	30	$	42,074		$	18,321		$	423		$	(1,512	)	$	-	$	46		$	59,382

See Notes to the Unaudited Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the Three Months
	Ended March 31,
(Dollars in thousands)	2011			2010
Cash flows from operating activities:
Net income of FedFirst Financial Corporation	$	268		$	374
Adjustments to reconcile net income to net cash provided by operating activities:
Noncontrolling interest in net income of consolidated subsidiary		18			33
Provision for loan losses		250			200
Depreciation		128			136
Amortization of intangibles		27			29
Net loss on sales of available-for-sale securities		1			5
Net loss on sale of real estate owned		3			14
Net accretion of security discounts/premiums and loan costs		88			63
Noncash expense for ESOP		28			19
Noncash expense for stock-based compensation		73			75
Increase in bank-owned life insurance		(68	)		(71	)
Decrease (Increase) in other assets		727			(125	)
Decrease in other liabilities		(310	)		(330	)
Net cash provided by operating activities		1,233			422

Cash flows from investing activities:
Net loan (originations) repayments		(7,994	)		5,981
Proceeds from maturities of and principal repayments of securities available-for-sale		7,293			3,448
Proceeds from sales of securities available-for-sale		2,006			7,959
Purchases of securities available-for-sale		-			(8,146	)
Purchases of premises and equipment		(158	)		(99	)
Decrease in FHLB stock, at cost		328			-
Proceeds from sales of real estate owned		105			73
Net cash provided by investing activities		1,580			9,216

Cash flows from financing activities:
Net decrease in short-term borrowings		(4,200	)		(1,800	)
Repayments of long-term borrowings		(14,312	)		(14,172	)
Net increase in deposits		14,128			10,897
Increase in advance payments by borrowers for taxes and insurance		187			694
Dividends paid		(87	)		-
Distribution to noncontrolling shareholder		(56	)		(51	)
Net cash used in financing activities		(4,340	)		(4,432	)

Net (decrease) increase in cash and cash equivalents		(1,527	)		5,206
Cash and cash equivalents, beginning of period		9,320			7,496

Cash and cash equivalents, end of period	$	7,793		$	12,702

Supplemental cash flow information:
Cash paid for:
Interest on deposits and borrowings	$	1,447		$	1,921
Income tax expense		31			42

Real estate acquired in settlement of loans		155			724
Securities sold not settled		-			133

See Notes to the Unaudited Consolidated Financial Statements.

Notes to the Unaudited Consolidated Financial Statements

Note 1. Basis of Presentation/Nature of Operations

The accompanying unaudited Consolidated Financial Statements include the accounts of FedFirst Financial Corporation (“FedFirst Financial” or the “Company”), a stock holding company established in 2010, whose wholly owned subsidiary is First Federal Savings Bank (“First Federal” or the “Bank”), a federally chartered stock savings bank, which owns FedFirst Exchange Corporation (“FFEC”). FFEC has an 80% controlling interest in Exchange Underwriters, Inc. (“Exchange Underwriters”). Exchange Underwriters is a full-service, independent insurance agency that offers property and casualty, commercial liability, surety and other insurance products. All significant intercompany transactions have been eliminated.

The Company completed its conversion from the mutual holding company form of organization to the stock holding company form on September 21, 2010. As a result of the conversion, FedFirst Financial Corporation, a newly formed state-chartered corporation, became the holding company for First Federal Savings Bank, and FedFirst Financial Mutual Holding Company and the former FedFirst Financial Corporation ceased to exist. As part of the conversion, all outstanding shares of the former FedFirst Financial Corporation common stock (other than those owned by FedFirst Financial Mutual Holding Company) were converted into the right to receive 0.4735 of a share of the newly formed FedFirst Financial Corporation common stock resulting in 1,270,484 shares issued in the exchange. In addition, a total of 1,722,185 shares of common stock were sold in the subscription, community and syndicated community offerings at the price of $10.00 per share or $17.2 million in the aggregate. The completion of the Company’s public offering raised $15.4 million in proceeds, net of $1.9 million in offering expenses.

First Federal operates as a community-oriented financial institution offering residential, multi-family and commercial mortgages, consumer loans and commercial business loans as well as a variety of deposit products for individuals and businesses from nine locations in southwestern Pennsylvania. First Federal conducts insurance brokerage activities through Exchange Underwriters. The Bank is subject to competition from other financial institutions and to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

The unaudited consolidated financial statements were prepared in accordance with instructions to Form 10-Q and, therefore, do not include information or notes necessary for a complete presentation of financial position, results of operations, changes in stockholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, all normal recurring adjustments that, in the opinion of management, are necessary to make the consolidated financial statements not misleading have been included. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Certain items previously reported have been reclassified to conform with the current reporting period’s format. Prior period earnings per share and weighted average shares outstanding figures were adjusted for comparability using the conversion ratio of 0.4735 due to completion of second step offering on September 21, 2010. The results of operations for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the full year or any other interim period. The Company evaluated subsequent events through the date the consolidated financial statements were filed with the Securities and Exchange Commission and incorporated into the consolidated financial statements the effect of all material known events determined by Accounting Standards Codification (“ASC”) Topic 855, Subsequent Events, to be recognizable events.

In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, evaluation of securities for other-than-temporary impairment including related cash flow projections, goodwill impairment, and the valuation of deferred tax assets.

Note 2. Recent Accounting Pronouncements

ASU 2011-02 A Creditor’s Determination of Whether A Restructuring Is a Troubled Debt Restructuring. In April 2011, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2011-02, A Creditor’s Determination of Whether A Restructuring Is a Troubled Debt Restructuring, which clarifies when a loan modification or restructuring is considered a troubled debt restructuring (TDR). In evaluating whether a modification or restructuring constitutes a TDR, a creditor must separately conclude that both the restructuring constitutes a concession and the borrower is experiencing financial difficulties. To provide greater consistency and transparency in reporting TDRs, this ASU clarifies the guidance on a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. Early application is permitted. The Company has determined that the adoption of this ASU will not have a material impact on its financial condition and results of operations.

Note 3. Securities

The following table sets forth the amortized cost and fair value of securities available-for-sale at the dates indicated (dollars in thousands).

March 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Government-Sponsored Enterprises	$	4,586	$	8	$	24	$	4,570
Municipal bonds		3,375		234		-		3,609
Mortgage-backed		28,588		1,145		82		29,651
REMICs		28,968		1,012		145		29,835
Corporate debt		3,995		-		1,453		2,542
Equities		4		-		-		4
Total securities available-for-sale	$	69,516	$	2,399	$	1,704	$	70,211

December 31, 2010
Government-Sponsored Enterprises	$	7,580	$	36	$	2	$	7,614
Municipal bonds		4,012		284		-		4,296
Mortgage-backed		32,747		1,306		64		33,989
REMICs		30,580		1,095		110		31,565
Corporate debt		3,995		-		2,755		1,240
Equities		4		-		-		4
Total securities available-for-sale	$	78,918	$	2,721	$	2,931	$	78,708

The amortized cost and fair value of securities at March 31, 2011 by contractual maturity were as follows. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

	Amortized		Fair
(Dollars in thousands)	Cost		Value
Due in one year or less	$	-	$	-
Due from one to five years		1,375		1,428
Due from five to ten years		12,334		12,522
Due after ten years		55,803		56,257
No scheduled maturity		4		4
Total	$	69,516	$	70,211

The following table presents gross unrealized losses and fair value of securities aggregated by category and length of time that individual securities have been in a continuous loss position at the dates indicated (dollars in thousands).

	Less than 12 months					12 months or more					Total
					Gross					Gross					Gross
	Number of		Fair		Unrealized	Number of		Fair		Unrealized	Number of		Fair		Unrealized
March 31, 2011	Securities		Value		Losses	Securities		Value		Losses	Securities		Value		Losses
Government-sponsored enterprises	1	$	2,270	$	24	-	$	-	$	-	1	$	2,270	$	24

Mortgage-backed	3		7,859		82	-		-		-	3		7,859		82

REMICs - Government-sponsored enterprises	5		6,974		145	-		-		-	5		6,974		145

Corporate debt	-		-		-	3		2,542		1,453	3		2,542		1,453
Total securities temporarily impaired	9	$	17,103	$	251	3	$	2,542	$	1,453	12	$	19,645	$	1,704

Less than 12 months

12 months or more

Total

Gross

Number of

Fair

Unrealized

Number of

Fair

Unrealized

Number of

Fair

Unrealized

December 31, 2010

Securities

Value

Losses

Securities

Value

Losses

Securities

Value

Losses

Government-sponsored enterprises	1	$	2,292	$	2	-	$	-	$	-	1	$	2,292	$	2

Mortgage-backed	3		8,168		64	-		-		-	3		8,168		64

REMICs - Government-sponsored enterprises	2		4,895		110	-		-		-	2		4,895		110

Corporate debt	-		-		-	3		1,240		2,755	3		1,240		2,755
Total securities temporarily impaired	6	$	15,355	$	176	3	$	1,240	$	2,755	9	$	16,595	$	2,931

The Company reviews its investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer including any specific events that may influence the operations of the issuer, and the intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in the market.

Corporate Debt – At March 31, 2011, the Company had three securities that were in an unrealized loss position for 12 months or greater at an amount of $1.5 million. These securities consist of two pools of insurance company-issued preferred trust obligations. These securities were downgraded from their original rating issuance to below investment grade. The lack of liquidity in the market for this type of security, credit rating downgrades and market uncertainties are factors contributing to the unrealized losses on these securities.

The following table provides additional information related to the Company’s pooled preferred trust obligations at March 31, 2011 (dollars in thousands):

Pool	Class	Tranche		Amortized Cost		Fair Value		Unrealized Loss			S&P / Fitch Rating	Current Number of Insurance Companies		Total Collateral		Current Deferrals and Defaults		Performing Collateral		Additional Immediate Deferrals / Defaults Before Causing an Interest Shortfall (a)		Additional Immediate Deferrals / Defaults Before Causing a Break in Yield (b)
I-PreTSL I	Mezzanine		B-3	$	1,500	$	964	$	(536	)	B+/CCC		17	$	193,500	$	17,500	$	176,000	$	102,500	$	53,000
I-PreTSL II	Mezzanine		B-3		2,495		1,578		(917	)	B+/B		29		378,000		-		378,000		153,000		140,000
				$	3,995	$	2,542	$	(1,453	)

(a)

A temporary interest shortfall is caused by an amount of deferrals/defaults high enough such that there is insufficient cash flow available to pay current interest on the given tranche or by breaching the principal coverage test of the tranche immediately senior to the given tranche. Amounts presented represent additional deferrals/defaults beyond those currently existing that must occur before the security would experience an interest shortfall.

(b)

A break in yield for a given tranche means that deferrals/defaults have reached such a level that the tranche would not receive all of its contractual cash flows (principal and interest) by maturity (so not just a temporary interest shortfall, but an actual loss in yield on the investment). In other words, the magnitude of the defaults/deferrals has depleted all of the credit enhancement (excess interest and over-collateralization) beneath the given tranche. Amounts presented represent additional deferrals/defaults beyond those currently existing that must occur before the security would experience a break in yield.

These securities are evaluated for OTTI by determining whether it is probable that an adverse change in estimated cash flows has occurred. Determining whether there has been an adverse change in estimated cash flows involves the calculation of the present value of remaining cash flows compared to previously projected cash flows. We consider the discounted cash flow analysis to be our primary evidence when determining whether credit-related OTTI exists. Additionally, reports are reviewed that provide information for the amount of deferral/defaults that would have to occur to prevent the tranche from collecting contractual cash flows (principal and interest). None of these securities are projecting a cash flow disruption, nor have any of these securities experienced a cash flow disruption. The Company also reviewed each of the issues’ collateral participants, including their financial condition, ratings provided by A. M. Best (for insurance companies), and adverse conditions specifically related to industry or geographic area. This information did not suggest additional deferrals and defaults in the future that would result in the securities not receiving all of their contractual cash flows. Based on the analysis performed and the fact that the Company does not expect to sell these securities and it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized cost basis, the Company concluded that there is no OTTI on these securities at March 31, 2011.

Other Securities – This category includes Government-Sponsored Enterprises (“GSE”), mortgage-backed securities and GSE - REMICS. At March 31, 2011, the Company had a total of nine securities with an unrealized loss of $251,000 in these categories. All of these securities were in an unrealized loss position of less than 12 months. An evaluation of the individual securities was performed whereby we reviewed all credit ratings and noted all remain at investment grade. Additionally, all securities are issued and backed by a Government-Sponsored Enterprise (“FNMA” or “FHLMC”). The Company believes the unrealized losses are due to changes in market interest rates. The Company does not intend to sell the securities and it is more likely than not to not be required to sell the securities before their recovery. The Company expects to recover the entire amortized cost basis of these securities and concluded that there is no OTTI on these securities.

FHLB Stock – The Company is a member of the FHLB of Pittsburgh. As a member, the Company is required to purchase and hold stock in the FHLB to satisfy membership and borrowing requirements in order to obtain low cost products and services offered by the FHLB. Unlike investment securities, FHLB stock does not provide its holders with an opportunity for appreciation because by regulation FHLB stock can only be purchased, redeemed and transferred at par value. At March 31, 2011 and December 31, 2010, the Company’s FHLB stock totaled $6.2 million and $6.6 million, respectively.

The Company evaluates impairment in FHLB stock when certain conditions warrant further consideration. In December 2008, the FHLB voluntarily suspended dividend payments on its stock as well as the repurchase of excess stock from members. The FHLB stated that this was due to a reduction in core earnings and concern over the FHLB’s capital position. In October 2010, the FHLB initiated a repurchase program based on outstanding excess capital stock. The amount of excess capital stock repurchased from any member was the lesser of five percent of the member’s total capital stock outstanding or its excess capital stock outstanding. Based on this evaluation, the FHLB repurchased 5% of our capital stock in the fourth quarter of 2010 and first quarter of 2011. Future repurchases of excess capital stock will be determined on a quarterly basis going forward. After evaluating such factors as the capital adequacy of the FHLB, its overall operating performance and the FHLB’s liquidity and funding position, the Company concluded that the par value was ultimately recoverable and no impairment charge was recognized at March 31, 2011.

Note 4. Loans

The following table sets forth the composition of our loan portfolio at the dates indicated (dollars in thousands).

		March 31, 2011					December 31, 2010
		Amount			Percent		Amount			Percent
Real estate-mortgage:
	One-to-four family residential
	Originated	$	120,900		49.6	%	$	121,376			51.3	%
	Purchased		19,616		8.1			20,591			8.7
	Total one-to-four family residential		140,516		57.7			141,967			60.0

	Multi-family
	Originated		7,712		3.2			4,082			1.7
	Purchased		5,226		2.1			5,261			2.2
	Total multi-family		12,938		5.3			9,343			3.9

	Commercial		35,259		14.5			33,732			14.2
	Total real estate-mortgage		188,713		77.5			185,042			78.1

Real estate-construction:
	Residential		5,986		2.5			6,787			2.9
	Commercial		726		0.3			736			0.3
	Total real estate-construction		6,712		2.8			7,523			3.2

Consumer:
	Home equity
	Loan-to-value ratio of 80% or less		26,046		10.6			22,629			9.6
	Loan-to-value ratio of greater than 80%		8,148		3.4			8,623			3.6
	Total home equity		34,194		14.0			31,252			13.2

	Other		1,917		0.8			2,090			0.9
	Total consumer		36,111		14.8			33,342			14.1

Commercial business			11,956		4.9			10,875			4.6
	Total loans	$	243,492		100.0	%	$	236,782			100.0	%

Net premiums on loans purchased			120					116
Net deferred loan costs			707					697
Loans in process			(3,826	)				(4,716	)
Allowance for loan losses			(2,835	)				(2,824	)
	Loans, net	$	237,658				$	230,055

One-to-Four Family Residential Mortgage Loans. We originate mortgage loans to enable borrowers to purchase or refinance existing homes located in the greater Pittsburgh metropolitan area. We offer fixed and adjustable rate mortgage loans with terms up to 30 years.

We generally do not make conventional loans with loan-to-value ratios exceeding 97%. Loans with loan-to-value ratios in excess of 80% generally require private mortgage insurance or additional collateral. We require all properties securing mortgage loans to be appraised by a board-approved, independent appraiser. We generally require title insurance on all first mortgage loans. Borrowers must obtain hazard insurance, and flood insurance for loans on property located in a flood zone, before closing the loan.

Prior to 2006, we purchased newly originated single family, fixed-rate mortgage loans to supplement our origination activities. The properties securing the loans are located in 14 states around the country. We underwrote all of the purchased loans to the same standards as loans originated by us.

Commercial and Multi-Family Real Estate Loans. We offer a variety of fixed and adjustable rate mortgage loans secured by commercial property and multi-family real estate. These loans generally have terms of ten years with a 20 year amortization and are typically secured by apartment buildings, office buildings, or manufacturing facilities. Loans are secured by first mortgages, and amounts generally do not exceed 80% of the property’s appraised value. In addition to originating these loans, we also participate in loans originated at other financial institutions in the region.

Prior to 2006, we purchased newly originated multi-family real estate loans as part of our efforts to increase our loan portfolio. The properties securing the loans are located in six states throughout the country. We underwrote all of the purchased loans to the same standards as loans originated by us.

We have generally required that the properties securing these real estate loans have a debt service coverage ratio (cash flow available to service debt / debt service) of at least 1.25x and a leverage ratio (debt to worth) of less than 3.0x. Environmental surveys are obtained for requests greater than $1.0 million or when circumstances suggest the possibility of the presence of hazardous materials.

We underwrite all commercial loan participations to the same standards as loans originated by us. In addition, we also consider the financial strength and reputation of the lead lender. We require the lead lender to provide a full closing package as well as annual financial statements for the borrower and related entities so that we can conduct an annual loan review for all loan participations.

Construction Loans. We originate loans to individuals to finance the construction of residential dwellings. We also make loans for the construction of commercial properties, including apartment buildings and owner-occupied properties used for businesses. Our construction loans generally provide for the payment of interest-only during the construction phase, which is usually 12 months. At the end of the construction phase, the loan generally converts to a permanent mortgage loan. Loans generally can be made with a maximum loan-to-value ratio of 97% on residential construction and 80% on commercial construction. Loans with loan-to-value ratios in excess of 80% on residential construction generally require private mortgage insurance or additional collateral. Before making a commitment to fund a construction loan, we require an appraisal of the property by an independent licensed appraiser. We also will require an inspection of the property before disbursement of funds during the term of the construction loan.

Consumer Loans. Our consumer loans include home equity installment loans and lines of credit as well as other consumer loans including loans on savings accounts and personal lines of credit and installment loans.

The procedures for underwriting consumer loans include an assessment of the applicant’s payment history on other debts and ability to meet existing obligations and payments on the proposed loan. Although the applicant’s creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, to the proposed loan amount.

We offer home equity installment loans and home equity lines of credit. In 2007, we discontinued offering home equity loans with a maximum loan-to-value ratio greater than 100%. Home equity lines of credit have adjustable rates of interest that are indexed to the prime rate as reported in The Wall Street Journal. Home equity installment loans have fixed interest rates and terms that range up to 30 years. Home equity loans with a loan-to-value ratio greater than 80% are considered higher risk given the pressure on property values and reduced credit alternatives available to leveraged borrowers.

We offer secured consumer loans in amounts up to $20,000. These loans have fixed interest rates and terms that range from one to 10 years. We offer unsecured consumer loans in amounts up to $10,000. These loans have fixed interest rates and terms that range from one to five years.

Commercial Business Loans. We originate commercial business loans to professionals and small businesses in our market area. We offer installment loans for a variety of business needs including capital improvements and equipment acquisition. Other commercial loans are secured by business assets such as accounts receivable, inventory, and equipment, and are typically backed by the personal guarantee of the borrower. We originate working capital lines of credit to finance the short-term needs of businesses. These credit lines are repaid by seasonal cash flows from operations and are also typically backed by the personal guarantee of the borrower. We also originate commercial leases through a Pittsburgh area machinery and equipment leasing company. These leases are secured by machinery and equipment.

When evaluating commercial business loans, we perform a detailed financial analysis of the borrower and/or guarantor which includes, but is not limited to: cash flow and balance sheet analysis, debt service capabilities, review of industry (geographic and economic conditions) and collateral analysis. We independently underwrite in accordance with our commercial loan policy all of the equipment leases that we originate through the third-party leasing company.

Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the business. As a result, the availability of funds for the repayment of commercial loans may depend substantially on the success of the business itself. A debt service coverage ratio of at least 1.25x and a leverage ratio of less than 3.0x are also applicable to commercial business loans. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value. We also maintain allowable advance rates for each collateral type to ensure coverage.

Nonperforming Assets. The following table provides information with respect to our nonperforming assets at the dates indicated (dollars in thousands).

		March 31,			December 31,
		2011			2010
Nonaccrual loans:
Real estate - mortgage loans
	One-to-four family residential
	Originated	$ 371		$	332
	Purchased	425			394
	Total one-to-four family residential	796			726

	Multi-family
	Originated	-			-
	Purchased	-			-
	Total multi-family	-			-

	Commercial	580			493
	Total real estate - mortgage	1,376			1,219

Real estate - construction loans
	Residential	-			-
	Commercial	-			-
	Total real estate - construction	-			-

Consumer loans
	Home equity
	Loan-to-value ratio of 80% or less	123			-
	Loan-to-value ratio of greater than 80%	32			-
	Total home equity	155			-

	Other	-			-
	Total consumer	155			-

Commercial business		-			-
Total nonaccrual loans		1,531			1,219

Accruing loans past due 90 days or more		-			-
Total nonaccrual loan and accruing loans
	past due 90 days or more	1,531			1,219
Real estate owned		439			426
Total nonperforming assets		$ 1,970		$	1,645

Troubled debt restructurings
In nonaccrual status		477			493
Performing under modified terms		667			672
Troubled debt restructurings		$ 1,144		$	1,165

Total nonperforming loans to total loans		0.63	%		0.51	%
Total nonperforming assets to total assets		0.58			0.48

At March 31, 2011 nonaccrual loans consisted primarily of eight residential mortgage loans that totaled $796,000, of which three were originated internally in the amount of $371,000 and five were purchased in the amount of $425,000. Of these loans, one originated and three purchased residential properties in the amounts of $160,000 and $217,000, respectively, were in process of foreclosure at March 31, 2011. Additionally, nonaccrual loans included two commercial real estate relationships, which consisted of three loans in the amount of $580,000, and two home equity loans in the amount of $155,000.

At December 31, 2010 nonaccrual loans consisted primarily of seven residential mortgage loans that totaled $726,000, of which four were originated internally in the amount of $332,000 and three were purchased in the amount of $394,000. Of these loans, one originated and one purchased residential property in the amounts of $160,000 and $231,000, respectively, were in process of foreclosure at December 31, 2010. Additionally, nonaccrual loans included one commercial real estate relationship which consisted of two loans in the amount of $493,000.

Loans whose contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties are considered troubled debt restructurings (TDRs). TDRs typically result from our loss mitigation activities and could include rate reductions, principal forgiveness, forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of collateral. Total nonaccrual loans in the table above include TDRs of $477,000 and $493,000 at March 31, 2011 and December 31, 2010, respectively, related to one commercial real estate relationship in which the borrower was given a six month interest-only payment concession. In addition, there was one TDR of $667,000 and $672,000 at March 31, 2011 and December 31, 2010, respectively, that has demonstrated performance under the modified terms and therefore was in a performing (accrual) status. The modified terms of this commercial real estate participation loan included extending the maturity date by three years and decreasing the interest rate. Once a loan is classified as a TDR, the determination of income recognition is based on the status of the loan prior to classification. If a loan is in nonaccrual status, then it will remain in that classification for a minimum of a six month term until factors indicating collectability no longer exist. Loans that are current at the time of classification will remain on an accrual basis and monitored. If restructured contractual terms of a loan are not met, then the loan will be placed on nonaccrual status.

The following tables summarize information in regards to impaired loans by loan portfolio class at the dates indicated (dollars in thousands).

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2011	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial real estate	$	1,430	$	1,430	$	-	$	1,441	$	18

With an allowance recorded
Commercial real estate		667		667		170		670		8

Total
Commercial real estate	$	2,097	$	2,097	$	170	$	2,111	$	26

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2010	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded
Commercial real estate	$	493	$	493	$	-	$	547	$	4

With an allowance recorded
Commercial real estate		672		672		170		680		32

Total
Commercial real estate	$	1,165	$	1,165	$	170	$	1,227	$	36

Federal regulations require us to review and classify our assets on a regular basis. In addition, the OTS has the authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. “Substandard” assets have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. “Doubtful” assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified “loss” is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. The regulations also provide for a “special mention” category, described as assets which do not currently expose us to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving our close attention. When we classify an asset as substandard or doubtful, we establish a general valuation allowance for loan losses and in some cases charge-off a portion of loans classified as doubtful. If we classify an asset as loss, we charge-off an amount equal to 100% of the portion of the asset classified loss.

The following table presents the classes of the loan portfolio and shows our credit risk profile by internally assigned risk rating at the dates indicated (dollars in thousands).

	Real estate - mortgage										Real estate-construction				Consumer
															Home		Home
	One-to-		One-to-												equity		equity
	four		four												(loan		(loan
	family		family		Multi-		Multi-								to value		to value				Com-
	residential		residential		family		family		Com-		Resi-		Com-		of 80%		of greater		Other		mercial		Loans
March 31, 2011	(originated)		(purchased)		(originated)		(purchased)		mercial		dential		mercial		or less)		than 80%)		Consumer		business		Total
Grade:
Pass	$	120,264	$	19,191	$	7,712	$	5,226	$	30,486	$	5,986	$	726	$	25,779	$	8,116	$	1,905	$	11,292	$	236,683
Special Mention		265		-		-		-		2,572		-		-		144		-		12		664		3,657
Substandard		371		425		-		-		2,201		-		-		123		32		-		-		3,152
Doubtful		-		-		-		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-		-		-		-
Total	$	120,900	$	19,616	$	7,712	$	5,226	$	35,259	$	5,986	$	726	$	26,046	$	8,148	$	1,917	$	11,956	$	243,492

	Real estate - mortgage										Real estate-construction				Consumer
December 31, 2010	One-to- four family residential (originated)		One-to- four family residential (purchased)		Multi- family (originated)		Multi- family (purchased)		Com-mercial		Resi-dential		Com- mercial		Home equity (loan to value of 80% or less)		Home equity (loan to value of greater than 80%)		Other Consumer		Com-mercial business		Loans Total
Grade:
Pass	$	121,044	$	20,197	$	4,082	$	5,261	$	29,518	$	6,787	$	736	$	22,483	$	8,624	$	2,077	$	10,196	$	231,005
Special Mention		-		-		-		-		2,319		-		-		145		-		13		679		3,156
Substandard		332		394		-		-		1,895		-		-		-		-		-		-		2,621
Doubtful		-		-		-		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-		-		-		-
Total	$	121,376	$	20,591	$	4,082	$	5,261	$	33,732	$	6,787	$	736	$	22,628	$	8,624	$	2,090	$	10,875	$	236,782

At March 31, 2011, special mention assets consisted of five relationships, with one relationship totaling $960,000, which includes two commercial real estate loans, three business loans and two consumer loans. The remaining four relationships consist of four commercial real estate loans, two commercial business loans and one mortgage loan totaling $2.1 million, $286,000 and $265,000, respectively. Substandard assets consisted of all non-accrual loans and three commercial real estate loans in the amount of $1.8 million.

At December 31, 2010, special mention assets consisted of five relationships, with one relationship totaling $970,000, which includes three commercial real estate loans, three business loans and two consumer loans. The remaining four relationships consist of five commercial real estate loans totaling $2.1 million. Substandard assets consisted of all non-accrual loans and two commercial real estate loans in the amount of $1.4 million.

Delinquencies. The following table provides information about delinquencies in our loan portfolio at the dates indicated (dollars in thousands).

	March 31, 2011						December 31, 2010
	30-59		60-89		90 Days		30-59		60-89		90 Days
	Days		Days		or Greater		Days		Days		or Greater
	Past		Past		Past		Past		Past		Past
	Due		Due		Due		Due		Due		Due
Real estate - mortgage
One-to-four family residential
Originated	$	1,057	$	141	$	230	$	1,109	$	59	$	332
Purchased		1,287		77		425		260		168		394
Total one-to-four family
residential		2,344		218		655		1,369		227		726
Multi-family
Originated		-		-		-		-		-		-
Purchased		-		-		-		-		-		-
Total multi-family		-		-		-		-		-		-
Commercial		-		-		171		753		-		68
Total real estate - mortgage		2,344		218		826		2,122		227		794

Real estate - construction
Residential		-		-		-		-		-		-
Commercial		-		-		-		-		-		-
Total real estate - construction		-		-		-		-		-		-

Consumer
Home equity
Loan-to-value ratio of
80% or less		-		-		123		89		133		-
Loan-to-value ratio of
greater than 80%		-		-		32		-		32		-
Total home equity		-		-		155		89		165		-
Other		-		-		-		2		-		-
Total consumer		-		-		155		91		165		-

Commercial business		-		-		-		-		-		-
Total delinquencies	$	2,344	$	218	$	981	$	2,213	$	392	$	794

Allowance for loan losses. The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.

Our methodology for assessing the appropriateness of the allowance for loan losses consists of: (1) a valuation allowance on impaired loans; and (2) a valuation allowance on the remainder of the loan portfolio. Although we determine the amount of each element of the allowance separately, the entire allowance for loan losses is available for the entire portfolio.

Allowance on Impaired Loans. We establish an allowance for loans that are individually evaluated and determined to be impaired. The allowance is determined by utilizing one of the three impairment measurement methods. A loan is impaired when, based upon current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest according to the contractual terms of the loan agreement. Management performs individual assessments of larger impaired loans to determine the existence of loss exposure and, where applicable, the extent of loss exposure based upon the present value of expected future cash flows available to pay the loan, or based upon the estimated realizable collateral where a loan is collateral dependent. Generally, loans excluded from the individual impairment analysis are collectively evaluated by management to estimate reserves for loan losses inherent in those loans.

There are currently three loan relationships that are individually evaluated for impairment, of which two are considered TDRs. The first relationship that is considered a TDR is a commercial real estate relationship in which the borrower was given a six month, interest-only payment concession. It was determined based on appraisal of the underlying loan collateral that there was sufficient collateral to cover the outstanding loan balance and, therefore, a specific allowance was not established. The second relationship that is considered a TDR is related to a commercial real estate participation in which a $170,000 specific allowance was established due to a decline in the underlying collateral as determined by a recent appraisal on the property. The third relationship, which is not considered a TDR, is a commercial real estate relationship that has been deemed impaired based on the current financial standing of the borrower. It was determined based on appraisal of the underlying loan collateral that there was sufficient collateral to cover the outstanding loan balance and, therefore, a specific allowance was not established.

Allowance on the Remainder of the Loan Portfolio. We establish another allowance for loans that are not determined to be impaired. Management determines historical loss experience for each group of loans with similar risk characteristics within the portfolio based on loss experience for loans in each group. Loan categories will represent groups of loans with similar risk characteristics and may include types of loans categorized by product, large credit exposures, concentrations, loan grade, or any other characteristic that causes a loan’s risk profile to be similar to another. We currently utilize previous years’ net charge-off experience by loan category as a basis in determining loss projections. In addition, there are two categories of loans considered to be higher risk concentrations that are evaluated separately when calculating the allowance for loan losses:

Loans purchased in the secondary market. Prior to September 2005, pools of multi-family and one-to-four family residential mortgage loans located in areas outside of our primary geographic lending area in southwestern Pennsylvania were acquired in the secondary market. Although these loans were underwritten to our lending standards, they are considered higher risk given our unfamiliarity with the geographic areas where the properties are located.

Home equity loans with a loan-to-value ratio greater than 80%. These loans are considered higher risk given the pressure on property values and reduced credit alternatives available to leveraged borrowers.

We also consider qualitative or environmental factors that are likely to cause estimated credit losses associated with the bank’s existing portfolio to differ from historical loss experience, including: changes in lending policies and procedures; changes in the nature and volume of the loan portfolio; changes in experience, ability and depth of loan management; changes in the volume and severity of past due loans, nonaccrual loans and adversely graded or classified loans; changes in the quality of the loan review system; changes in the value of underlying collateral for collateral dependent loans; existence of or changes in concentrations of credit; changes in economic or business conditions; and effect of competition, legal and regulatory requirements on estimated credit losses.

Our historical loss experience and qualitative and environmental factors are reviewed on a quarterly basis to ensure they are reflective of current conditions in our loan portfolio and economy. In 2010, the historical loss factors were adjusted for each group of loans to place more emphasis on recent loss and expected experience instead of a utilizing a historical three to four year average. In the one-to-four family purchased portfolio, home equity loans with a loan-to-value ratio less than 80%, and commercial business portfolio, we use our most recent year loss experience to establish loss potential as we believe the most recent year is more indicative of the losses expected in this portfolio. In addition, the qualitative factor related to changes in underlying collateral was adjusted in 2010 due to the current real estate conditions outside the Bank’s footprint, specifically in the Michigan area where the majority of our delinquent purchased loans are located.

At March 31, 2011, the allowance for loan losses to total loans ratio was 1.16% compared to 1.19% at December 31, 2010. The decrease is due to the growth and change in mix of the loan portfolio.

The following table summarizes the activity in the allowance for loan losses for the three months ended March 31, 2011 (dollars in thousands):

	Real estate - mortgage															Real estate-construction						Consumer
	One-to-			One-to-																		Home			Home
	four			four																		equity (loan-			equity (loan-
	family			family			Multi-			Multi-												to-value			to-value ratio						Com-
	residential			residential			family			family			Com-			Resi-			Com-			ratio of 80%			of greater			Other			mercial			Unal-
	(originated)			(purchased)			(originated)			(purchased)			mercial			dential			mercial			or less)			than 80%)			Consumer			business			located			Total

Loan Balance	$	120,900		$	19,616		$	7,712		$	5,226		$	35,259		$	5,986		$	726		$	26,046		$	8,148		$	1,917		$	11,956					$	243,492

Allowance for loan losses:
December 31, 2010	$	558		$	433		$	12		$	127		$	804		$	10		$	1		$	294		$	292		$	26		$	171		$	96		$	2,824
Charge-offs		-			232			-			-			-			-			-			-			-			7			-			-			239
Recoveries		-			-			-			-			-			-			-			-			-			-			-			-			-
Provision		1			216			11			-			(50	)		(1	)		-			48			(12	)		5			16			16			250
March 31, 2011	$	559		$	417		$	23		$	127		$	754		$	9		$	1		$	342		$	280		$	24		$	187		$	112		$	2,835

Individually evaluated for impairment	$	-		$	-		$	-		$	-		$	170		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	170
Collectively evaluated on historical loss experience		159			149			-			80			59			-			-			95			122			18			2			-			684
Collectively evaluated on qualitative factors		400			268			23			47			525			9			1			247			158			6			185			-			1,869

Unallocated		-			-			-			-			-			-			-			-			-			-			-			112			112

Total allowance for loan losses	$	559		$	417		$	23		$	127		$	754		$	9		$	1		$	342		$	280		$	24		$	187		$	112		$	2,835

Percent of Allowance		19.7	%		14.7	%		0.8	%		4.5	%		26.6	%		0.3	%		0.0	%		12.1	%		9.9	%		0.9	%		6.6	%		3.9	%		100.0	%

Percent of Loans (1)		49.6	%		8.1	%		3.2	%		2.1	%		14.5	%		2.5	%		0.3	%		10.6	%		3.4	%		0.8	%		4.9	%					100.0	%

(1)

Represents percentage of loans in each category to total loans.

The following table summarizes the activity in the allowance for loan losses for the three months ended March 31, 2010 (dollars in thousands):

	Real estate - mortgage															Real estate-construction						Consumer
	One-to-			One-to-																		Home			Home
	four			four																		equity (loan-			equity (loan-
	family			family			Multi-			Multi-												to-value			to-value ratio						Com-
	residential			residential			family			family			Com-			Resi-			Com-			ratio of 80%			of greater			Other			mercial			Unal-
	(originated)			(purchased)			(originated)			(purchased)			mercial			dential			mercial			or less)			than 80%)			Consumer			business			located			Total

Loan Balance	$	131,355		$	22,508		$	3,935		$	5,358		$	30,986		$	2,732		$	3,320		$	17,901		$	8,873		$	2,197		$	8,891					$	238,056

Allowance for loan losses:
December 31, 2009	$	641		$	323		$	12		$	117		$	647		$	4		$	4		$	168		$	321		$	31		$	160		$	81		$	2,509
Charge-offs		15			-			-			46			-			-			-			21			-			10			-			-			92
Recoveries		-			-			-			-			-			-			-			-			-			-			-			-			-
Provision		11			25			-			45			152			-			1			20			-			8			(22	)		(40	)		200
March 31, 2010	$	637		$	348		$	12		$	116		$	799		$	4		$	5		$	167		$	321		$	29		$	138		$	41		$	2,617

Individually evaluated for impairment	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-
Collectively evaluated on historical loss experience		220			81			-			68			79			-			-			-			136			22			-			-			606
Collectively evaluated on qualitative factors		417			267			12			48			720			4			5			167			185			7			138			-			1,970

Unallocated		-			-			-			-			-			-			-			-			-			-			-			41			41

Total allowance for loan losses	$	637		$	348		$	12		$	116		$	799		$	4		$	5		$	167		$	321		$	29		$	138		$	41		$	2,617

Percent of Allowance		24.3	%		13.3	%		0.5	%		4.4	%		30.4	%		0.2	%		0.2	%		6.4	%		12.3	%		1.1	%		5.3	%		1.6	%		100.0	%

Percent of Loans (1)		55.2	%		9.5	%		1.7	%		2.3	%		13.0	%		1.1	%		1.4	%		7.5	%		3.7	%		0.9	%		3.7	%					100.0	%

(1)

Represents percentage of loans in each category to total loans.

Note 5. Deposits

Deposits are summarized as follows (dollars in thousands).

		March 31, 2011				December 31, 2010
		Amount	Percent			Amount	Percent
Noninterest-bearing demand deposits	$	17,355	8.0	%	$	15,612	7.7	%
Interest-bearing demand deposits		13,626	6.3			13,584	6.7
Savings accounts		22,367	10.3			21,320	10.5
Money market accounts		61,318	28.2			58,949	29.0
Certificates of deposit		103,024	47.2			94,097	46.1
Total deposits	$	217,690	100.0	%	$	203,562	100.0	%

Note 6. Borrowings

We utilize borrowings as a supplemental source of funds for loans and securities. The primary sources of borrowings are FHLB advances and, to a limited extent, repurchase agreements. At March 31, 2011 and December 31, 2010, we had $56.1 million and $74.7 million, respectively, in outstanding FHLB advances and $3.0 million in repurchase agreements. Our FHLB advances include fixed rate and convertible select advances. The FHLB convertible select advances are long-term borrowings that have a fixed rate for the first three or five years of the term. After the fixed rate term expires, and quarterly thereafter, the FHLB may convert the advance to an adjustable rate advance at its option. If the advance is converted to an adjustable rate advance, the Bank has the option at the conversion date or on any future quarterly rate reset date to prepay the advance with no prepayment fee. At December 31, 2010, the Company had a $1.5 million convertible select advance, which matured in March 2011. As a result, the Company did not have any convertible select advances at March 31, 2011.

In July 2010, the Company modified a $12.0 million convertible select advance that had an interest rate of 4.79% into a new five year fixed rate FHLB advance with an effective interest rate of 3.82%. The debt modification resulted in an $864,000 prepayment penalty which is deferred and amortized in future periods on a straight-line basis over the life of the new borrowing in accordance with ASC 470-50-40/55 (formerly EITF 96-19) Debtor’s Accounting for a Modification or Exchange of Debt Instruments. Based on ASC 470-50-40/55, the Company concluded that the revised terms constituted a debt modification rather than a debt extinguishment because the change in the present value of cash flows of the new borrowing changed by less than 10% compared to the present value of the remaining cash flows of the old borrowing.

The following table sets forth borrowings based on their stated maturities and weighted average rates at the dates indicated.

	March 31, 2011						December 31, 2010
				Weighted						Weighted
				Average						Average
(Dollars in thousands)	Balance			Rate			Balance			Rate
Due in one year or less	$	6,620			4.14	%	$	22,159			3.02	%
Due in one to two years		9,842			3.90			9,805			4.22
Due in two to three years		12,663			3.75			15,717			3.68
Due in three to four years		18,000			3.41			18,000			3.41
Due in four to five years		12,000			3.82			12,000			3.82
Advances	$	59,125					$	77,681
Less: deferred premium on modification		(744	)					(788	)
Total advances	$	58,381			3.73	%	$	76,893			3.52	%

The following table sets forth information concerning our borrowings for the periods indicated.

	Three Months			Year
	Ended			Ended
	March 31,			December 31,
(Dollars in thousands)	2011			2010
Maximum amount outstanding at any month end during the period	$	72,864		$	110,456
Average amounts outstanding during the period		71,758			90,455
Weighted average rate during the period		3.46	%		3.75	%

Note 7. Earnings Per Share

Basic earnings per common share is calculated by dividing FedFirst Financial’s net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is computed in a manner similar to basic earnings per common share except that the weighted-average number of common shares outstanding is increased to include the incremental common shares (as computed using the treasury stock method) that would have been outstanding if all potentially dilutive common stock equivalents were issued during the period. Common stock equivalents include restricted stock awards and stock options. Anti-dilutive shares are common stock equivalents with weighted-average exercise prices in excess of the weighted-average market value for the periods presented. Unallocated common shares held by the Employee Stock Ownership Plan (“ESOP”) are not included in the weighted-average number of common shares outstanding for purposes of calculating both basic and diluted earnings per common share until they are committed to be released. Prior period share amounts were adjusted for comparability using the conversion ratio of 0.4735 due to completion of second step offering on September 21, 2010.

The following table sets forth basic and diluted earnings per common share at March 31, 2011 and 2010.

	Three Months Ended
	March 31,
(Dollars in thousands, except per share amounts)	2011		2010

Net income of FedFirst Financial Corporation	$	268	$	374
Weighted-average shares outstanding:
Basic		2,905,642		2,891,441
Effect of dilutive stock options and restrictive stock awards		6,126		-
Diluted		2,911,768		2,891,441

Earnings per share:
Basic and diluted	$	0.09	$	0.13

The dilutive effect on average shares outstanding is the result of stock options outstanding. Options to purchase 91,834 shares of common stock at a weighted average exercise price of $20.10 per share were outstanding as of March 31, 2011 but were not included in the computation of diluted earnings per share for 2011 because the options’ exercise price was greater than the average market price of the common shares. Options to purchase 94,700 shares of common stock at a weighted average exercise price of $19.99 per share were outstanding as of March 31, 2010 but were not included in the computation of diluted earnings per share for 2010 because the options’ exercise price was greater than the average market price of the common shares.

Note 8. Fair Value Measurements and Fair Values of Financial Instruments

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of March 31, 2011 and December 31, 2010 and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to March 31, 2011 and December 31, 2010 may be different than the amounts reported at each period end.

The fair value hierarchy prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1 –

Quoted prices for identical instruments in active markets.

Level 2 –

Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are active, and model derived valuations in which significant inputs or significant drivers are observable in active markets.

Level 3 –

Valuations derived from valuation techniques in which one or more significant inputs or significant drivers are unobservable.

The majority of the Company’s securities are included in Level 2 of the fair value hierarchy. Fair values were determined by a third party pricing service using both quoted prices for similar assets, when available, and model-based valuation techniques that derive fair value based on market-corroborated data, such as instruments with similar prepayment speeds and default interest rates. In some instances, the fair value of certain securities cannot be determined using these techniques due to the lack of relevant market data. As such, these securities are valued using an alternative technique and classified within Level 3 of the fair value hierarchy.

At March 31, 2011, Level 3 includes 10 securities with a fair value of $2.6 million. This balance is comprised of seven odd-lot mortgage-backed securities at $37,000 and three corporate debt securities at $2.5 million, which are pooled trust preferred insurance company term obligations. The mortgage-backed securities, which were AAA rated at purchase, do not have an active market due to their size and nature and as such the Company has used an alternative method to determine the fair value of these securities. The fair value has been determined using a discounted cash flow model using market assumptions, which generally include cash flow, collateral and other market assumptions. The corporate debt securities, which were rated A at purchase and are currently rated below investment grade, could not be priced using quoted market prices, observable market activity or comparable trades, and the financial market was considered not active. The trust preferred market has been severely impacted by the lack of liquidity in the credit markets and concern over the financial services industry. Fair values for trust preferred securities were obtained from pricing sources with reasonable pricing transparency, taking into account other unobservable inputs related to the risks for each issuer. The pooled trust preferred corporate term obligations owned are collateralized by the trust preferred securities of insurance companies in the United States. There has been little or no active trading in these securities; therefore it was more appropriate to determine fair value using a discounted cash flow analysis. Determining the appropriate discount rate for the discounted cash flow analysis combined current and observable market spreads for comparable structured credit products with specific risks identified within each issue. The observable market spreads incorporated both credit and liquidity premiums.

For financial assets measured at fair value on a recurring basis, the following tables set forth the fair value measurements by fair value hierarchy at March 31, 2011.

(Dollars in thousands)	March 31, 2011			December 31, 2010
Significant other observable inputs (Level 2)
Government-sponsored enterprises	$	4,570		$	7,614
Municipal bonds		3,609			4,296
Mortgage-backed		29,614			33,951
REMICs		29,835			31,565
Equities		4			4
Total significant other observerable inputs (Level 2)		67,632			77,430

Significant unobservable inputs (Level 3)
Mortgage-backed		37			38
Corporate debt		2,542			1,240
Total significant unobservable inputs (Level 3)		2,579			1,278
Total securities	$	70,211		$	78,708

	Significant
	Unobservable Inputs
(Dollars in thousands)	(Level 3)
December 31, 2010	$	1,278
Total unrealized gains		1,303
Paydowns and maturities		(2	)
March 31, 2011	$	2,579

(Dollars in thousands)		March 31, 2011				December 31, 2010
The amount of total unrealized gains (losses) for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains (losses) relating to assets still held at period end		$	1,303			$	(836	)

The fair value of Level 2 securities at March 31, 2011 decreased $9.8 million to $67.6 million compared to $77.4 million at December 31, 2010. The decrease in fair value was primarily due to $7.3 million of calls and paydowns and $2.0 million of sales of mortgage backed securities. There were no transfers in or transfers out of Level 2 securities.

For financial assets measured at fair value on a nonrecurring basis, the following table sets forth the fair value measurements by fair value hierarchy (dollars in thousands):

Level 2	March 31, 2011		December 31, 2010
Impaired loans	$	1,927	$	995
Real estate owned		439		426

Certain impaired loans over $250,000 are individually reviewed to determine the amount of each loan that may be at risk of noncollection. When repayment is expected solely from the collateral, the impaired loans are reported at the fair value of the underlying collateral using Level 2 inputs based on property appraisals. The fair value of real estate owned was estimated using Level 2 inputs based on property appraisals less any projected selling costs.

The following presents the fair value of financial instruments. In cases where quoted market prices are not available, fair value is based on estimates using present value or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be sustained by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. In addition, the following information should not be interpreted as an estimate of the fair value of the Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at March 31, 2011 and December 31, 2010.

Cash and Cash Equivalents

The carrying amounts approximate the asset’s fair values.

Securities (Including Mortgage-Backed Securities)

The fair value of securities are determined by a third party pricing service using both quoted prices for similar assets, when available, and model-based valuation techniques that derive fair value based on market-corroborated data, such as instruments with similar prepayment speeds and default interest rates (Level 2). In some instances, the fair value of certain securities cannot be determined using these techniques due to the lack of relevant market data. As such, these securities are valued using an alternative technique and classified within Level 3 of the fair value hierarchy. Alternative techniques include using a discounted cash flow model using market assumptions, which generally include cash flow, collateral and other market assumptions or obtaining fair values from pricing sources with reasonable pricing transparency, taking into account other unobservable inputs related to the risks for each issuer.

Loans

The fair values for residential real estate loans are estimated using discounted cash flow analyses using mortgage commitment rates from either FNMA or FHLMC. The fair values of consumer and commercial business loans are estimated using discounted cash flow analyses, using interest rates reported in various government releases. The fair values of multi-family and commercial real estate loans are estimated using discounted cash flow analysis, using interest rates based on national commitment rates on similar loans.

Federal Home Loan Bank Stock

The carrying amount approximates the asset’s fair value.

Accrued Interest Receivable and Accrued Interest Payable

The fair value of these instruments approximates the carrying value.

Deposits

The fair values disclosed for demand deposits (e.g., savings accounts) are, by definition, equal to the amount payable on demand at the repricing date (i.e., their carrying amounts). Fair values of certificates of deposits are estimated using a discounted cash flow calculation that applies the FHLB of Pittsburgh advance yield curve to the maturity schedule of the Bank’s certificates of deposit.

Borrowings

The fair value of FHLB advances and repurchase agreements are estimated using a discounted cash flow calculation using the current FHLB advance yield curve. This is the method that the FHLB of Pittsburgh used to determine the cost of terminating the borrowing contract. The FHLB of Pittsburgh issues a valuation report for convertible select advances.

Commitments to Extend Credit

These financial instruments are generally not subject to sale and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment, and the fair value determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure purposes. The contractual amounts of unfunded commitments are presented in the Liquidity and Capital Management section in Part I, Item 2 of this report.

The following table sets forth the carrying amount and estimated fair value of financial instruments (dollars in thousands).

	March 31, 2011				December 31, 2010
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	7,793	$	7,793	$	9,320	$	9,320
Securities		70,211		70,211		78,708		78,708
Loans, net		237,658		243,181		230,055		236,463
FHLB stock		6,228		6,228		6,556		6,556
Accrued interest receivable		1,361		1,361		1,365		1,365

Financial liabilities:
Deposits		217,690		218,501		203,562		205,204
Borrowings		58,381		60,940		76,893		79,764
Accrued interest payable		483		483		598		598

Note 9. Subsidiary/Segment Reporting

The consolidated operating results of FedFirst Financial are presented as a single financial services segment. FedFirst Financial is the parent company of the Bank, which owns FFEC. FFEC has an 80% controlling interest in Exchange Underwriters, Inc. Exchange Underwriters, Inc. is managed separately from the banking and related financial services that the Company offers. Exchange Underwriters, Inc. is an independent insurance agency that offers property and casualty, life, health, commercial general liability, surety and other insurance products.

Following is a table of selected financial data for the Company's subsidiaries and consolidated results for the dates indicated (dollars in thousands).

	First Federal Savings Bank		Exchange Underwriters, Inc.		FedFirst Financial Corporation			Net Eliminations			Consolidated

March 31, 2011
Assets	$	339,248	$	934	$	59,362		$	(60,183	)	$	339,361
Liabilities		292,906		369		25			(13,321	)		279,979
Stockholders' equity		46,342		565		59,337			(46,862	)		59,382

December 31, 2010
Assets	$	343,469	$	1,422	$	58,695		$	(60,513	)	$	343,073
Liabilities		297,977		667		192			(14,350	)		284,486
Stockholders' equity		45,492		755		58,503			(46,163	)		58,587

Three Months Ended March 31, 2011
Total interest income	$	3,931	$	1	$	26		$	(26	)	$	3,932
Total interest expense		1,358		-		-			(26	)		1,332
Net interest income		2,573		1		26			-			2,600
Provision for loan losses		250		-		-			-			250
Net interest income after provision for loan losses		2,323		1		26			-			2,350
Noninterest income		203		630		1			-			834
Noninterest expense		2,182		470		85			-			2,737
Undistributed net gain of subsidiary		90		-		306			(396	)		-
Income before income tax expense (benefit) and noncontrolling interest in net income of consolidated subsidiary		434		161		248			(396	)		447
Income tax expense (benefit)		110		71		(20	)		-			161
Net income before noncontrolling interest in net income of consolidated subsidiary		324		90		268			(396	)		286
Less: Noncontrolling interest in net income of consolidated subsidiary		18		-		-			-			18
Net income	$	306	$	90	$	268		$	(396	)	$	268
Three Months Ended March 31, 2010
Total interest income	$	4,361	$	3	$	28		$	(28	)	$	4,364
Total interest expense		1,892		-		-			(28	)		1,864
Net interest income		2,469		3		28			-			2,500
Provision for loan losses		200		-		-			-			200
Net interest income after provision for loan losses		2,269		3		28			-			2,300
Noninterest income		180		746		-			-			926
Noninterest expense		2,070		459		53			-			2,582
Undistributed net gain of subsidiary		167		-		390			(557	)		-
Income before income tax (benefit) expense and noncontrolling interest in net income of consolidated subsidiary		546		290		365			(557	)		644
Income tax (benefit) expense		123		123		(9	)		-			237
Net income before noncontrolling interest in net income of consolidated subsidiary		423		167		374			(557	)		407
Less: Noncontrolling interest in net income of consolidated subsidiary		33		-		-			-			33
Net income	$	390	$	167	$	374		$	(557	)	$	374

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

This discussion should be read in conjunction with the unaudited consolidated financial statements, notes and tables included in this report. For further information, refer to the consolidated financial statements and notes included in FedFirst Financial Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010.

Forward-Looking Statements

This report contains certain “forward-looking statements” within the meaning of the federal securities laws. These statements are not historical facts, rather statements based on FedFirst Financial’s current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions.

Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors which could affect actual results include the following: interest rate trends; the general economic climate in the market area in which FedFirst Financial operates, as well as nationwide; FedFirst Financial’s ability to control costs and expenses; competitive products and pricing; loan delinquency rates and changes in federal and state legislation and regulation. Additional factors that may affect our results are discussed in FedFirst Financial’s Annual Report on Form 10-K under “Item 1A. Risk Factors.” These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. FedFirst Financial assumes no obligation to update any forward-looking statements.

General

FedFirst Financial Corporation is a stock holding company established in 2010 to be the holding company for First Federal Savings Bank. FedFirst Financial’s business activity is the ownership of the outstanding capital stock of First Federal. FedFirst Financial’s wholly owned subsidiaries are First Federal Savings Bank, a federally chartered stock savings bank, and FedFirst Exchange Corporation (“FFEC”). FFEC has an 80% controlling interest in Exchange Underwriters, Inc. Exchange Underwriters, Inc. is a full-service, independent insurance agency that offers property and casualty, commercial liability, surety and other insurance products. All significant intercompany transactions have been eliminated.

The Company completed its conversion from the mutual holding company form of organization to the stock holding company form on September 21, 2010. As a result of the conversion, FedFirst Financial Corporation, a newly formed state-chartered corporation, became the holding company for First Federal Savings Bank, and FedFirst Financial Mutual Holding Company and the former FedFirst Financial Corporation ceased to exist. As part of the conversion, all outstanding shares of the former FedFirst Financial Corporation common stock (other than those owned by FedFirst Financial Mutual Holding Company) were converted into the right to receive 0.4735 of a share of the newly formed FedFirst Financial Corporation common stock resulting in 1,270,484 shares issued in the exchange. In addition, a total of 1,722,185 shares of common stock were sold in the subscription, community and syndicated community offerings at the price of $10.00 per share. The completion of the Company’s public offering raised $15.4 million in proceeds, net of $1.9 million in offering expenses.

First Federal Savings Bank operates as a community-oriented financial institution offering residential, multi-family and commercial mortgages, consumer loans and commercial business loans as well as a variety of deposit products for individuals and businesses from nine locations in southwestern Pennsylvania. First Federal conducts insurance brokerage activities through Exchange Underwriters, Inc.

Our website address is www.firstfederal-savings.com. Information on our website should not be considered a part of this Form 10-Q.

Balance Sheet Analysis

Assets. Total assets at March 31, 2011 were $339.4 million, a decrease of $3.7 million, or 1.1%, from total assets of $343.1 million at December 31, 2010.

Securities available-for-sale decreased $8.5 million, or 10.8%, to $70.2 million at March 31, 2011 compared to $78.7 million at December 31, 2010. The decrease was primarily the result of $7.3 million of calls and paydowns, including a $3.0 million call of a Government Sponsored Enterprise security and a $635,000 partial call of a municipal bond. Other securities-related activity included the sales of $2.0 million of mortgage-backed securities. In addition, the securities portfolio reflects an unrealized gain of $695,000 at March 31, 2011 compared to an unrealized loss of $210,000 at December 31, 2010.

Loans, net, increased $7.6 million, or 3.3%, to $237.7 million at March 31, 2011 compared to $230.1 million at December 31, 2010 primarily due to an increase of $3.6 million in multi-family loans, $2.9 million in home equity loans, $1.5 million in commercial real estate loans, and $1.1 million in commercial business loans.

Liabilities. Total liabilities at March 31, 2011 were $280.0 million, compared to $284.5 million at December 31, 2010, a decrease of $4.5 million, or 1.6%.

Total deposits increased $14.1 million, or 6.9%, to $217.7 million at March 31, 2011 compared to $203.6 million at December 31, 2010. Certificates of deposit increased $8.9 million, primarily due to a 13 month certificates of deposit promotion. In addition, money market accounts increased $2.4 million, noninterest-bearing demand deposits increased $1.7 million and savings accounts increased $1.0 million.

Borrowings decreased $18.5 million, or 24.1%, to $58.4 million at March 31, 2011 compared to $76.9 million at December 31, 2010 primarily due to the maturity of $12.5 million of long-term borrowings. Funds generated through deposit growth and securities-related transactions were used to reduce borrowings.

Stockholders’ Equity. Stockholders’ equity was $59.4 million at March 31, 2011, an increase of $795,000 from December 31, 2010. Stockholders’ equity primarily increased as a result of a $551,000 increase in the fair value of the securities portfolio, net of tax, and $268,000 in net income for the three months ended March 31, 2011. The increase was partially offset by $87,000 of dividends paid to stockholders.

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

Overview. The Company had net income of $268,000 for the three months ended March 31, 2011, compared to $374,000 for the same period in 2010.

	Three Months Ended March 31,
(Dollars in thousands)	2011			2010
Net income of FedFirst Financial Corporation	$	268		$	374
Return on average assets		0.31	%		0.43	%
Return on average equity		1.82			3.48
Average equity to average assets		17.18			12.23

Net Interest Income. Net interest income for the three months ended March 31, 2011 increased $100,000 to $2.6 million compared to $2.5 million for the three months ended March 31, 2010. Net interest margin was 3.28% for the three months ended March 31, 2011 compared to 3.09% for the three months ended March 31, 2010. The improvement in net interest margin is primarily attributable to a funding shift on the Company’s balance sheet whereby a reduction in borrowings resulted in a $358,000 decrease in borrowings expense and, despite an increase in overall deposits, interest rate reductions on deposits resulted in a $174,000 decrease in deposits expense that together offset the decline in interest income from securities and loans.

Interest income decreased $432,000, or 9.9%, to $3.9 million for the three months ended March 31, 2011 compared to the three months ended March 31, 2010 primarily due to a decrease of 43 basis points in yield on interest-earning assets. Interest income on securities decreased $238,000 due to a decrease of 116 basis points in yield, primarily due to paydowns and sales of higher yielding mortgage-backed and REMIC securities, which were reinvested in lower yielding securities with shorter durations. Interest income on loans decreased $194,000 due to a decrease of 22 basis points in yield and $4.8 million in the average balance, which was primarily driven by decreases in higher yielding residential real estate loans due to payoffs that were replaced by residential real estate and home equity originations at lower yields.

Interest expense decreased $532,000, or 28.5%, to $1.3 million for the three months ended March 31, 2011 compared to the three months ended March 31, 2010 due to a decrease of 56 basis points in cost and $25.0 million in the average balance of interest-bearing liabilities. Interest expense on borrowings decreased $358,000 due to a decrease of $34.8 million in the average balance, as deposit growth and funds from the completion of the stock offering were used to reduce borrowings. Interest expense on deposits decreased $174,000 due to a decrease of 47 basis points in cost, primarily related to the repricing of money market accounts and maturing certificates of deposit at lower rates, partially offset by an increase of $9.8 million in the average balance, primarily in money market accounts and certificates of deposit.

Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented and are expressed in annualized rates.

	Three Months Ended March 31,
	2011							2010
(Dollars in thousands)	Average Balance		Interest and Dividends		Yield/Cost			Average Balance		Interest and Dividends		Yield/Cost
Assets:
Interest-earning assets:
Loans, net (1)(2)	$	232,759	$	3,219		5.53	%	$	237,495	$	3,413		5.75	%
Securities (3)		76,199		710		3.73			77,482		948		4.89
Other interest-earning assets		7,767		3		0.15			8,467		3		0.14
Total interest-earning assets		316,725	$	3,932		4.97			323,444	$	4,364		5.40
Noninterest-earning assets		25,532							27,770
Total assets	$	342,257						$	351,214


Liabilities and Stockholders' equity:
Interest-bearing liablities:
Interest-bearing demand deposits	$	13,466	$	9		0.27	%	$	14,298	$	11		0.31	%
Savings accounts		21,820		27		0.49			21,911		27		0.49
Money market accounts		61,031		136		0.89			55,238		187		1.35
Certificates of deposit		94,331		539		2.29			89,408		660		2.95
Total interest-bearing deposits		190,648		711		1.49			180,855		885		1.96

Borrowings		71,758		621		3.46			106,516		979		3.68
Total interest-bearing liabilities		262,406		1,332		2.03			287,371		1,864		2.59

Noninterest-bearing liabilities		21,067							20,903
Total liabilities		283,473							308,274

Stockholders' equity		58,784							42,940
Total liabilities and stockholders' equity	$	342,257						$	351,214
Net interest income			$	2,600						$	2,500

Interest rate spread						2.94	%						2.81	%
Net interest margin						3.28							3.09
Average interest-earning assets to average interest-bearing liabilities						120.70	%						112.55	%

(1) Amount is net of deferred loan costs, loans in process and allowance for loan losses.

(2) Amount includes nonaccrual loans in average balances only.

(3) Amount does not include effect of unrealized gain (loss) on securities available-for-sale.

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our net interest income. The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). Changes related to volume/rate are prorated into volume and rate components. The total column represents the net change in volume and rate.

	Three Months Ended March 31, 2011
	Compared To
	Three Months Ended March 31, 2010
	Increase (decrease) due to
(Dollars in thousands)	Volume			Rate			Total

Interest and dividend income:
Loans, net	$	(65	)	$	(129	)	$	(194	)
Securities		(17	)		(221	)		(238	)
Other interest-earning assets		-			-			-
Total interest-earning assets		(82	)		(350	)		(432	)

Interest expense:
Deposits		46			(220	)		(174	)
Borrowings		(302	)		(56	)		(358	)
Total interest-bearing liablities		(256	)		(276	)		(532	)
Change in net interest income	$	174		$	(74	)	$	100

Provision for Loan Losses. The provision for loan losses was $250,000 for the three months ended March 31, 2011 compared to $200,000 for the three months ended March 31, 2010. The provision for loan losses was determined based on our evaluation of the loan portfolio, which considers several components including, but not limited to, the quantitative and qualitative attributes of the portfolio to determine adequacy. In the current period, the primary driver of the provision was net charge-offs of $239,000 compared to $92,000 for the three months ended March 31, 2010. Total nonperforming loans at March 31, 2011 were $1.5 million compared to $1.2 million at December 31, 2010. Nonperforming loans at March 31, 2011 were comprised of eight residential real estate loans totaling $796,000, three commercial real estate loans totaling $580,000, and two home equity loans totaling $155,000.

Noninterest Income. Noninterest income decreased $92,000, or 9.9%, to $834,000 for the three months ended March 31, 2011 compared to $926,000 for the three months ended March 31, 2010 primarily due a decrease in contingency fee income on insurance policies.

Noninterest Expense. The following table summarizes noninterest expense for the periods indicated.

	Three Months Ended March 31,
(Dollars in thousands)	2011		2010
Compensation and employee benefits	$	1,601	$	1,457
Occupancy		354		378
FDIC insurance premiums		86		100
Data processing		124		117
Professional services		179		168
Advertising		52		37
Stationary, printing and supplies		27		35
Telephone		12		12
Postage		41		45
Correspondent bank fees		39		40
Real estate owned expense		2		3
Amortization of intangibles		27		29
All other		193		161
Total noninterest expense	$	2,737	$	2,582

Noninterest expense increased $155,000, or 6.0%, to $2.7 million for the three months ended March 31, 2011 compared to the three months ended March 31, 2010, primarily from an increase in compensation expense related to the Company’s supplemental executive retirement plan due to the impact of lower interest rates.

Income Tax Expense. Income tax expense for the three months ended March 31, 2011 decreased to $161,000 compared to $237,000 for the same period in 2010 primarily due to a $197,000 decrease in income before income tax expense.

Liquidity and Capital Management

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

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

Our most liquid assets are cash and cash equivalents and interest-bearing deposits. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At March 31, 2011, cash and cash equivalents totaled $7.8 million. At March 31, 2011, securities classified as available-for-sale totaled $70.2 million, which provides an additional source of liquidity. In addition, at March 31, 2011, the maximum remaining borrowing capacity at the FHLB of Pittsburgh was approximately $115.5 million. The Bank also has the ability to borrow $2.8 million from the Federal Reserve based upon eligible collateral. At March 31, 2011 and December 31, 2010, the Bank had no borrowings with the Federal Reserve.

Certificates of deposit due within one year of March 31, 2011 totaled $39.1 million, or 37.9% of certificates of deposit. If these maturing deposits do not remain with us, we will be required to seek other sources of funds including other certificates of deposit and borrowings. We believe, however, based on past experience that a

significant portion of our maturing certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

The following table summarizes the Company’s commitments at the date indicated.

	March 31,
(Dollars in thousands)	2011
Loans in process	$	3,826
Unused revolving lines of credit		3,207
Unused commercial business lines of credit		6,082
One-to-four family residential commitments		1,395
Consumer commitments		1,742
Total commitments outstanding	$	16,252

Capital Management. The Bank is subject to various regulatory capital requirements administered by the Office of Thrift Supervision, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2011, we exceeded all of our regulatory capital requirements and are considered “well capitalized” under regulatory guidelines. The following table sets forth the Bank’s regulatory capital amounts and ratios, as well as the minimum amounts and ratios required to be well capitalized (dollars in thousands).

											To Be Well
						For Capital					Capitalized
						Adequacy					Under Prompt
	Actual					Purposes					Corrective Action
March 31, 2011	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk weighted assets)	$	46,866		25.38	%	$	14,775		8.00	%	$	18,469		10.00	%
Tier 1 capital (to risk weighted assets)		44,557		24.13			7,388		4.00			11,082		6.00
Tier 1 capital (to adjusted total assets)		44,557		13.18			13,528		4.00			16,910		5.00
Tangible capital (to tangible assets)		44,557		13.18			5,073		1.50			N/A		N/A

December 31, 2010	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk weighted assets)	$	46,565		25.44	%	$	14,641		8.00	%	$	18,302		10.00	%
Tier 1 capital (to risk weighted assets)		44,277		24.19			7,321		4.00			10,981		6.00
Tier 1 capital (to adjusted total assets)		44,277		12.95			13,681		4.00			17,102		5.00
Tangible capital (to tangible assets)		44,277		12.95			5,130		1.50			N/A		N/A

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

For the three months ended March 31, 2011, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable as the registrant is a smaller reporting company.

Item 4. Controls and Procedures.

FedFirst Financial’s management, including FedFirst Financial’s principal executive officer and principal financial officer, have evaluated the effectiveness of FedFirst Financial’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, FedFirst Financial’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that FedFirst Financial files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to FedFirst Financial’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in FedFirst Financial’s internal control over financial reporting during the quarter ended March 31, 2011, that has materially affected, or is reasonably likely to materially affect, FedFirst Financial’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.

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

The Company did not repurchase any shares of its common stock during the three months ended March 31, 2011 and does not have any outstanding stock repurchase programs.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. [Removed and Reserved]

Item 5. Other Information.

None.

Item 6. Exhibits.

31.1

Rule 13a-14 (a) / 15d-14 (a) Certification (President and Chief Executive Officer)

31.2

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

32.1

Certification of Patrick G. O’Brien pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Robert C. Barry Jr. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		FEDFIRST FINANCIAL CORPORATION
		(Registrant)

Date:	May 13, 2011	/s/ Patrick G. O’Brien
		Patrick G. O’Brien
		President and Chief Executive Officer

Date:	May 13, 2011	/s/ Robert C. Barry Jr.
		Robert C. Barry Jr.
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer and Chief Accounting Officer)

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