**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**





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




**For
      the Fiscal Year Ended December 31, 2006**




OR




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




For
      the
      transition period from __________ to __________





Commission
      File Number: 000-51078




**Lincoln
                  Park Bancorp**(Name
                  of Small Business Issuer in its
                  Charter)




**Federal**
            
            **61-1479859**(State
                or Other Jurisdiction of Incorporation or Organization)
            
            (I.R.S.
                Employer Identification Number)





**31
                Boonton Turnpike, Lincoln Park, New Jersey**
            
            **07035**(Address
                of Principal Executive Office)
            
            (Zip
                Code)




**(973)
                  694-0330**(Issuer’s
                  Telephone Number Including Area
                  Code)





Securities
      Registered Pursuant to Section 12(b) of the Act:





**None**





Securities
      Registered Pursuant to Section 12(g) of the Act:




**Common
                  Stock, par value $0.01 per share**(Title
                  of Class)








Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o





Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past twelve months (or for such shorter
      period that the Registrant was required to file reports) and (2) has been
      subject to such requirements for the past 90 days.





(1)  YES  
      x .  NO  
      o .





(2) YES  
        x . NO  
        o .





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of Registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendments to this Form 10-KSB. **o**





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).





YES
o  NO
x





The
      Registrant’s revenues for the fiscal year ended December 31, 2006 were $5.0
      million.





As
      of
      March 22, 2007, there were 1,851,500 shares issued and outstanding of the
      Registrant’s Common Stock, including 999,810 shares owned by Lincoln Park
      Bancorp, MHC. The aggregate value of the voting stock held by non-affiliates
      of
      the Registrant, computed by reference to the closing price of the Common Stock
      as of March 22, 2007 was $7.0 million.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





1.
            Portions
                of Annual Report to Stockholders (Parts II and
                IV)




2.
            Proxy
                Statement for the 2007 Annual Meeting of Stockholders (Part
                III)




Transitional
      Small Business Disclosure Format (check one) Yes o   No
      x







**PART
      I**





**ITEM
              1.**
            **Business**




**Forward
      Looking Statements**




This
      Annual Report contains certain “forward-looking statements” which may be
      identified by the use of words such as “believe,” “expect,” “anticipate,”
“should,” “planned,” “estimated” and “potential.” Examples of forward-looking
      statements include, but are not limited to, estimates with respect to our
      financial condition, results of operations and business that are subject to
      various factors which could cause actual results to differ materially from
      these
      estimates and most other statements that are not historical in nature. These
      factors include, but are not limited to, general and local economic conditions,
      changes in interest rates, deposit flows, demand for mortgage, and other loans,
      real estate values, competition, changes in accounting principles, policies,
      or
      guidelines, changes in legislation or regulation, and other economic,
      competitive, governmental, regulatory, and technological factors affecting
      our
      operations, pricing products and services.





**Lincoln
      Park Bancorp, MHC**




Lincoln
      Park Bancorp, MHC is the federally chartered mutual holding company parent
      of
      Lincoln Park Bancorp. Lincoln Park Bancorp, MHC is not currently engaged in
      any
      business other than holding the majority of the voting stock of Lincoln Park
      Bancorp. The executive offices of Lincoln Park Bancorp, MHC, are located at
      31
      Boonton Turnpike, Lincoln Park, New Jersey 07035, and its telephone number
      is
      (973) 694-0330. Lincoln Park Bancorp, MHC is subject to comprehensive regulation
      and examination by the Office of Thrift Supervision.





**Lincoln
      Park Bancorp**




Lincoln
      Park Bancorp is a federally chartered corporation which was organized in 2004
      as
      part of the mutual holding company reorganization of Lincoln Park Savings Bank.
      Our principal asset is our investment in Lincoln Park Savings Bank. We are
      a
      majority owned subsidiary of Lincoln Park Bancorp, MHC. In connection with
      the
      reorganization, which was completed on December 16, 2004, we sold 851,690 shares
      of our common stock and issued 999,810 shares to our mutual holding company
      parent. The net proceeds from our stock offering totaled $7.8 million. At
      December 31, 2006, Lincoln Park Bancorp had consolidated assets of $94.0
      million, deposits of $57.8 million and shareholders’ equity of $13.2 million.
      Lincoln Park Bancorp is subject to comprehensive regulation and examination
      by
      the Office of Thrift Supervision.




Lincoln
      Park SavingsBank




**General**




Lincoln
      Park Savings Bank ("Lincoln Park Savings")  is a New Jersey chartered
      savings bank headquartered in Lincoln Park, New Jersey. Lincoln Park Savings
      was
      originally founded in 1923. In connection with and prior to the mutual holding
      company reorganization, Lincoln Park Savings Bank completed its conversion
      from
      a New Jersey chartered savings and loan association to a New Jersey chartered
      savings bank. LPS Investment Company is the Bank’s wholly owned subsidiary. LPS
      Investment Company was recently formed as an operating subsidiary of the Bank
      for the purpose of investing in stocks, bonds, mortgages, and other securities,
      limited to the types of securities in which the Bank is authorized to invest.
      Lincoln Park Savings conducts business from its main office located at 31
      Boonton Turnpike in Lincoln Park, New Jersey. The telephone number at its main
      office is (973) 694-0330. In March 2007, Lincoln Park Savings entered into
      an
      agreement to purchase a branch office located in Montville, New Jersey. The
      purchase price of $830,000 is inclusive of land, building, furniture and
      fixtures, as well as approximately $3.2 million in deposits. The sale is
      expected to close on May 1, 2007, but contains conditions including the receipt
      of any required regulatory approvals.




Our
      principal business activity is the origination of mortgage loans secured by
      one-
      to four-family residential real estate and consumer loans consisting primarily
      of home equity loans and home equity lines of credit. We also originate loans
      secured by multi-family and commercial real estate and, to a lesser extent,
      construction loans. We also invest in mortgage-backed and investment securities.
      We offer a variety of deposit accounts, including demand deposits, savings
      and
      club accounts and certificates of deposit. We emphasize personal and efficient
      service for our customers. Lincoln Park Savings is subject to comprehensive
      regulation and examination by the Commissioner of Banking and Insurance of
      the
      State of New Jersey and the Federal Deposit Insurance Corporation, and we are
      a
      member of the Federal Home Loan Bank system.




2





**Market
      Area**





We
      primarily serve communities located in Morris and Passaic Counties, New Jersey.
      Our primary market area is concentrated in the Borough of Lincoln Park and
      in
      contiguous towns in Morris and Passaic Counties. During the past several years,
      the population and number of households in Morris and Passaic Counties have
      increased moderately. Our market area is characterized by a high proportion
      of
      single family and two- to four-family houses. This market has a diverse economy
      with a large number of small and medium-size business establishments as well
      as
      corporate headquarters for Fortune 500 companies. The market area also serves
      as
      a bedroom community for nearby New York City as well as other nearby suburban
      areas in northern New Jersey and downstate New York.




**Competition**




We
      face
      intense competition within our market area both in making loans and attracting
      deposits. Morris and Passaic Counties have a high concentration of financial
      institutions, including large money center and regional banks, community banks
      and credit unions. Some of our competitors offer products and services that
      we
      currently do not offer, such as trust services and private banking. As of
      December 31, 2006, our market share of deposits represented less than 1% of
      deposits in each of Morris and Passaic Counties.




Our
      competition for loans and deposits comes principally from commercial banks,
      savings institutions, mortgage banking firms and credit unions. We face
      additional competition for deposits from short-term money market funds,
      brokerage firms, mutual funds and insurance companies. Our primary focus is
      to
      build and develop profitable customer relationships across all lines of business
      while maintaining our role as a community bank.




**Lending
      Activities**





Our
      principal lending activity has been the origination of first mortgage loans
      for
      the purchase or refinancing of one- to four-family residential real property.
      We
      have historically retained all loans that we originate, although we will
      occasionally enter into loan participations. One- to four-family residential
      real estate mortgage loans represented $43.7 million, or 64.7% of our total
      loan
      portfolio at December 31, 2006. Consumer loans totaled $20.6 million, or 30.5%
      of the total loan portfolio at December 31, 2006, and consisted primarily of
      home equity loans and home equity lines of credit. We also offer multi-family
      and commercial real estate loans and to a lesser extent construction loans.
      Commercial real estate loans totaled $1.9 million, or 2.8% of the total loan
      portfolio at December 31, 2006. On a limited basis, we originate consumer loans
      that are not secured by real estate, including automobile loans, deposit account
      loans and unsecured personal loans and lines of credit.




3


***Loan
      Portfolio Composition*** *.* The
      following table sets forth the composition of our loan portfolio by type of
      loan
      as of the dates indicated.




**At
                December 31,****2006**
            
            **2005****Amount**
            
            **Percent**
            
            **Amount**
            
            **Percent****(Dollars
                in Thousands)**Real
                estate loans:One-
                to four-family
            
            $
            43,659
            
            
            64.73
            %
            $
            42,449
            
            
            63.92
            %Multi-family
            
            
            857
            
            
            1.27
            
            
            303
            
            
            0.46Commercial
            
            
            1,913
            
            
            2.84
            
            
            2,415
            
            
            3.64Construction/
                Land
            
            
            437
            
            
            0.65
            
            
            629
            
            
            0.95Total
                real estate loans
            
            
            46,866
            
            
            69.49
            %
            
            45,796
            
            
            68.96
            %Consumer
                loans:Passbook
                or certificate
            
            
            59
            
            
            0.09
            %
            
            73
            
            
            0.11
            %Home
                equity lines of credit
            
            
            5,304
            
            
            7.86
            
            
            6,599
            
            
            9.94Home
                equity
            
            
            14,489
            
            
            21.49
            
            
            13,464
            
            
            20.27Automobile
            
            
            218
            
            
            0.32
            
            
            255
            
            
            0.38Personal
                secured
            
            
            394
            
            
            0.58
            
            
            125
            
            
            0.19Personal
                unsecured
            
            
            88
            
            
            0.13
            
            
            75
            
            
            0.11Overdraft
                line of credit
            
            
            27
            
            
            0.04
            
            
            22
            
            
            0.03Total
                consumer loans
            
            
            20,579
            
            
            30.51
            %
            
            20,613
            
            
            31.04
            %Total
                loans
            
            
            67,445
            
            
            100.00
            %
            
            66,409
            
            
            100.00
            %Less:Loans
                in process
            
            
            —
            
            
            
            
            
            —Allowance
                for loan losses
            
            
            136
            
            
            
            
            
            159Deferred
                loan (costs), net
            
            
            (142
            )
            
            
            
            
            (133
            )(6
            )
            
            
            
            
            26Total
                loans receivable, net
            
            $
            67,451
            
            
            
            
            $
            66,383




4


***Maturity
      of Loan Portfolio.*** The
      following table shows the remaining contractual maturity of our loans at
      December 31, 2006. Mortgages which have adjustable interest rates or that have
      balloon repayment features are shown as maturing in the periods during which
      the
      contract is due. The table does not include the effect of possible prepayments
      or due on sale clauses.




**One-
                to four-family**
            
            **Multi-family**
            
            **Commercial
                real estate**
            
            **Construction/**
              **Land**
            
            **Consumer**
            
            **Total****(In
                Thousands)**One
                year or less
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            270
            
            $
            1,069
            
            $
            1,339After
                one year:More
                than one to three years
            
            
            1,234
            
            
            —
            
            
            117
            
            
            —
            
            
            337
            
            
            2,573More
                than three to five years
            
            
            3,590
            
            
            —
            
            
            —
            
            
            167
            
            
            876
            
            
            4,044More
                than five to ten years
            
            
            4,274
            
            
            56
            
            
            603
            
            
            —
            
            
            2,818
            
            
            5,317More
                than ten to twenty years
            
            
            4,983
            
            
            111
            
            
            259
            
            
            —
            
            
            15,412
            
            
            8,460More
                than twenty years
            
            
            13,161
            
            
            690
            
            
            934
            
            
            —
            
            
            67
            
            
            28,943Total
                due after one year
            
            
            16,417
            
            
            857
            
            
            1,913
            
            
            167
            
            
            19,510
            
            
            18,108Total
                due
            
            $
            42,425
            
            $
            857
            
            $
            1,913
            
            $
            437
            
            $
            20,579
            
            $
            64,872





***Fixed-
      and Adjustable-Rate Loan Schedule.*** ** The
      following table sets forth at December 31, 2006, the dollar amount of all
      fixed-rate and adjustable-rate loans due after December 31, 2007.
      Adjustable- and floating-rate loans are included based on contractual
      maturities.




**Due
                  After December 31, 2007****Fixed**
              
              **Adjustable**
              
              **Total****(In
                  Thousands)**One-
                  to four-family
              
              $
              29,577
              
              $
              12,848
              
              $
              42,425Multi-family
              
              
              278
              
              
              579
              
              
              857Commercial
                  real estate
              
              
              603
              
              
              1,310
              
              
              1,913Construction/Land
              
              
              167
              
              
              —
              
              
              167Consumer
              
              
              14,485
              
              
              5,025
              
              
              19,510Total
                  loans
              
              $
              45,110
              
              $
              20,996
              
              $
              64,872


5


***One-
      to Four-Family Residential Loans.*** ** Our
      primary lending activity consists of the origination of one- to four-family
      residential mortgage loans that are primarily secured by properties located
      in
      Morris and Passaic Counties. At December 31, 2006, approximately $43.7 million,
      or 64.7% of our loan portfolio, consisted of one- to four-family residential
      loans. Generally, one- to four-family residential mortgage loans are originated
      in amounts up to 80% of the appraised value of the property. However, we make
      first mortgage loans and second mortgage loans when we are the first lien holder
      with a loan-to-value ratio up to 89% for properties secured by one- to
      four-family residences located in our community reinvestment designated area.
      Private mortgage insurance is not required on loans with a loan-to-value ratio
      in excess of 80% in conjunction with this program. Fixed-rate loans are
      originated for terms of 15, 20, 25 and 30 years. At December 31, 2006, our
      largest loan secured by one- to four-family real estate had a principal balance
      of $700,000 and was secured by a single-family residence. This loan was
      performing in accordance with its terms.





We
      originate our fixed-rate loans in conformity with Freddie Mac guidelines.
      However, our policy has been to retain in portfolio the fixed-rate loans we
      originate.





We
      also
      offer adjustable-rate mortgage loans for one- to four-family properties with
      an
      interest rate based on the United States Treasury index. The interest rates
      on
      these loans adjust annually or every three years from the outset of the loan
      or
      adjust annually after a five-, seven- or ten-year initial fixed rate period.
      We
      originated $3.5 million of adjustable-rate one- to four-family residential
      loans during the year ended December 31, 2006. Our adjustable rate-mortgage
      loans provide for maximum rate adjustments of 200 basis points per adjustment,
      with a lifetime maximum rate of 600 basis points above the initial interest
      rate. Our adjustable rate mortgage loans amortize over terms of up to 40 years.





Adjustable-rate
      mortgage loans decrease the risk associated with changes in market interest
      rates by periodically repricing, but involve other risks because, as interest
      rates increase, the underlying payments by the borrower increase, thus
      increasing the potential for default by the borrower. At the same time, the
      marketability of the underlying collateral may be adversely affected by higher
      interest rates. Upward adjustment of the contractual interest rate is also
      limited by the maximum periodic and lifetime interest rate adjustments permitted
      by our loan documents, and therefore, is potentially limited in effectiveness
      during periods of rapidly rising interest rates. At December 31, 2006, $14.0
      million or 32.3% of our one- to four-family residential loans had adjustable
      rates of interest.





All
      one-
      to four-family residential mortgage loans that we originate include
“due-on-sale” clauses, which give us the right to declare a loan immediately due
      and payable in the event that, among other things, the borrower sells or
      otherwise disposes of the real property subject to the mortgage and the loan
      is
      not repaid.





Regulations
      limit the amount that a savings institution may lend relative to the appraised
      value of the real estate securing the loan, as determined by an appraisal of
      the
      property at the time the loan is originated. For all loans, we utilize outside
      independent appraisers approved by the board of directors. All borrowers are
      required to obtain title insurance. We also require homeowner’s insurance and
      fire and casualty insurance and, where circumstances warrant, flood insurance
      on
      properties securing real estate loans.





***Commercial
      and Multi-Family Real Estate Loans.*** ** At
      December 31, 2006, $1.9 million, or 2.8% of our total loan portfolio consisted
      of commercial real estate loans secured by mixed use properties (properties
      combining residential and commercial space), office buildings and other
      commercial properties. We have generally originated adjustable rate commercial
      real estate loans with interest rates that adjust every five years based upon
      the five year Federal Home Loan Bank of New York advance rate, and which
      amortize over periods up to 25 years. The maximum loan-to-value ratio of our
      commercial real estate loans is 75%. We expanded our product base in December
      of
      2006 to offer commercial real estate loans with three and five year interest
      rate adjustments with rates tied to either the Wall Street Journal Prime Rate
      or
      the three or five year treasury securities, which amortize over periods up
      to 20
      years. We also introduced fixed rate commercial real estate loans with maximum
      amortized terms of 15 years and a limited Interest Only Mortgage with rates
      adjusting every 6 months tied to the Wall Street Journal Prime, with a maximum
      amortized term of 10 years and a maximum loan to value ratio of 60%. At December
      31, 2006, we had 10 commercial real estate loans with an average outstanding
      balance of $191,000. At December 31, 2006, our largest loan secured by
      commercial real estate consisted of a $366,000 loan secured by a restaurant.
      At
      December 31, 2006, except for one loan, all of our loans secured by commercial
      real estate were performing in accordance with their terms. One loan with a
      balance of $117,000 was over 90 days delinquent at December 31, 2006 and has
      been habitually slow in payments during 2006. Management does not anticipate
      any
      loss on this loan because the loan is well collateralized by the property’s
      value, which management believes has increased since the property was appraised
      at $1.0 million at the time the loan was granted in 1998. **** The
      property is presently under **** contract
      to sell. **** All
      commercial real estate loans are secured by properties located within Northern
      New Jersey.




6




Loans
      secured by multi-family real estate (other than mixed use properties listed
      above) totaled approximately $857,000 or 1.27%, of the total loan portfolio
      at
      December 31, 2006. Multi-family real estate loans generally are secured by
      rental properties, including walk-up apartments. At December 31, 2006, we had
      4
      multi-family loans with an average principal balance of $214,000, and the
      largest multi-family real estate loan had a principal balance of $579,000.
      Two
      of our multi-family loans represent participation interests in loans originated
      by the New Jersey Thrift Institutions Community Investment Corporation. These
      participation interests are secured by low and moderate income multi-family
      properties located in Wayne Township and in Paterson, New Jersey. As of December
      31, 2006, all of our loans secured by multi-family real estate loans were
      performing in accordance with their terms. Multi-family real estate loans
      generally are offered with interest rates that adjust after three to five years
      and are tied to either the FHLB of New York advance rate, the Prime Rate as
      published in the Wall Street Journal or the three or five year treasury
      securities. Adjustable rate multi-family loans are originated for terms of
      up to
      20 to 25 years, and fixed rate multi-family loans are originated on a limited
      basis and are for terms up to 15 years.





We
      consider a number of factors in originating commercial and multi-family real
      estate loans. We evaluate the qualifications and financial condition of the
      borrower (including credit history), profitability and expertise, as well as
      the
      value and condition of the mortgaged property securing the loan. When evaluating
      the qualifications of the borrower, we consider the financial resources of
      the
      borrower, the borrower’s experience in owning or managing similar property and
      the borrower’s payment history with us and other financial institutions. In
      evaluating the property securing the loan, the factors we consider include
      the
      net operating income of the mortgaged property before debt service and
      depreciation, the debt service coverage ratio (the ratio of net operating income
      to debt service) to ensure that it is at least 130% of the monthly debt service,
      and the ratio of the loan amount to the appraised value of the mortgaged
      property. Commercial and multi-family real estate loans are originated in
      amounts up to 75% of the appraised value of the mortgaged property securing
      the
      loan. All commercial and multi-family real estate loans are appraised by outside
      independent appraisers approved by the board of directors. Personal guarantees
      are often obtained from commercial and multi-family real estate borrowers.
      We
      generally do not originate commercial and multi-family real estate loans secured
      by industrial properties.





Loans
      secured by commercial and multi-family real estate generally are larger than
      one- to four-family residential loans and involve greater credit risk.
      Commercial and multi-family real estate loans often involve large loan balances
      to single borrowers or groups of related borrowers. Repayment of these loans
      depends to a large degree on the results of operations and management of the
      properties securing the loans or the businesses conducted on such property,
      and
      may be affected to a greater extent by adverse conditions in the real estate
      market or the economy in general. Accordingly, the nature of these loans makes
      them more difficult for management to monitor and evaluate.





***Consumer
      Loans.*** We
      are
      authorized to make loans for a variety of personal and consumer purposes. As
      of
      December 31, 2006, consumer loans totaled $20.6 million, or 30.5% of our total
      loan portfolio. Our consumer loans consist primarily of home equity loans and
      home equity lines of credit. Our procedure for underwriting consumer loans
      includes an assessment of the applicant’s credit history and ability to meet
      existing obligations and payments of the proposed loan, as well as an evaluation
      of the value of the collateral security, if any.





The
      largest component of our consumer loans consists of home equity loans and home
      equity lines of credit which totaled $19.8 million, or 29.3% of our total loan
      portfolio, as of December 31, 2006. Home equity loans and home equity lines
      of
      credit are generally made for owner-occupied homes, and are secured by first
      or
      second mortgages on residences. Home equity loans may have a term of up to
      20
      years, and are originated at a fixed rate of interest. Home equity lines of
      credit are revolving lines of credit and have adjustable rates of interest.
      We
      offer home equity loans and lines of credit up to $350,000. At December 31,
      2006, our home equity loans had an average balance of $75,000 and our home
      equity lines of credit had an average credit limit of $50,000. Generally home
      equity loans and lines of credit have a maximum loan to value ratio of 80%
      (including any senior lien on the collateral property), although we will
      originate such loans with a loan-to-value ratio up to 89% within our community
      reinvestment designated area, provided Lincoln Park Savings has the first lien
      on the property securing the loan. We currently offer home equity lines of
      credit for a period of up to 20 years, and generally at rates tied to the prime
      interest rate as published in *The
      Wall Street Journal* .




7




Automobile
      loans accounted for $218,000 of our consumer loans at December 31, 2006. Our
      automobile loans generally have terms that do not exceed five **** years
      and
      carry a fixed rate of interest. Generally, automobile loans are made in amounts
      up to 85% of the purchase price on new vehicles, and up to 80% of the National
      Automobile Dealers Association retail value on used vehicles. Collision and
      comprehensive insurance is required on all automobile loans. We require a lien
      on the title to the vehicle securing the loan.





We
      make
      loans secured by deposit accounts up to 90% of the amount of the available
      deposit balance. We also make personal loans and overdraft lines of credit
      that
      are not secured by any collateral. We have the authority to make other consumer
      loans that may or may not be secured.





Consumer
      loans generally entail greater risk than residential loans, particularly in
      the
      case of loans that are unsecured or are secured by assets that tend to
      depreciate in value, such as automobiles. In these cases, repossessed collateral
      for a defaulted consumer loan may not provide an adequate source of repayment
      for the outstanding loan, and the remaining value often does not warrant further
      substantial collection efforts against the borrower.





***Construction
      Loans*** **.** At
      December 31, 2006, we had no construction loans. At December 31, 2006, we had
      $437,000 in land loans. We currently offer adjustable-rate and fixed-rate
      residential construction loans for the construction of owner-occupied,
      single-family residences. **** These
      loans generally are offered to borrowers who have a contract for construction
      of
      a single family residence on property they own at the time of the loan
      origination. Construction loans generally have terms of nine months to one
      year,
      but typically are structured to become permanent mortgage loans once
      construction is completed. During the construction period, construction loans
      require the payment of interest only. Construction loans will generally be
      made
      in amounts up to 80% of the appraisal value of the property. Funds are disbursed
      in accordance with a schedule reflecting the completion of portions of the
      project.





Construction
      loans generally have greater credit risk than one- to four-family residential
      mortgage loans. The risk of loss on a construction loan depends upon the
      accuracy of the initial estimate of the value of the property at completion
      of
      construction compared to the estimated cost of construction. If the estimated
      cost of construction is inaccurate, we may have to advance funds beyond the
      original amount committed in order to protect the value of the
      property.





***Other
      Loans.*** **** We
      have
      authority to make secured and unsecured commercial business loans, and have
      closed one commercial line of credit to a local small business for $250,000.
      No
      advances were drawn to date and the account remains at a zero balance. We
      anticipate that commercial business lines of credit, as well as other commercial
      business loans, will grow over the next several years as we increase our
      marketing of these products .





***Origination
      and Servicing of Loans.*** Loan
      origination activities are concentrated in our primary market area of Morris
      and
      Passaic Counties, New Jersey. New loans are generated primarily from walk-in
      customers, customer referrals, and other parties with whom we do business,
      and
      from the efforts of directors and employees and advertising. Loan applications
      are underwritten and processed at our main office. We service all loans that
      we
      originate.




We
      have
      not been an active purchaser or seller of loans. In 2003, we sold a
      participation interest in a portion of a loan where the total loan principal
      exceeded our loans to one borrower limit. We retained the servicing of the
      loan.
      Similarly, we will occasionally purchase a participation interest in loans
      originated by other financial institutions.




8




The
      following table shows our loan origination purchases, sales and repayment
      activities for the periods indicated.




**Years Ended December 31,****2006**
            
            **2005****(In
                Thousands)**Beginning
                of period
            
            $
            66,383
            
            $
            57,154Originations
                by Type:Real
                estate mortgage:One-
                to four-family
            
            
            7,425
            
            
            9,988Multi-family
            
            
            585
            
            
            —Commercial
            
            
            555
            
            
            862Construction
            
            
            —
            
            
            —Consumer:Passbook
                or certificate
            
            
            12
            
            
            17Home
                equity lines of credit
            
            
            5,928
            
            
            6,574Home
                equity
            
            
            4,503
            
            
            7,170Automobile
            
            
            86
            
            
            225Personal
                secured/unsecured
            
            
            872
            
            
            179Overdraft
                line of credit
            
            
            97
            
            
            6Total
                loans originated
            
            
            20,063
            
            
            25,021Purchases:Total
                purchases
            
            
            —
            
            
            —Sales:Total
                sales
            
            
            —
            
            
            —Principal
                repayments
            
            
            18,973
            
            
            15,824Total
                reductions
            
            
            18,973
            
            
            15,824Increase
                in other items, net
            
            
            (22
            )
            
            32Net
                increase
            
            
            1,068
            
            
            9,229Ending
                balance
            
            $
            67,451
            
            $
            66,383





***Loan
      Approval Procedures and Authority*** .
      The
      loan approval process is intended to assess the borrower’s ability to repay the
      loan, the viability of the loan, and the adequacy of the value of the property
      that will secure the loan. To assess the borrower’s ability to repay, we review
      the employment and credit history and information on the historical and
      projected income and expenses of mortgagors. All loans up to $200,000 may be
      approved by certain of our officers pursuant to delegated loan approval
      authority or by our Loan Committee. Our Loan Committee consists of two
      directors, the President, and the Vice President of Lending. The President
      and/or one Director and Vice President of Lending have a combined lending
      authority up to $100,000. The Vice President of Lending and an Assistant Vice
      President have a combined lending authority of up to $50,000. Three of the
      four
      members of the Loan Committee may approve loans up to $200,000. All loans in
      excess of $200,000 must be approved by the board of directors. In addition,
      the
      board of directors ratifies all loans approved by management.




We
      require appraisals of all real property securing loans. Appraisals are performed
      by independent licensed appraisers. All appraisers are approved by the board
      of
      directors annually. We require fire and extended coverage insurance in amounts
      at least equal to the principal amount of the loan.




**Non-performing
      and Problem Assets**




Lincoln
      Park Savings commences collection efforts when a loan becomes 11 days past
      due
      with system generated reminder notices. Subsequent late charge and delinquent
      notices are issued and the account is monitored on a regular basis thereafter.
      Personal, direct contact with the borrower is attempted early in the collection
      process as a courtesy reminder and later to determine the reason for the
      delinquency and to safeguard Lincoln Park Savings’ collateral. When a loan is
      more than 60 days past due, the credit file is reviewed and, if deemed
      necessary, information is updated or confirmed and collateral re-evaluated.
      We
      make every effort to contact the borrower and develop a plan of repayment to
      cure the delinquency. All loans 30 days past due and greater are reported to
      the
      board of directors. Upon direction of the board of directors, if no repayment
      plan is in process, the file is referred to counsel for the commencement of
      foreclosure or other collection efforts.




9




Loans
      are
      placed on non-accrual status when they are contractually 90 days or more
      delinquent. When loans are placed on non-accrual status, unpaid accrued interest
      is fully reserved, and further income is recognized only to the extent received.
      Loans are removed from non-accrual status when their delinquency status is
      reduced to less than 90 days.




***Non-performing
      Loans.*** ** At
      December 31, 2006, $158,000 or .23 % of our total loans were non-performing
      loans.




***Non-performing
      Assets*** .
      The
      table below sets forth the amounts and categories of our non-performing assets
      at the dates indicated. Delinquent loans that are 90 days or more past due
      are
      generally considered non-performing assets. During the periods presented, we
      did
      not have any troubled debt restructurings.




**At
                December 31,****2006**
            
            **2005**Non-accruing
                loans:
            
            **(Dollars
                in Thousands)**One-
                to four-family
            
            $
            41
            
            $
            279Multi-family
            
            
            —
            
            
            —Commercial
                real estate
            
            
            117
            
            
            —Construction
            
            
            —
            
            
            —Consumer
                - Home equity loans
            
            
            —
            
            
            —Total
            
            
            158
            
            
            279Accruing
                loans delinquent 90 days or more:One-
                to four-family
            
            
            —
            
            
            —Multi-family
            
            
            —
            
            
            —Commercial
                real estate
            
            
            —
            
            
            —Construction
            
            
            3⁄4
            
            
            3⁄4Consumer
                - Passbook or Certificate
            
            
            3⁄4
            
            
            3⁄4Total
            
            
            3⁄4
            
            
            3⁄4Foreclosed
                assets
            
            
            —
            
            
            —Total
                non-performing assets
            
            $
            158
            
            $
            279Total
                as a percentage of total assets
            
            
            .17
            %
            
            0.30
            %Total
                as a percent of total loans
            
            
            .23
            %
            
            0.42
            %Allowance
                for loan loss related to non-performing loans
            
            $
            1
            
            $
            27






For
        the
        years ended December 31, 2006 and 2005, gross interest income which would
        have
        been recorded had our non-accruing loans been current in accordance with
        their
        original terms amounted to approximately $17,000 and $13,000, respectively.
        Interest income recognized on these loans for the years ended December 31,
        2006
        and 2005, was approximately $15,000 and $11,000, respectively.


***Other
      Loans of Concern.*** At
      December 31, 2006, we had three single-family loans with an aggregate balance
      of
      $457,000 , with respect to which known information about the possible credit
      problems of the borrowers or the cash flows of the security properties have
      caused management to have some doubts as to the ability of the borrowers to
      comply with repayment terms of the loans and which may result in such loans
      being classified as non-performing. These loans are placed on Lincoln Park
      Savings’ watch list and are closely monitored.




10





***Delinquent
      Loans*** .
      The
      following table sets forth our loan delinquencies by type, by amount and by
      percentage of type at the dates indicated.





**At
                December 31, 2006**
            
            **At
                December 31, 2005****60-89
                Days**
            
            **90
                Days or More**
            
            **60-89
                Days**
            
            **90
                Days or More**Number
              of
                Loans
            
            Principal
              Balance
              of
                Loans
            
            Number
              of
                Loans
            
            Principal
              Balance
              of
                Loans
            
            Number
              of
                Loans
            
            Principal
              Balance
              of
                Loans
            
            Number
              of
                Loans
            
            Principal
              Balance
              of
                Loans**(Dollars
                in Thousands)**Real
                estate mortgage:One-
                to four-family
            
            
            1
            
            $
            205
            
            
            1
            
            $
            41
            
            
            —
            
            $
            —
            
            
            2
            
            $
            279Multi-
                family
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Commercial
            
            
            —
            
            
            —
            
            
            1
            
            
            117
            
            
            —
            
            
            —
            
            
            —
            
            
            —Construction
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
                real estate loans
            
            
            1
            
            
            205
            
            
            2
            
            
            158
            
            
            —
            
            
            —
            
            
            2
            
            
            279Consumer:Passbook
                or certificate
            
            
            1
            
            
            7
            
            
            3⁄4
            
            
            3⁄4
            
            
            —
            
            
            —
            
            
            3⁄4
            
            
            3⁄4Home
                equity lines of credit
            
            
            3⁄4
            
            
            3⁄4
            
            
            —
            
            
            —
            
            
            1
            
            
            22
            
            
            —
            
            
            —Home
                equity
            
            
            1
            
            
            75
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Automobile
            
            
            3⁄4
            
            
            3⁄4
            
            
            —
            
            
            —
            
            
            1
            
            
            7
            
            
            —
            
            
            —Personal
                unsecured
            
            
            3⁄4
            
            
            3⁄4
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Overdraft
                line of credit
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
                other loans
            
            
            2
            
            
            82
            
            
            3⁄4
            
            
            3⁄4
            
            
            2
            
            
            29
            
            
            3⁄4
            
            
            3⁄4Total
                delinquent loans
            
            
            3
            
            $
            287
            
            
            2
            
            $
            158
            
            
            2
            
            $
            29
            
            
            2
            
            $
            279Delinquent
                loans to total loans
            
            
            
            
            
            .43
            %
            
            
            
            
            .23
            %
            
            
            
            
            .04
            %
            
            
            
            
            0.42
            %




11





***Classified
      Assets.*** ** Federal
      and state regulations and our Asset Classification Policy provide that loans
      and
      other assets of lesser quality should be classified as “substandard,” “doubtful”
or “loss” assets. An asset is considered “substandard” if it is inadequately
      protected by the current net worth and paying capacity of the obligor or of
      the
      collateral pledged, if any. “Substandard” assets include those characterized by
      the “distinct possibility” that we will sustain “some loss” if the deficiencies
      are not corrected. Assets classified as “doubtful” have all of the weaknesses
      inherent in those classified “substandard,” with the added characteristic that
      the weaknesses present make “collection or liquidation in full,” on the basis of
      currently existing facts, conditions, and values, “highly questionable and
      improbable.” Assets classified as “loss” are those considered “uncollectible”
and of such little value that their continuance as assets without the
      establishment of a specific loss reserve is not warranted. We classify an asset
      as “special mention” if the asset has a potential weakness that warrants
      management’s close attention. While such assets are not impaired, management has
      concluded that if the potential weakness in the asset is not addressed, the
      value of the asset may deteriorate, adversely affecting the repayment of the
      asset.





We
      are
      required to establish general allowances for loan losses in an amount deemed
      prudent by management for loans classified substandard or doubtful, as well
      as
      for other problem loans. General allowances represent loss allowances which
      have
      been established to recognize the inherent losses associated with lending
      activities, but which, unlike specific allowances, have not been allocated
      to
      particular problem assets. When we classify problem assets as “loss,” we are
      required either to establish a specific allowance for losses equal to 100%
      of
      the amount of the asset so classified or to charge off such amount. Our
      determination as to the classification of our assets and the amount of our
      valuation allowances is subject to review by federal and state regulators which
      can order the establishment of additional general or specific loss
      allowances.





On
      the
      basis of management’s review of our assets, at December 31, 2006 we had
      classified assets totaling $414,000, consisting of $401,000 classified as
      substandard and $13,000 classified as doubtful. The substandard assets consist
      of 2 non-accrual loans totaling $158,000, one secured by single-family
      residential property and the second one secured by commercial property and
      a
      corporate bond that has sub-investment grade rating. The $13,000 market
      depreciation portion of the corporate bond is classified as doubtful, while
      the
      $243,000 remaining portion of the corporate bond is classified as substandard.
      The corporate bond will mature in January 2011 and has not yet missed an
      interest payment. Management expects the corporate bond to be paid in full
      upon
      maturity. At December 31, 2006, none of our assets were classified as loss. ****





At
      December 31, 2006, we had classified $457,000 of our mortgage and consumer
      loans
      as special mention. These loans consist of three mortgage loans secured by
      single-family residential properties.





The
      loan
      portfolio is reviewed on a regular basis to determine whether any loans require
      classification in accordance with applicable regulations. Not all classified
      assets constitute non-performing assets.





**Allowance
      for Loan Losses**





Our
      allowance for loan losses is maintained at a level necessary to absorb loan
      losses which are both probable and reasonably estimable. Management, in
      determining the allowance for loan losses, considers the losses inherent in
      its
      loan portfolio and changes in the nature and volume of loan activities, along
      with general economic and real estate market conditions. We utilize a two-tier
      approach: (1) identification of impaired loans and establishment of specific
      loss allowances on such loans; and (2) establishment of general valuation
      allowances on the remainder of our loan portfolio. We maintain a loan review
      system, which allows for a periodic review of our loan portfolio and the early
      identification of potential impaired loans. Such system takes into
      consideration, among other things, delinquency status, size of loans, type
      and
      market value of collateral and financial condition of the borrowers. Specific
      loan loss allowances are established for identified losses based on a review
      of
      such information. A loan evaluated for impairment is considered to be impaired
      when, based on current information and events, it is probable that we will
      be
      unable to collect all amounts due according to the contractual terms of the
      loan
      agreement. All loans identified as impaired are evaluated independently. We
      do
      not aggregate such loans for evaluation purposes. Loan impairment is measured
      based on the present value of expected future cash flows discounted at the
      loan’s effective interest rate or, as a practical expedient, at the loan’s
      observable market price or the fair value of the collateral if the loan is
      collateral dependent. General loan loss allowances are based upon a combination
      of factors including, but not limited to, actual loan loss experience,
      composition of the loan portfolio, current economic conditions and management’s
      judgment. The allowance is increased through provisions charged against current
      earnings and recoveries of previously charged-off loans. Loans which are
      determined to be uncollectible are charged against the allowance. While
      management uses available information to recognize probable and reasonably
      estimable loan losses, future loss provisions may be necessary based on changing
      economic conditions. Payments received on impaired loans are applied first
      to
      accrued interest receivable and then to principal. The allowance for loan losses
      as of December 31, 2006 is maintained at a level that represents management’s
      best estimate of losses inherent in the loan portfolio, and such losses were
      both probable and reasonably estimable. This estimation is inherently subjective
      as it requires estimates and assumptions that are susceptible to significant
      revisions as more information becomes available. Although we believe that we
      have established the allowance at a level to absorb probable and estimable
      losses, future additions to the allowance for loan losses may be necessary
      if
      economic and other conditions in the future differ substantially from the
      current operating environment.





12


In
      addition, federal and state regulators, as an integral part of their examination
      process, periodically review our allowance for loan losses. Such agencies may
      require that we recognize additions to the allowance based on their judgments
      of
      information available to them at the time of their examination.





***Allowance
      for Loan Losses*** **.** The
      following table analyzes changes in the allowance for the periods presented.
      We
      had no recoveries during the periods presented.





**At
                or For the**
              **Years
                Ended December 31,****2006**
            
            **2005****(Dollars
                in Thousands)**Balance
                at beginning of period
            
            $
            159
            
            $
            156Total
                charge-offs
            
            
            (1
            )
            
            (4
            )Total
                recoveries
            
            
            —
            
            
            1Net
                charge-offs
            
            
            (1
            )
            
            (3
            )Provision
                (credited) charged to operations
            
            
            (22
            )
            
            6Ending
                balance
            
            $
            136
            
            $
            159Ratio
                of non-performing assets to total assets at the end of
                period
            
            
            0.17
            %
            
            0.30
            %Ratio
                of net charge-offs during the period to loans outstanding during
                the
                period
            
            
            0.00
            %
            
            0.01
            %Ratio
                of net charge-offs during the period to non-performing
                assets
            
            
            0.07
            %
            
            0.38
            %




13


***Allocation
      of Allowance for Loan Losses.*** ** The
      following table presents an analysis of the allocation of the allowance for
      loan
      losses at the dates indicated. The allocation of the allowance to each category
      is not necessarily indicative of future loss in any particular category and
      does
      not restrict the use of the allowance to absorb losses in other
      categories.





**At
                December 31,****2006**
            
            **2005****Amount
                of Loan Loss Allowance**
            
            **Loan
                Amounts by Category**
            
            **Percent**
              **of
                Loans**
              **in
                Each**
              **Category**
              **to
                Total**
              **Loans**
            
            **Amount
                of Loan Loss Allowance**
            
            **Loan
                Amounts by Category**
            
            **Percent**
              **of
                Loans**
              **in
                Each**
              **Category**
              **to
                Total**
              **Loans****(Dollars
                in Thousands)**Real
                estate mortgage:One-
                to four-family
            
            $
            66
            
            $
            44,096
            
            
            65.38
            %
            $
            87
            
            $
            42,449
            
            
            63.92
            %Multi-
                family
            
            
            4
            
            
            857
            
            
            1.27
            
            
            2
            
            
            303
            
            
            0.46Commercial
            
            
            10
            
            
            1,913
            
            
            2.84
            
            
            12
            
            
            2,415
            
            
            3.64Construction
            
            
            —
            
            
            —
            
            
            0.00
            
            
            3
            
            
            629
            
            
            0.95Consumer:Passbook
                or certificate
            
            
            —
            
            
            59
            
            
            0.09
            
            
            —
            
            
            73
            
            
            0.11Home
                equity
            
            
            36
            
            
            14,489
            
            
            21.49
            
            
            34
            
            
            13,464
            
            
            20.27Home
                equity lines of credit
            
            
            13
            
            
            5,304
            
            
            7.86
            
            
            17
            
            
            6,599
            
            
            9.94Automobile
            
            
            2
            
            
            218
            
            
            0.32
            
            
            2
            
            
            255
            
            
            0.38Personal
                secured/unsecured
            
            
            5
            
            
            482
            
            
            0.71
            
            
            2
            
            
            200
            
            
            0.30Overdraft
                line of credit
            
            
            —
            
            
            27
            
            
            0.04
            
            
            —
            
            
            22
            
            
            0.03Total
            
            $
            136
            
            $
            67,445
            
            
            100.00
            %
            $
            159
            
            $
            66,409
            
            
            100.00
            %





Each
      quarter, management evaluates the total balance of the allowance for loan losses
      based on several factors that are not loan specific, but are reflective of
      the
      inherent losses in the loan portfolio. This process includes, but is not limited
      to, a periodic review of loan collectibility in light of historical experience,
      the nature and volume of loan activity, conditions that may affect the ability
      of the borrower to repay, the underlying value of collateral, if applicable,
      and
      economic conditions in our immediate market area. First, we group loans by
      delinquency status. All loans 90 days or more delinquent are evaluated
      individually, based primarily on the value of the collateral securing the loan.
      Specific loss allowances are established as required by this analysis. All
      loans
      for which a specific loss allowance has not been assigned are segregated by
      type
      and a loss allowance is established by using loss experience data and
      management’s judgment concerning other matters it considers significant. The
      allowance is allocated to each category of loan based on the results of the
      above analysis.





**Investments**





Our
      investment portfolio at December 31, 2006 consisted of $17.6 million in United
      States Government agency securities, $1.2 million of corporate bonds, $913,000
      of municipal bonds, $1.1 million in mortgage-backed securities and $151,000
      in
      equity securities, $1.1 million in Federal Home Loan Bank of New York stock
      and $1.6 million in other interest-earning assets, consisting of regular and
      term deposits at other financial institutions. Our investment policy objectives
      are to maintain liquidity within the guidelines established by the board of
      directors. Our policy is to invest only in securities with an investment grade
      rating at the time of purchase. In addition, the market value of all securities
      and the credit rating of all non-U.S. Government issues are monitored monthly
      to
      determine whether any other than temporary losses exist.





Although
      corporate bonds may offer higher yields than U.S. Government or agency
      securities of comparable duration, corporate bonds also have a higher risk
      of
      default due to possible adverse changes in the credit-worthiness of the issuer.
      At December 31, 2006, one of our corporate bonds in the aggregate amount of
      $256,000 had been downgraded to non-investment grade ratings. This corporate
      bond will mature in January 2011 and has not yet missed an interest payment.
      Management expects this corporate bond to be paid in full upon maturity.





14


All
      of
      our $17.6 million of U.S. Government agency securities at December 31, 2006
      were
“step-up” securities. These securities require the issuer to pay increased
      interest rates in the future according to pre-determined schedules and formulas.
      Our portfolio currently contains securities that provide for various interest
      rate increases at various repricing intervals. At December 31, 2006, the
      repricing periods ranged from every year to every five years, and the interest
      rate adjustments ranged from 1/4 of 1% per adjustment to 4% per adjustment.
      In
      addition, these securities are callable at the option of the issuers. Although
      designed to protect the investor in a rising rate environment, the rate
      increases on these securities may not keep pace with rising interest rates
      in a
      rapidly rising interest rate environment. In addition, because of the call
      feature, the securities may be called by the issuer at a time when Lincoln
      Park
      Savings is not able to reinvest the proceeds of the called security at a rate
      comparable to what it was earning on the security.





We
      also
      invest in mortgage-backed securities, all of which are guaranteed by the United
      States Government or agencies or government sponsored enterprises. At December
      31, 2006, our mortgage-backed securities portfolio totaled $1.1 million, or
      1.1%
      of total assets, and consisted of $811,000 in fixed-rate securities, and
      $254,000 in adjustable rate securities guaranteed by Ginnie Mae, Fannie Mae
      or
      Freddie Mac.





The
      following table sets forth the carrying value of our securities portfolio at
      the
      dates indicated. The carrying value represents fair value for available for
      sale
      securities, and amortized cost for held to maturity securities.





**At
                December 31,****2006**
            
            **2005****Book
                Value**
            
            **%
                of Total**
            
            **Book
                Value**
            
            **%
                of Total****(Dollars
                in Thousands)**Investment
                securities available for sale:U.S.
                Government agencies
            
            $
            1,962
            
            
            8.31
            %
            $
            2,458
            
            
            10.09
            %Corporate
                bonds
            
            
            —
            
            
            —
            
            
            —
            
            
            —Municipal
                bonds
            
            
            347
            
            
            1.47
            
            
            350
            
            
            1.44Mortgage-backed
                securities
            
            
            84
            
            
            0.36
            
            
            114
            
            
            0.47Collateralized
                mortgage obligations
            
            
            —
            
            
            —
            
            
            —
            
            
            —Equity
                Securities
            
            
            181
            
            
            0.77
            
            
            80
            
            
            0.33Total
            
            
            2,574
            
            
            10.91
            
            
            3,002
            
            
            12.33Investment
                securities held to maturity:U.S.
                Government agencies
            
            
            15,633
            
            
            66.25
            
            
            15,132
            
            
            62.14Corporate
                bonds
            
            
            1,155
            
            
            4.90
            
            
            1,840
            
            
            7.56Municipal
                bonds
            
            
            566
            
            
            2.40
            
            
            591
            
            
            2.43Mortgage-backed
                securities
            
            
            981
            
            
            4.16
            
            
            1,254
            
            
            5.15Collateralized
                mortgage obligations
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
            
            
            18,335
            
            
            77.71
            
            
            18,817
            
            
            77.27Other
                interest-earning assets:Interest-earning
                deposits
            
            
            1,372
            
            
            5.81
            
            
            688
            
            
            2.83Federal
                funds sold
            
            
            —
            
            
            —
            
            
            —
            
            
            —Term
                deposits
            
            
            190
            
            
            0.81
            
            
            581
            
            
            2.39FHLB
                stock
            
            
            1,122
            
            
            4.76
            
            
            1,265
            
            
            5.192,684
            
            
            11.38
            
            
            2,534
            
            
            10.41Total
            
            $
            23,593
            
            
            100.00
            %
            $
            24,353
            
            
            100.00
            %





15


The
      following table sets forth the composition of our mortgage-backed securities
      at
      the dates indicated.





**At
                December 31,****2006**
            
            **2005****Book
                Value**
            
            **%
                of Total**
            
            **Book
                Value**
            
            **%
                of Total****(Dollars
                in Thousands)**Mortgage-backed
                securities held to maturity:Ginnie
                Mae
            
            $
            474
            
            
            48.32
            %
            $
            629
            
            
            50.16
            %Freddie
                Mac
            
            
            16
            
            
            1.63
            
            
            23
            
            
            1.83Fannie
                Mae
            
            
            491
            
            
            50.05
            
            
            602
            
            
            48.01Total
            
            $
            981
            
            
            100.00
            %
            $
            1,254
            
            
            100.00
            %





**At
                December 31,****2006**
            
            **2005****Book
                Value**
            
            **%
                of Total**
            
            **Book
                Value**
            
            **%
                of Total****(Dollars
                in Thousands)**Mortgage-backed
                securities available for sale:Ginnie
                Mae
            
            $
            84
            
            
            100.00
            %
            $
            114
            
            
            100.00
            %Freddie
                Mac
            
            
            —
            
            
            —
            
            
            —
            
            
            —Fannie
                Mae
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
            
            $
            84
            
            
            100.00
            %
            $
            114
            
            
            100.00
            %




16


The
      composition and maturities of the investment securities portfolio as of December
      31, 2006, excluding Federal Home Loan Bank of New York stock, are indicated
      in
      the following table. Maturities are based upon on the final contractual payment
      dates, and do not reflect the impact of prepayments or early redemptions that
      may occur. State and municipal securities yields have not been adjusted to
      a
      tax-equivalent basis.





**At
                December 31, 2006**
            
            **Total
                Investment Securities****Less
                Than 1 Year**
            
            **1
                to 5 Years**
            
            **5
                to 10 Years**
            
            **Over
                10 Years****Book
                Value**
            
            **Weighted
                Average Interest Rate**
            
            **Book
                Value**
            
            **Weighted
                Average Interest Rate**
            
            **Book
                Value**
            
            **Weighted
                Average Interest Rate**
            
            **Book
                Value**
            
            **Weighted
                Average Interest Rate**
            
            **Book
                Value**
            
            **Weighted
                Average Interest Rate**
            
            **Market
                Value****(Dollars
                in Thousands)****Available
                for Sale:**Equity
            
            $
            151
            
            
            —
            %
            $
            —
            
            
            —
            %
            $
            —
            
            
            —
            %
            $
            —
            
            
            —
            %
            $
            151
            
            
            —
            %
            $
            181U.S.
                Government agencies
            
            
            —
            
            
            —
            
            
            500
            
            
            4.00
            
            
            500
            
            
            4.00
            
            
            1,000
            
            
            4.50
            
            
            2,000
            
            
            4.25
            
            
            1,962Corporate
                bonds
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Municipal
                bonds
            
            
            —
            
            
            —
            
            
            251
            
            
            3.63
            
            
            100
            
            
            3.35
            
            
            —
            
            
            —
            
            
            351
            
            
            3.55
            
            
            347Mortgage-backed
                securities
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            83
            
            
            5.65
            
            
            83
            
            
            5.65
            
            
            84Total
                available for sale
            
            $
            151
            %
            
            
            %
            $
            751
            
            
            3.88
            %
            $
            600
            
            
            4.00
            %
            $
            1,083
            
            
            4.59
            %
            $
            2,585
            
            
            3.95
            %
            $
            2,574**Held
                to Maturity:**U.S.
                Government agencies
            
            $
            —
            
            
            —
            %
            $
            500
            
            
            4.00
            %
            $
            4,350
            
            
            4.23
            %
            $
            10,783
            
            
            4.82
            %
            $
            15,633
            
            
            4.63
            %
            $
            15,239Corporate
                bonds
            
            
            100
            
            
            6.00
            
            
            355
            
            
            6.86
            
            
            200
            
            
            5.25
            
            
            500
            
            
            4.63
            
            
            1,155
            
            
            5.54
            
            
            1,116Municipal
                bonds
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            566
            
            
            4.16
            
            
            566
            
            
            4.16
            
            
            569Mortgage-backed
                securities
            
            
            —
            
            
            —
            
            
            2
            
            
            7.49
            
            
            5
            
            
            8.75
            
            
            974
            
            
            5.87
            
            
            981
            
            
            5.88
            
            
            966Total
                held to maturity
            
            $
            100
            
            
            6.00
            %
            $
            857
            
            
            5.19
            %
            $
            4,555
            
            
            4.28
            %
            $
            12,823
            
            
            5.00
            %
            $
            18,335
            
            
            5.00
            %
            $
            17,890Total
                securities
            
            $
            251
            
            
            2.39
            %
            $
            1,608
            
            
            4.58
            %
            $
            5,155
            
            
            4.25
            %
            $
            13,906
            
            
            4.97
            %
            $
            20,920
            
            
            4.87
            %
            $
            20,464




17




The
      following table shows securities purchase, sale and repayment activities of
      Lincoln Park Savings for the periods indicated.





**Years
                Ended December 31,****2006**
            
            **2005****(In
                Thousands)****Available
                for Sale:****Purchases****:**Adjustable-rate
            
            $
            
            
            $Fixed-rate
            
            
            87
            
            
            78Total
                purchases
            
            
            87
            
            
            78**Sales****:**Adjustable-rate
            
            
            —
            
            
            —Fixed-rate
            
            
            (24
            )
            
            —Total
                sales
            
            
            (24
            )
            
            —Principal
                repayments
            
            
            (530
            )
            
            (1,346
            )Other
                items, net
            
            
            38
            
            
            (46
            )Net
                increase (decrease)
            
            $
            (429
            )
            $
            (1,314
            )





**Years
                Ended December 31,****2006**
            
            **2005****(In
                Thousands)****Held
                to Maturity:****Purchases****:**Adjustable-rate
            
            $
            —
            
            $
            3,860Fixed-rate
            
            
            1,000
            
            
            100Total
                purchases
            
            
            1,000
            
            
            3,960**Sales****:**Adjustable-rate
            
            
            —
            
            
            —Fixed-rate
            
            
            —
            
            
            —Total
                sales
            
            
            —
            
            
            —Principal
                repayments
            
            
            (1,482
            )
            
            (2,177
            )Other
                items, net
            
            
            —
            
            
            (9
            )Net
                increase (decrease)
            
            $
            (482
            )
            $
            1,774





**Sources
      of Funds**





***General.*** Deposits
      have traditionally been the primary source of funds for use in lending and
      investment activities. We also use borrowings, primarily FHLB advances, to
      supplement cash flow needs, lengthen the maturities of liabilities for interest
      rate risk purposes and to manage the cost of funds. In addition, funds are
      derived from scheduled loan payments, investment maturities, loan prepayments,
      retained earnings and income on earning assets. While scheduled loan payments
      and income on earning assets are relatively stable sources of funds, deposit
      inflows and outflows can vary widely and are influenced by prevailing interest
      rates, market conditions and levels of competition.





***Deposits.*** ** Our
      deposits are generated primarily from residents within our primary market area.
      We offer a selection of deposit instruments, including demand deposits
      consisting of non-interest bearing and NOW accounts, passbook savings, statement
      savings and club accounts, and fixed-term certificates of deposit. Deposit
      account terms vary, with the principal differences being the minimum balance
      required, the amount of time the funds must remain on deposit and the interest
      rate. We do not accept brokered deposits.





Interest
      rates paid, maturity terms, service fees and withdrawal penalties are
      established on a periodic basis. Deposit rates and terms are based primarily
      on
      current operating strategies and market rates, liquidity requirements, rates
      paid by competitors and growth goals. Personalized customer service and
      long-standing relationships with customers are relied upon to attract and retain
      deposits.





18


The
      flow
      of deposits is influenced significantly by general economic conditions, changes
      in money market and other prevailing interest rates and competition. The variety
      of deposit accounts offered allows us to be competitive in obtaining funds
      and
      responding to changes in consumer demand. Based on experience, we believe that
      our deposits are relatively stable. However, the ability to attract and maintain
      deposits, and the rates paid on these deposits, have been and will continue
      to
      be significantly affected by market conditions. At December 31, 2006, $32.8
      million, or 56.7% of our deposit accounts were certificates of deposit, of
      which
      $28.3 million have maturities of one year or less.





***Deposits*** .
      The
      following table sets forth the dollar amount of deposits in the various types
      of
      deposit programs we offered as of the dates indicated.





**At
                December 31,****2006**
            
            **2005****Balance**
            
            **Percent**
            
            **Weighted
                Average Rate**
            
            **Balance**
            
            **Percent**
            
            **Weighted
                Average Rate****(Dollars
                in Thousands)**Non-interest-bearing
                demand
            
            $
            769
            
            
            1.33
            %
            
            —
            %
            $
            750
            
            
            1.38
            %
            
            —
            %Interest-bearingdemand
            
            
            11,087
            
            
            19.17
            
            
            2.13
            
            
            11,556
            
            
            21.26
            
            
            1.05Savings
                and club
            
            
            13,182
            
            
            22.79
            
            
            1.01
            
            
            15,711
            
            
            28.90
            
            
            1.00Certificate
                of deposit
            
            
            32,806
            
            
            56.71
            
            
            4.62
            
            
            26,350
            
            
            48.46
            
            
            3.20Total
                deposits
            
            $
            57,844
            
            
            100.00
            %
            
            3.26
            %
            $
            54,367
            
            
            100.00
            %
            
            2.06
            %





The
      following table sets forth the deposit activities for the periods
      indicated.





**Years
                Ended December 31,****2006**
            
            **2005****(Dollars
                in Thousands)**Beginning
                of period
            
            $
            54,367
            
            $
            57,216Net
                deposits increase (withdrawals)
            
            
            2,002
            
            
            (3,884
            )Interest
                credited on deposit accounts
            
            
            1,475
            
            
            1,035Ending
                balance
            
            $
            57,844
            
            $
            54,367Percent
                increase (decrease) from beginning of period
            
            
            6.40
            %
            
            (4.98
            )%





The
      following table indicates the amount of certificates of deposit as of December
      31, 2006, by time remaining until maturity.





**Three
                months or less**
            
            **Over
                three months to six months**
            
            **Over
                six months to nine months**
            
            **Over
                nine months to twelve months**
            
            **Over
                twelve months**
            
            **Total****(In
                Thousands)**Certificate
                of deposit:Less
                than $100,000
            
            $
            4,625
            
            $
            7,461
            
            $
            5,627
            
            $
            3,590
            
            $
            4,137
            
            $
            25,440$100,000
                or more
            
            
            536
            
            
            2,938
            
            
            3,138
            
            
            432
            
            
            322
            
            
            7,366Total
            
            $
            5,161
            
            $
            10,399
            
            $
            8,765
            
            $
            4,022
            
            $
            4,459
            
            $
            32,806





19





The
      following table presents, by rate category, our certificate of deposit accounts
      as of the dates indicated.




**At
                December 31,****2006**
            
            **2005****Amount**
            
            **Percent**
            
            **Amount**
            
            **Percent****(Dollars
                in Thousands)**Certificate
                of deposit rates:1.00%
                - 1.99%
            
            $
            —
            
            
            —
            %
            $
            1,126
            
            
            4.27
            %2.00%
                - 2.99%
            
            
            47
            
            
            0.14
            
            
            6,702
            
            
            25.433.00%
                - 3.99%
            
            
            7,791
            
            
            23.75
            
            
            15,868
            
            
            60.224.00%
                - 4.99%
            
            
            10,221
            
            
            31.16
            
            
            2,647
            
            
            10.055.00%
                - 5.99%
            
            
            14,747
            
            
            44.95
            
            
            7
            
            
            0.036.00%
                - 6.99%
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
            
            $
            32,806
            
            
            100.00
            %
            $
            26,350
            
            
            100.00
            %





The
      following table presents, by rate category, the remaining period to maturity
      of
      certificate of deposit accounts outstanding as of December 31,
      2006.




**Maturity
                Date****1
                Year**
              **or
                Less**
            
            **Over
                1**
              **to
                2 Years**
            
            **Over
                2**
              **to
                3 Years**
            
            **Over**
              **3
                Years**
            
            **Total****(In
                Thousands)**Interest
                rate:1.00%
                - 1.99%
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —2.00%
                - 2.99%
            
            
            47
            
            
            —
            
            
            —
            
            
            —
            
            
            473.00%
                - 3.99%
            
            
            5,847
            
            
            1.471
            
            
            473
            
            
            —
            
            
            7,7914.00%
                - 4.99%
            
            
            7,706
            
            
            1,377
            
            
            809
            
            
            329
            
            
            10,2215.00%
                - 5.99%
            
            
            14,747
            
            
            —
            
            
            —
            
            
            —
            
            
            14,7476.00%
                - 6.99%
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
            
            $
            28,347
            
            $
            2,848
            
            $
            1,282
            
            $
            329
            
            $
            32,806





***Borrowings.*** We may
      obtain advances from the Federal Home Loan Bank of New York upon the security
      of
      the common stock we own in the Federal Home Loan Bank and our qualifying
      residential mortgage loans and mortgage-backed securities, provided certain
      standards related to creditworthiness are met. These advances are made pursuant
      to several credit programs, each of which has its own interest rate and range
      of
      maturities. Federal Home Loan Bank advances are generally available to meet
      seasonal and other withdrawals of deposit accounts and to permit increased
      lending. Using FHLB advances is a significant part of our operating strategy.
      As
      of December 31, 2006, we had FHLB advances in the amount of $22.0 million,
      which
      represented 27.3% of total liabilities. As a member of the Federal Home Loan
      Bank of New York, Lincoln Park Savings can currently borrow up to approximately
      $34.6 million from the Federal Home Loan Bank.





The
      following table sets forth certain information regarding FHLB advances for
      the
      periods indicated. We had no other material borrowings during the
      periods.





**At
                or For the**
              **Years
                Ended December 31,****2006**
            
            **2005****(Dollars
                in Thousands)**Maximum
                balance:FHLB
                advances
            
            $
            27,975
            
            $
            25,534Average
                Balance:FHLB
                advances
            
            $
            25,802
            
            $
            19,815Weighted
                average interest rate:FHLB
                advances
            
            
            4.24
            %
            
            3.93
            %





20





The
      contractual maturities of FHLB advances at December 31, 2006, are as
      follows:





**Amount**
            
            **Weighted**
              **Average
                Rate****(Dollars
                in Thousands)**Within
                one year
            
            $
            6,500
            
            
            5.12
            %After
                one through five years
            
            
            13,612
            
            
            3.76After
                five through fifteen years
            
            
            1,866
            
            
            4.69Total
            
            $
            21,978
            
            
            4.24
            %





**Subsidiary
      Activities**





Lincoln
      Park Bancorp has one subsidiary, Lincoln Park Savings. Lincoln Park Savings’
wholly owned subsidiary is LPS Investment Company. LPS Investment Company was
      recently formed as an operating subsidiary of the Bank for the purpose of
      investing in stocks, bonds, mortgages, and other securities, limited to the
      types of securities in which the Bank is authorized to invest.





**Personnel**




As
      of
      December 31, 2006, we had 12 full-time employees and 8 part-time employees.
      Our
      employees are not represented by any collective bargaining group. Management
      believes that we have good relations with our employees.




**FEDERAL
      AND STATE TAXATION**




**Federal
      Taxation**




***General*** *.* Lincoln
      Park Bancorp and Lincoln Park Savings are subject to federal income taxation
      in
      the same general manner as other corporations, with some exceptions discussed
      below. Lincoln Park Savings’ tax returns have not been audited during the past
      five years. The following discussion of federal taxation is intended only to
      summarize certain pertinent federal income tax matters and is not a
      comprehensive description of the tax rules applicable to Lincoln Park Bancorp
      or
      Lincoln Park Savings.





***Method
      of Accounting*** *.* For
      federal income tax purposes, Lincoln Park Savings currently reports its income
      and expenses on the accrual method of accounting and uses a tax year ending
      December 31 for filing its federal income tax returns.





***Bad
      Debt Reserves*** *.* Prior
      to
      the Small Business Protection Act of 1996 (the “1996 Act”), Lincoln Park Savings
      was permitted to establish a reserve for bad debts and to make annual additions
      to the reserve. These additions could, within specified formula limits, be
      deducted in arriving at our taxable income. Lincoln Park Savings was required
      to
      use the specific charge-off method in computing its bad debt deduction beginning
      with its 1996 federal tax return. Savings institutions were required to
      recapture any excess reserves over those established as of December 31, 1987
      (base year reserve). Lincoln Park Savings had approximately $730,000 of reserves
      subject to recapture.





***Taxable
      Distributions and Recapture*** *.* Prior
      to
      the 1996 Act, bad debt reserves created prior to January 1, 1988 were subject
      to
      recapture into taxable income should Lincoln Park Savings fail to meet certain
      thrift asset and definitional tests. Federal legislation has eliminated these
      thrift related recapture rules.





At
      December 31, 2006, our total federal pre-1988 base year reserve was
      approximately $730,000. However, under current law, pre-1988 base year reserves
      remain subject to recapture should Lincoln Park Savings make certain
      non-dividend distributions, repurchase any of its stock, pay dividends in excess
      of tax earnings and profits, or cease to maintain a bank charter.





***Alternative
      Minimum Tax*** *.* The
      Internal Revenue Code of 1986, as amended (the “Code”) imposes an alternative
      minimum tax (“AMT”) at a rate of 20% on a base of regular taxable income plus
      certain tax preferences (“alternative minimum taxable income” or “AMTI”). The
      AMT is payable to the extent such AMTI is in excess of an exemption amount
      and
      the AMT exceeds the regular income tax. Net operating losses can offset no
      more
      than 90% of AMTI. Certain payments of alternative minimum tax may be used as
      credits against regular tax liabilities in future years. Lincoln Park Savings
      has not been subject to the alternative minimum tax and has no such amounts
      available as credits for carryover.





21


***Net
      Operating Loss Carryovers*** *.* A
      financial institution may carry back net operating losses to the preceding
      two
      taxable years and forward to the succeeding 20 taxable years. At December 31,
      2006, Lincoln Park Savings had no net operating loss carryforwards for federal
      income tax purposes.





***Corporate
      Dividends-Received Deduction*** *.* Lincoln
      Park Bancorp may exclude from its income 100% of dividends received from Lincoln
      Park Savings as a member of the same affiliated group of corporations. The
      corporate dividends-received deduction is 80% in the case of dividends received
      from corporations with which a corporate recipient does not file a consolidated
      return, and corporations which own less than 20% of the stock of a corporation
      distributing a dividend may deduct only 70% of dividends received or accrued
      on
      their behalf.





**State
      Taxation**




***New
      Jersey State Taxation.*** **** Lincoln
      Park Savings files New Jersey Corporation Business tax returns. Generally,
      the
      income of savings institutions in New Jersey, which is calculated based on
      federal taxable income, subject to certain adjustments, is subject to the New
      Jersey Corporation Business tax. Lincoln Park Savings is not currently under
      audit with respect to its New Jersey income tax returns and Lincoln Park
      Savings’ state tax returns have not been audited for the past five
      years.





Under
      New
      Jersey legislation, a taxpayer, including Lincoln Park Savings, will pay the
      greater of 9% of its taxable income or the Alternate Minimum Assessment (AMA).
      There are two methods of calculating the AMA, the gross profits method and
      the
      gross receipts method. The taxpayer has the option of choosing either of these
      methods, but once an election is made, the taxpayer must use the same method
      for
      the next four years. Under the gross receipts method, the tax is calculated
      by
      multiplying the gross receipts by the applicable factor, which ranges from
      0.139% to 0.4%. Under the gross profits method, the tax is calculated by
      multiplying the gross profits by the applicable factor, which ranges from 0.28%
      to 0.8%. The AMA for an affiliated group consisting of five or more members
      may
      not exceed $20.0 million. The AMA for tax years beginning after June 30, 2006,
      shall be zero.





New
      Jersey income tax law does not allow for a taxpayer to file a tax return on
      a
      combined or consolidated basis with another member of the affiliated group
      where
      there is common ownership. However, if the taxpayer cannot demonstrate by clear
      and convincing evidence that the tax filing discloses the true earnings of
      the
      taxpayer on its business carried on in the State of New Jersey, the New Jersey
      Director of the Division of Taxation may, at the director’s discretion, require
      the taxpayer to file a consolidated return of the entire operations of the
      affiliated group or controlled group, including its own operations and income.





**REGULATION**




**General**




Lincoln
      Park Savings is a New Jersey chartered savings bank. Its deposit accounts are
      insured up to applicable limits by the Federal Deposit Insurance Corporation
      under the Savings Association Insurance Fund (the “SAIF”). Lincoln Park Savings
      is subject to extensive regulation, examination and supervision by the
      Commissioner of the New Jersey Department of Banking and Insurance as the issuer
      of its charter, and by the Federal Deposit Insurance Corporation as the deposit
      insurer. Lincoln Park Savings must file reports with the New Jersey Commissioner
      and the Federal Deposit Insurance Corporation concerning its activities and
      financial condition, and it must obtain regulatory approval prior to entering
      into certain transactions, such as mergers with, or acquisitions of, other
      depository institutions and opening or acquiring branch offices. The New Jersey
      Commissioner and the Federal Deposit Insurance Corporation conducts periodic
      examinations to assess Lincoln Park Savings’ compliance with various regulatory
      requirements. This regulation and supervision establishes a comprehensive
      framework of activities in which a savings bank can engage and is intended
      primarily for the protection of the deposit insurance fund and depositors and
      not for the purpose of protecting stockholders. The regulatory structure also
      gives the regulatory authorities extensive discretion in connection with their
      supervisory and enforcement activities and examination policies, including
      policies with respect to the classification of assets and the establishment
      of
      adequate loan loss reserves for regulatory purposes. Prior to the conversion
      of
      Lincoln Park Savings from a New Jersey savings and loan association to a New
      Jersey savings bank, Lincoln Park Savings was subject to examination and
      supervision by the Office of Thrift Supervision.




22


Lincoln
      Park Bancorp is a federal corporation, and Lincoln Park Bancorp, MHC is a
      federal mutual holding company. Lincoln Park Bancorp and Lincoln Park Bancorp,
      MHC are required to file certain reports with, and otherwise comply with the
      rules and regulations of the Office of Thrift Supervision.




Any
      change in such laws and regulations, whether by the New Jersey Commissioner,
      the
      Federal Deposit Insurance Corporation, the Office of Thrift Supervision or
      through legislation, could have a material adverse impact on Lincoln Park
      Savings and Lincoln Park Bancorp and their operations and
      stockholders.




**New
      Jersey Banking Regulation**





*Activity
      Powers.* Lincoln
      Park Savings derives its lending, investment and other activity powers primarily
      from the applicable provisions of the New Jersey Banking Act and its related
      regulations. Under these laws and regulations, savings banks, including Lincoln
      Park Savings, generally may invest in:




(1)
            real
                estate mortgages;




(2)
            consumer
                and commercial loans;




(3)
            specific
                types of debt securities, including certain corporate debt securities
                and
                obligations of federal, state and local governments and
                agencies;




(4)
            certain
                types of corporate equity securities;
                and




(5)
            certain
                other assets.




A
      savings
      bank may also invest pursuant to a “leeway” power that permits investments not
      otherwise permitted by the New Jersey Banking Act. “Leeway” investments must
      comply with a number of limitations on the individual and aggregate amounts
      of
“leeway” investments. Lincoln Park Savings does not currently have any “leeway”
investments. A savings bank may also exercise trust powers upon approval of
      the
      New Jersey Commissioner. Lincoln Park Savings currently does not have trust
      powers. New Jersey savings banks may exercise those powers, rights, benefits
      or
      privileges authorized for national banks or out-of-state banks or for federal
      or
      out-of-state savings banks or savings associations, provided that before
      exercising any such power, right, benefit or privilege, prior approval by the
      New Jersey Commissioner by regulation or by specific authorization is required.
      The exercise of these lending, investment and activity powers are limited by
      federal law and the related regulations. See “—Federal Banking
      Regulation—Activity Restrictions on State-Chartered Banks” below.




*Loans-to-One-Borrower
      Limitations.* With
      certain specified exceptions, a New Jersey chartered savings bank may not make
      loans or extend credit to a single borrower and to entities related to the
      borrower in an aggregate amount that would exceed 15% of the bank’s capital
      funds. A savings bank may lend an additional 10% of the bank’s capital funds if
      secured by collateral meeting the requirements of the New Jersey Banking Act.
      Lincoln Park Savings currently complies with applicable loans-to-one-borrower
      limitations.




*Dividends.* Under
      the New Jersey Banking Act, a stock savings bank may declare and pay a dividend
      on its capital stock only to the extent that the payment of the dividend would
      not impair the capital stock of the savings bank. In addition, a stock savings
      bank may not pay a dividend unless the savings bank would, after the payment
      of
      the dividend, have a surplus of not less than 50% of its capital stock, or
      the
      payment of the dividend would not reduce the surplus. Federal law may also
      limit
      the amount of dividends that may be paid by Lincoln Park Savings. See “—Federal
      Banking Regulation—Prompt Corrective Action” below.




23


*Minimum
      Capital Requirements.* Regulations of the New Jersey Commissioner impose on New Jersey chartered
      depository institutions, including Lincoln Park Savings, minimum capital
      requirements similar to those imposed by the Federal Deposit Insurance
      Corporation on insured state banks. See “—Federal Banking Regulation—Capital
      Requirements.”




*Examination
      and Enforcement.* The New
      Jersey Department of Banking and Insurance may examine Lincoln Park Savings
      whenever it deems an examination advisable. The Department examines Lincoln
      Park
      Savings at least every two years. The New Jersey Commissioner may order any
      savings bank to discontinue any violation of law or unsafe or unsound business
      practice and may direct any director, officer, attorney or employee of a savings
      bank engaged in an objectionable activity, after the Commissioner has ordered
      the activity to be terminated, to show cause at a hearing before the
      Commissioner why such person should not be removed.




**Federal
      Banking Regulation**




*Capital
      Requirements.* Federal
      Deposit Insurance Corporation regulations require banks to maintain minimum
      levels of capital. The Federal Deposit Insurance Corporation regulations define
      two tiers, or classes, of capital.




Tier
      1
      capital is comprised of the sum of:




·
            common
                stockholders’ equity, excluding the unrealized appreciation or
                depreciation, net of tax, from available for sale
                securities;




·
            non-cumulative
                perpetual preferred stock, including any related retained earnings;
                and




·
            minority
                interests in consolidated subsidiaries minus all intangible assets,
                other
                than qualifying servicing rights and any net unrealized loss on marketable
                equity securities.




The
      components of Tier 2 capital currently include:




·
            cumulative
                perpetual preferred stock;




·
            certain
                perpetual preferred stock for which the dividend rate may be reset
                periodically;




·
            hybrid
                capital instruments, including mandatory convertible
                securities;




·
            term
                subordinated debt;




·
            intermediate
                term preferred stock;




·
            allowance
                for possible loan losses; and




·
            up
                to 45% of pretax net unrealized holding gains on available for sale
                equity
                securities with readily determinable fair market
                values.




Allowance
      for possible loan losses includible in Tier 2 capital is limited to a maximum
      of
      1.25% of risk-weighted assets. Overall, the amount of Tier 2 capital that may
      be
      included in total capital cannot exceed 100% of Tier 1 capital. The Federal
      Deposit Insurance Corporation regulations establish a minimum leverage capital
      requirement for banks in the strongest financial and managerial condition,
      with
      a rating of 1 (the highest examination rating of the Federal Deposit Insurance
      Corporation for banks) under the Uniform Financial Institutions Rating System,
      of not less than a ratio of 3.0% of Tier 1 capital to total assets. For all
      other banks, the minimum leverage capital requirement is 4.0%, unless a higher
      leverage capital ratio is warranted by the particular circumstances or risk
      profile of the depository institution.




24


The
      Federal Deposit Insurance Corporation regulations also require that banks meet
      a
      risk-based capital standard. The risk-based capital standard requires the
      maintenance of a ratio of total capital, which is defined as the sum of Tier
      1
      capital and Tier 2 capital, to risk-weighted assets of at least 8% and a ratio
      of Tier 1 capital to risk-weighted assets of at least 4%. In determining the
      amount of risk-weighted assets, all assets, plus certain off balance sheet
      items, are multiplied by a risk-weight of 0% to 100%, based on the risks the
      Federal Deposit Insurance Corporation believes are inherent in the type of
      asset
      or item.




The
      federal banking agencies, including the Federal Deposit Insurance Corporation,
      have also adopted regulations to require an assessment of an institution’s
      exposure to declines in the economic value of a bank’s capital due to changes in
      interest rates when assessing the bank’s capital adequacy. Under such a risk
      assessment, examiners will evaluate a bank’s capital for interest rate risk on a
      case-by-case basis, with consideration of both quantitative and qualitative
      factors. According to the agencies, applicable considerations
      include:




·
            the
                quality of the bank’s interest rate risk management
                process;




·
            the
                overall financial condition of the bank;
                and




·
            the
                level of other risks at the bank for which capital is
                needed.




Institutions
      with significant interest rate risk may be required to hold additional capital.
      The agencies also issued a joint policy statement providing guidance on interest
      rate risk management, including a discussion of the critical factors affecting
      the agencies’ evaluation of interest rate risk in connection with capital
      adequacy.




The
      Federal Deposit Insurance Corporation adopted regulations, effective April
      1,
      2002, establishing minimum regulatory capital requirements for equity
      investments in non-financial companies. The regulations apply a series of
      marginal capital charges that range from 8% to 25% depending upon the size
      of
      the aggregate equity investment portfolio of the banking organization relative
      to its Tier 1 capital. The capital charge would be applied by making a
      deduction, which would be based on the adjusted carrying value of the equity
      investment from the organization’s Tier 1 capital. We do not believe this
      capital requirement will have a material adverse effect upon our operations.
      However, we will have to take this requirement into consideration should we,
      at
      some point in the future, decide to invest in non-financial
      companies.




The
      following table shows our leverage ratio, our Tier 1 risk-based capital ratio,
      and our total risk-based capital ratio, at December 31, 2006, under the Federal
      Deposit Insurance Corporation capital requirements:




**As
                of December 31, 2006**
            
            **To
                be Well Capitalized**
            
            **Excess****Historical
                Capital**
            
            **Percent
                of**
              **Assets****(1)**
            
            **Amount**
            
            **Percent**
            
            **Amount**
            
            **Percent****(Dollars
                in Thousands)**Regulatory
                Tier 1 leverage capital
            
            $
            9,575
            
            
            10.37
            %
            $
            4,615
            
            
            5.00
            %
            $
            4,960
            
            
            5.37
            %Tier 1
                risk-based capital
            
            
            9,575
            
            
            19.06
            
            
            3,015
            
            
            6.00
            
            
            6,560
            
            
            13.06Total
                risk-based capital
            
            
            9,711
            
            
            19.33
            
            
            5,024
            
            
            10.00
            
            
            4,687
            
            
            9.33





(1)
            For
                purposes of calculating Regulatory Tier 1 leverage capital, assets
                are
                based on adjusted average leverage assets. In calculating Tier 1
                risk
                based capital and total risk-based capital, assets are based on total
                risk-weighted assets.





As
      the
      table shows, as of December 31, 2006, Lincoln Park Savings was considered “well
      capitalized” under Federal Deposit Insurance Corporation guidelines.




*Activity
      Restrictions on State-Chartered Banks.* Section
      24 of the Federal Deposit Insurance Act, as amended, (“FDIA”) which was added by
      the FDIC Improvement Act of 1991 (“FDIC Improvement Act”), generally limits the
      activities and investments of state-chartered Federal Deposit Insurance
      Corporation insured banks and their subsidiaries to those permissible for
      national banks and their subsidiaries, unless such activities and investments
      are specifically exempted by Section 24 of the FDIA or consented to by the
      Federal Deposit Insurance Corporation.




25


Before
      making a new investment or engaging in a new activity that is not permissible
      for a national bank or otherwise permissible under Section 24 of the FDIA,
      an
      insured bank must seek approval from the Federal Deposit Insurance Corporation
      to make such investment or engage in such activity. The Federal Deposit
      Insurance Corporation will not approve the activity unless the bank meets its
      minimum capital requirements and the Federal Deposit Insurance Corporation
      determines that the activity does not present a significant risk to the Federal
      Deposit Insurance Corporation insurance funds. Certain activities of
      subsidiaries that are engaged in activities permitted for national banks only
      through a “financial subsidiary” are subject to additional
      restrictions.




The
      Gramm-Leach-Bliley Act (“Gramm-Leach”) permits a state-chartered savings bank to
      engage, through financial subsidiaries, in any activity in which a national
      bank
      may engage through a financial subsidiary and on substantially the same terms
      and conditions. In general, Gramm-Leach permits a national bank that is
      well-capitalized and well-managed to conduct, through a financial subsidiary,
      any activity permitted for a financial holding company other than insurance
      underwriting, insurance investments, real estate investment or development
      or
      merchant banking. The total assets of all such financial subsidiaries may not
      exceed the lesser of 45% of the bank’s total assets or $50 billion. The bank
      must have policies and procedures to assess the financial subsidiary’s risk and
      protect the bank from such risk and potential liability, must not consolidate
      the financial subsidiary’s assets with the bank’s and must exclude from its own
      assets and equity all equity investments, including retained earnings, in the
      financial subsidiary. State chartered savings banks may retain subsidiaries
      in
      existence as of March 11, 2000 and may engage in activities that are not
      authorized under Gramm-Leach; otherwise, Gramm-Leach will preempt all state
      laws
      regarding the permissibility of certain activities for state chartered banks
      if
      such state law is in conflict with the provisions of Gramm-Leach (with the
      exception of certain insurance activities), regardless of whether the state
      law
      would authorize broader or more restrictive activities. Although Lincoln Park
      Savings meets all conditions necessary to establish and engage in permitted
      activities through financial subsidiaries, it has not yet determined whether
      or
      the extent to which it will seek to engage in such activities.




*Federal
      Home Loan Bank System.* Lincoln
      Park Savings is a member of the FHLB system, which consists of twelve regional
      FHLBs, each subject to supervision and regulation by the Federal Housing Finance
      Board (“FHFB”). The FHLB provides a central credit facility primarily for member
      thrift institutions as well as other entities involved in home mortgage lending.
      It is funded primarily from proceeds derived from the sale of consolidated
      obligations of the FHLBs. It makes loans to members (i.e., advances) in
      accordance with policies and procedures, including collateral requirements,
      established by the respective boards of directors of the FHLBs. These policies
      and procedures are subject to the regulation and oversight of the FHFB. All
      long-term advances are required to provide funds for residential home financing.
      The FHFB has also established standards of community or investment service
      that
      members must meet to maintain access to such long term advances. Lincoln Park
      Savings, as a member of the FHLB of New York, is required to purchase and hold
      shares of capital stock in that FHLB in an amount at least equal to the greater
      of (i) 1% of the aggregate principal amount of its unpaid mortgage loans, home
      purchase contracts and similar obligations at the beginning of each year; (ii)
      0.3% of its assets; or (iii) 5% (or such greater fraction as established by
      the
      FHLB) of its advances from the FHLB as of December 31, 2003. Pursuant to
      Gramm-Leach, the foregoing minimum share ownership requirements will be replaced
      by regulations to be promulgated by the FHFB. Gramm-Leach specifically provides
      that the minimum requirements in existence immediately prior to adoption of
      Gramm-Leach shall remain in effect until such regulations are adopted. Lincoln
      Park Savings is in compliance with these requirements.




*Enforcement.* The
      Federal Deposit Insurance Corporation has extensive enforcement authority over
      insured savings banks, including Lincoln Park Savings. This enforcement
      authority includes, among other things, the ability to assess civil money
      penalties, to issue cease and desist orders and to remove directors and
      officers. In general, these enforcement actions may be initiated in response
      to
      violations of laws and regulations and to unsafe or unsound
      practices.




The
      Federal Deposit Insurance Corporation is required, with some exceptions, to
      appoint a receiver or conservator for an insured state bank if that bank is
      “critically undercapitalized.” For this purpose, “critically undercapitalized”
means having a ratio of tangible capital to total assets of less than 2%. The
      Federal Deposit Insurance Corporation may also appoint a conservator or receiver
      for a state bank on the basis of the institution’s financial condition or upon
      the occurrence of certain events, including:




·
            insolvency,
                or when the assets of the bank are less than its liabilities to depositors
                and others;




26




·
            substantial
                dissipation of assets or earnings through violations of law or unsafe
                or
                unsound practices;




·
            existence
                of an unsafe or unsound condition to transact
                business;




·
            likelihood
                that the bank will be unable to meet the demands of its depositors
                or to
                pay its obligations in the normal course of business;
                and




·
            insufficient
                capital, or the incurring or likely incurring of losses that will
                deplete
                substantially all of the institution’s capital with no reasonable prospect
                of replenishment of capital without federal
                assistance.




*Insurance
      of Deposit Accounts* ***.*** ** Deposit
      accounts at Lincoln Park Savings are insured by the Federal Deposit Insurance
      Corporation up to a maximum of $100,000 per separately insured depositor and
      up
      to a maximum amount of $250,000 for self-directed retirement accounts. Lincoln
      Park Savings’ deposits, therefore, are subject to Federal Deposit Insurance
      Corporation deposit insurance assessments. The Federal Deposit Insurance
      Corporation has adopted a risk-based system for determining deposit insurance
      assessments.




On
      November 2, 2006, the Federal Deposit Insurance Corporation adopted final
      regulations that assess insurance premiums based on risk. As a result, the
      new
      regulation will enable the Federal Deposit Insurance Corporation to more closely
      tie each financial institution’s deposit insurance premiums to the risk it poses
      to the deposit insurance fund. Under the new risk-based assessment system,
      which
      becomes effective in the beginning of 2007, the Federal Deposit Insurance
      Corporation will evaluate the risk of each financial institution based on its
      supervisory rating, its financial ratios, and its long-term debt issuer rating.
      The new rates for nearly all of the financial institution industry will vary
      between five and seven cents for every $100 of domestic deposits. The assessment
      to be paid during the year ending December 31, 2007 will be offset by a credit
      from the Federal Deposit Insurance Corporation to Lincoln Park Savings of
      $57,400. At the same time, the Federal Deposit Insurance Corporation also
      adopted final regulations designating the reserve ratio for the deposit
      insurance fund during 2007 at 1.25% of estimated insured deposits.




Effective
      March 31, 2006, the Federal Deposit Insurance Corporation merged the Bank
      Insurance Fund (“BIF”) and the Savings Association Insurance Fund (“SAIF”) into
      a single fund called the Deposit Insurance Fund. As a result of the merger,
      the
      BIF and the SAIF were abolished. The merger of the BIF and the SAIF into the
      Deposit Insurance Fund does not affect the authority of the Financing
      Corporation (“FICO”) to impose and collect, with the approval of the Federal
      Deposit Insurance Corporation, assessments for anticipated payments, issuance
      costs and custodial fees on bonds issued by the FICO in the 1980s to
      recapitalize the Federal Savings and Loan Insurance Corporation. The bonds
      issued by the FICO are due to mature in 2017 through 2019. For the quarter
      ended
      December 31, 2006, the annualized FICO assessment was equal to 122 basis points
      for each $100 in domestic deposits maintained at an institution.




*Transactions
      with Affiliates of Lincoln Park Savings.* Transactions
      between an insured bank, such as Lincoln Park Savings, and any of its affiliates
      is governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate
      of
      a bank is any company or entity that controls, is controlled by or is under
      common control with the bank. Currently, a subsidiary of a bank that is not
      also
      a depository institution generally is not treated as an affiliate of the bank
      for purposes of Sections 23A and 23B, but the Federal Reserve Board has
      proposed a comprehensive regulation implementing Sections 23A and 23B, which
      would establish certain exceptions to this policy.




Section
      23A:




·
            limits
                the extent to which the bank or its subsidiaries may engage in “covered
                transactions” with any one affiliate to an amount equal to 10% of such
                bank’s capital stock and retained earnings, and limits all such
                transactions with all affiliates to an amount equal to 20% of such
                capital
                stock and retained earnings; and




·
            requires
                that all such transactions be on terms that are consistent with safe
                and
                sound banking practices.




27


The
      term
“covered transaction” includes the making of loans, purchase of assets, issuance
      of guarantees and other similar types of transactions. Further, most loans
      by a
      bank to any of its affiliates must be secured by collateral in amounts ranging
      from 100 to 130 percent of the loan amounts. In addition, any covered
      transaction by a bank with an affiliate and any purchase of assets or services
      by a bank from an affiliate must be on terms that are substantially the same,
      or
      at least as favorable to the bank, as those that would be provided to a
      non-affiliate.




In
      addition, provisions of the BHCA prohibit extensions of credit to a bank’s
      insiders and their related interests by any other institution that has a
      correspondent banking relationship with the bank, unless such extension of
      credit is on substantially the same terms as those prevailing at the time for
      comparable transactions with other persons and does not involve more than the
      normal risk of repayment or present other unfavorable features.





*Prohibitions
      Against Tying Arrangements.* Banks
      are
      subject to the prohibitions of 12 U.S.C. Section 1972 on certain tying
      arrangements. A depository institution is prohibited, subject to some
      exceptions, from extending credit to or offering any other service, or fixing
      or
      varying the consideration for such extension of credit or service, on the
      condition that the customer obtain some additional service from the institution
      or its affiliates or not obtain services of a competitor of the institution.





*Privacy
      Standards.* Effective July 1, 2001, financial institutions, such as Lincoln Park Bancorp
      and
      Lincoln Park Savings, became subject to Federal Deposit Insurance Corporation
      regulations implementing the privacy protection provisions of Gramm-Leach.
      These
      regulations require Lincoln Park Bancorp and Lincoln Park Savings to disclose
      their privacy policy, including identifying with whom they share “non-public
      personnel information” to customers at the time of establishing the customer
      relationship and annually thereafter.





The
      regulations also require Lincoln Park Bancorp and Lincoln Park Savings to
      provide their customers with initial and annual notices that accurately reflect
      its privacy policies and practices. In addition, Lincoln Park Bancorp and
      Lincoln Park Savings are required to provide their customers with the ability
      to
“opt-out” of having Lincoln Park Bancorp and Lincoln Park Savings share their
      non-public personal information with unaffiliated third parties before they
      can
      disclose such information, subject to certain exceptions. The implementation
      of
      these regulations has not had a material adverse effect on Lincoln Park Bancorp
      and Lincoln Park Savings. Gramm-Leach also provides for the ability of each
      state to enact legislation that is more protective of consumers’ personal
      information. Currently there are a number of privacy bills pending in the New
      Jersey legislature. No action has been taken on any of these bills, and we
      cannot predict whether any of them will become law or what impact, if any,
      these
      bills will have if enacted into law.




On
      February 1, 2001, the Federal Deposit Insurance Corporation and other federal
      banking agencies adopted guidelines establishing standards for safeguarding
      customer information to implement certain provisions of Gramm-Leach. The
      guidelines describe the agencies’ expectations for the creation, implementation
      and maintenance of an information security program, which would include
      administrative, technical and physical safeguards appropriate to the size and
      complexity of the institution and the nature and scope of its activities. The
      standards set forth in the guidelines are intended to insure the security and
      confidentiality of customer records and information, protect against any
      anticipated threats or hazards to the security or integrity of such records
      and
      protect against unauthorized access to or use of such records or information
      that could result in substantial harm or inconvenience to any customer. We
      implemented the guidelines prior to their effective date of July 1, 2001 and
      such implementation did not have a material adverse effect on our
      operations.




*Uniform
      Real Estate Lending Standards.* Under
      the
      FDIA, the federal banking agencies adopted uniform regulations prescribing
      standards for extensions of credit that are secured by liens on interests in
      real estate or made for the purpose of financing the construction of a building
      or other improvements to real estate. Under the joint regulations adopted by
      the
      federal banking agencies, all insured depository institutions must adopt and
      maintain written policies that establish appropriate limits and standards for
      extensions of credit that are secured by liens or interests in real estate
      or
      are made for the purpose of financing permanent improvements to real estate.
      These policies must establish loan portfolio diversification standards, prudent
      underwriting standards, including loan-to-value limits, that are clear and
      measurable, loan administration procedures, and documentation, approval and
      reporting requirements. The real estate lending policies must reflect
      consideration of the Interagency Guidelines for Real Estate Lending Policies
      that have been adopted by the federal bank regulators.




28


The
      Interagency Guidelines, among other things, require a depository institution
      to
      establish internal loan-to-value limits for real estate loans that are not
      in
      excess of the following supervisory limits:




·
            for
                loans secured by raw land, the supervisory loan-to-value limit is
                65% of
                the value of the collateral;




·
            for
                land development loans, or loans for the purpose of improving unimproved
                property prior to the erection of structures, the supervisory limit
                is
                75%;




·
            for
                loans for the construction of commercial, multi-family or other
                non-residential property, the supervisory limit is
                80%;




·
            for
                loans for the construction of one- to four-family residential properties,
                the supervisory limit is 85%; and




·
            for
                loans secured by other improved property, for example, farmland,
                completed
                commercial property and other income-producing property including
                non-owner occupied, one- to four-family property, the limit is
                85%.




Although
      no supervisory loan-to-value limit has been established for owner-occupied,
      one-
      to four-family and home equity loans, the Interagency Guidelines state that
      for
      any such loan with a loan-to-value ratio that equals or exceeds 90% at
      origination, an institution should require appropriate credit enhancement in
      the
      form of either mortgage insurance or readily marketable collateral.




Lincoln
      Park Savings has established, however, internal loan-to-value limits for real
      estate loans that are more stringent than the maximum limits currently imposed
      under federal law.




*Community
      Reinvestment Act and Fair Lending Laws.* **** All
      Federal Deposit Insurance Corporation insured institutions have a responsibility
      under the Community Reinvestment Act and related regulations to help meet the
      credit needs of their communities, including low- and moderate-income
      neighborhoods. In connection with its examination of a state chartered savings
      bank, the Federal Deposit Insurance Corporation is required to assess the
      institution’s record of compliance with the Community Reinvestment Act. Among
      other things, the current Community Reinvestment Act regulations replace the
      prior process-based assessment factors with a new evaluation system that rates
      an institution based on its actual performance in meeting community needs.
      In
      particular, the current evaluation system focuses on three tests:




·
            a
                lending test, to evaluate the institution’s record of making loans in its
                service areas;




·
            an
                investment test, to evaluate the institution’s record of investing in
                community development projects, affordable housing, and programs
                benefiting low or moderate income individuals and businesses;
                and




·
            a
                service test, to evaluate the institution’s delivery of services through
                its branches, ATMs and other
                offices.




An
      institution’s failure to comply with the provisions of the Community
      Reinvestment Act could, at a minimum, result in regulatory restrictions on
      its
      activities. We received an outstanding Community Reinvestment Act rating in
      our
      most recently completed federal examination, which was conducted by the Office
      of Thrift Supervision in March 2004.




In
      addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit
      lenders from discriminating in their lending practices on the basis of
      characteristics specified in those statutes. The failure to comply with the
      Equal Credit Opportunity Act and the Fair Housing Act could result in
      enforcement actions by the Federal Deposit Insurance Corporation, as well as
      other federal regulatory agencies and the Department of Justice.




29


*Safety
      and Soundness Standards.* Pursuant
      to the requirements of FDIA, as amended by the Riegle Community Development
      and
      Regulatory Improvement Act of 1994, each federal banking agency, including
      the
      Federal Deposit Insurance Corporation, has adopted guidelines establishing
      general standards relating to internal controls, information and internal audit
      systems, loan documentation, credit underwriting, interest rate exposure, asset
      growth, asset quality, earnings, compensation, fees and benefits. In general,
      the guidelines require, among other things, appropriate systems and practices
      to
      identify and manage the risks and exposures specified in the guidelines. The
      guidelines prohibit excessive compensation as an unsafe and unsound practice
      and
      describe compensation as excessive when the amounts paid are unreasonable or
      disproportionate to the services performed by an executive officer, employee,
      director, or principal stockholder.




In
      addition, the Federal Deposit Insurance Corporation adopted regulations to
      require a bank that is given notice by the Federal Deposit Insurance Corporation
      that it is not satisfying any of such safety and soundness standards to submit
      a
      compliance plan to the Federal Deposit Insurance Corporation. If, after being
      so
      notified, a bank fails to submit an acceptable compliance plan or fails in
      any
      material respect to implement an accepted compliance plan, the Federal Deposit
      Insurance Corporation may issue an order directing corrective and other actions
      of the types to which a significantly undercapitalized institution is subject
      under the “prompt corrective action” provisions of FDIA. If a bank fails to
      comply with such an order, the Federal Deposit Insurance Corporation may seek
      to
      enforce such an order in judicial proceedings and to impose civil monetary
      penalties.




*Prompt
      Corrective Action.* The
      FDIC
      Improvement Act also established a system of prompt corrective action to resolve
      the problems of undercapitalized institutions. The Federal Deposit Insurance
      Corporation, as well as the other federal banking regulators, adopted
      regulations governing the supervisory actions that may be taken against
      undercapitalized institutions. The regulations establish five categories,
      consisting of “well capitalized,” “adequately capitalized,” “undercapitalized,”
“significantly undercapitalized” and “critically undercapitalized.” The Federal
      Deposit Insurance Corporation’s regulations define the five capital categories
      as follows:




An
      institution will be treated as “well capitalized” if:




·
            its
                ratio of total capital to risk-weighted assets is at least
                10%;




·
            its
                ratio of Tier 1 capital to risk-weighted assets is at least 6%;
                and




·
            its
                ratio of Tier 1 capital to total assets is at least 5%, and it is
                not
                subject to any order or directive by the Federal Deposit Insurance
                Corporation to meet a specific capital
                level.




An
      institution will be treated as “adequately capitalized” if:




·
            its
                ratio of total capital to risk-weighted assets is at least 8%; or




·
            its
                ratio of Tier 1 capital to risk-weighted assets is at least 4%;
                and




·
            its
                ratio of Tier 1 capital to total assets is at least 4% (3% if the
                bank
                receives the highest rating under the Uniform Financial Institutions
                Rating System) and it is not a well-capitalized
                institution.




An
      institution will be treated as “undercapitalized” if:




·
            its
                total risk-based capital is less than 8%;
                or




·
            its
                Tier 1 risk-based capital is less than 4%;
                and




·
            its
                leverage ratio is less than 4% (or less than 3% if the institution
                receives the highest rating under the Uniform Financial Institutions
                Rating System).




An
      institution will be treated as “significantly undercapitalized” if:




·
            its
                total risk-based capital is less than
                6%;




30




·
            its
                Tier 1 capital is less than 3%; or




·
            its
                leverage ratio is less than 3%.




An
      institution that has a tangible capital to total assets ratio equal to or less
      than 2% would be deemed to be “critically undercapitalized.”




The
      severity of the action authorized or required to be taken under the prompt
      corrective action regulations increases as a bank’s capital decreases within the
      three undercapitalized categories. All banks are prohibited from paying
      dividends or other capital distributions or paying management fees to any
      controlling person if, following such distribution, the bank would be
      undercapitalized. The Federal Deposit Insurance Corporation is required to
      monitor closely the condition of an undercapitalized bank and to restrict the
      growth of its assets. An undercapitalized bank is required to file a capital
      restoration plan within 45 days of the date the bank receives notice that it
      is
      within any of the three undercapitalized categories, and the plan must be
      guaranteed by any parent holding company. The aggregate liability of a parent
      holding company is limited to the lesser of:




·
            an
                amount equal to five percent of the bank’s total assets at the time it
                became “undercapitalized,” or




·
            the
                amount that is necessary (or would have been necessary) to bring
                the bank
                into compliance with all capital standards applicable with respect
                to such
                bank as of the time it fails to comply with the
                plan.




If
      a bank
      fails to submit an acceptable plan, it is treated as if it were “significantly
      undercapitalized.” Banks that are significantly or critically undercapitalized
      are subject to a wider range of regulatory requirements and
      restrictions.




The
      Federal Deposit Insurance Corporation has a broad range of grounds under which
      it may appoint a receiver or conservator for an insured depository bank. If
      one
      or more grounds exist for appointing a conservator or receiver for a bank,
      the
      Federal Deposit Insurance Corporation may require the bank to issue additional
      debt or stock, sell assets, be acquired by a depository bank holding company
      or
      combine with another depository bank. Under the FDIA, the Federal Deposit
      Insurance Corporation is required to appoint a receiver or a conservator for
      a
      critically undercapitalized bank within 90 days after the bank becomes
      critically undercapitalized or to take such other action that would better
      achieve the purposes of the prompt corrective action provisions. Such
      alternative action can be renewed for successive 90-day periods. However, if
      the
      bank continues to be critically undercapitalized on average during the quarter
      that begins 270 days after it first became critically undercapitalized, a
      receiver must be appointed, unless the Federal Deposit Insurance Corporation
      makes certain findings, including that the bank is viable.




**Loans
      to a Bank’s Insiders**




*Federal
      Regulation.* A
      bank’s
      loans to its executive officers, directors, any owner of 10% or more of its
      stock (each, an insider) and any of certain entities affiliated with any such
      person (an insider’s related interest) are subject to the conditions and
      limitations imposed by Section 22(h) of the Federal Reserve Act and the Federal
      Reserve Board’s Regulation O thereunder. Under these restrictions, the aggregate
      amount of the loans to any insider and the insider’s related interests may not
      exceed the loans-to-one-borrower limit applicable to national banks, which
      is
      comparable to the loans-to-one-borrower limit applicable to Lincoln Park
      Savings’ loans. See “—New Jersey Banking Regulation—Loans-to-One Borrower
      Limitations.” All loans by a bank to all insiders and insiders’ related
      interests in the aggregate may not exceed the bank’s unimpaired capital and
      unimpaired surplus. With certain exceptions, loans to an executive officer,
      other than loans for the education of the officer’s children and certain loans
      secured by the officer’s residence, may not exceed the lesser of (1) $100,000 or
      (2) the greater of $25,000 or 2.5% of the bank’s unimpaired capital and surplus.
      Regulation O also requires that any proposed loan to an insider or a related
      interest of that insider be approved in advance by a majority of the board
      of
      directors of the bank, with any interested directors not participating in the
      voting, if such loan, when aggregated with any existing loans to that insider
      and the insider’s related interests, would exceed either (1) $500,000 or (2) the
      greater of $25,000 or 5% of the bank’s unimpaired capital and surplus.
      Generally, such loans must be made on substantially the same terms as, and
      follow credit underwriting procedures that are not less stringent than, those
      that are prevailing at the time for comparable transactions with other
      persons.




31


An
      exception is made for extensions of credit made pursuant to a benefit or
      compensation plan of a bank that is widely available to employees of the bank
      and that does not give any preference to insiders of the bank over other
      employees of the bank.




In
      addition, provisions of the BHCA prohibit extensions of credit to a bank’s
      insiders and their related interests by any other institution that has a
      correspondent banking relationship with the bank, unless such extension of
      credit is on substantially the same terms as those prevailing at the time for
      comparable transactions with other persons and does not involve more than the
      normal risk of repayment or present other unfavorable features.




*New
      Jersey Regulation.* Provisions of the New Jersey Banking Act impose conditions and limitations
      on
      the liabilities to a savings bank of its directors and executive officers and
      of
      corporations and partnerships controlled by such persons that are comparable
      in
      many respects to the conditions and limitations imposed on the loans and
      extensions of credit to insiders and their related interests under Regulation
      O,
      as discussed above. The New Jersey Banking Act also provides that a savings
      bank
      that is in compliance with Regulation O is deemed to be in compliance with
      such
      provisions of the New Jersey Banking Act.




**Federal
      Reserve System**




Under
      Federal Reserve Board regulations, Lincoln Park Savings is required to maintain
      non-interest-earning reserves against its transaction accounts. Lincoln Park
      Savings is in compliance with these requirements. Because required reserves
      must
      be maintained in the form of either vault cash, a non-interest-bearing account
      at a Federal Reserve Bank or a pass-through account as defined by the Federal
      Reserve Board, the effect of this reserve requirement is to reduce Lincoln
      Park
      Savings’ interest-earning assets.




**Internet
      Banking**




Technological
      developments are significantly altering the ways in which most companies,
      including financial institutions, conduct their business. The growth of the
      Internet is prompting banks to reconsider business strategies and adopt
      alternative distribution and marketing systems. The federal bank regulatory
      agencies have conducted seminars and published materials targeted to various
      aspects of internet banking, and have indicated their intention to reevaluate
      their regulations to ensure that they encourage banks’ efficiency and
      competitiveness consistent with safe and sound banking practices. We cannot
      assure you that the bank regulatory agencies will adopt new regulations that
      will not materially affect any of our internet operations or restrict any such
      further operations.




**The
      USA PATRIOT Act**




In
      response to the events of September 11 th ,
      the
      Uniting and Strengthening America by Providing Appropriate Tools Required to
      Intercept and Obstruct Terrorism Act of 2001, or the USA PATRIOT Act, was signed
      into law on October 26, 2001. The USA PATRIOT Act gives the federal government
      new powers to address terrorist threats through enhanced domestic security
      measures, expanded surveillance powers, increased information sharing, and
      broadened anti-money laundering requirements. By way of amendments to the Bank
      Secrecy Act, Title III of the USA PATRIOT Act takes measures intended to
      encourage information sharing among bank regulatory agencies and law enforcement
      bodies. Further, certain provisions of Title III impose affirmative obligations
      on a broad range of financial institutions, including banks, thrifts, brokers,
      dealers, credit unions, money transfer agents and parties registered under
      the
      Commodity Exchange Act.




Among
      other requirements, Title III of the USA PATRIOT Act imposes the following
      requirements with respect to financial institutions:




·
            Pursuant
                to Section 352, all financial institutions must establish anti-money
                laundering programs that include, at minimum: (i) internal policies,
                procedures, and controls; (ii) specific designation of an anti-money
                laundering compliance officer; (iii) ongoing employee training programs;
                and (iv) an independent audit function to test the anti-money laundering
                program.




32




·
            Section
                326 of the Act authorizes the Secretary of the Department of Treasury,
                in
                conjunction with other bank regulators, to issue regulations that
                provide
                for minimum standards with respect to customer identification at
                the time
                new accounts are opened.




·
            Section
                312 of the Act requires financial institutions that establish, maintain,
                administer, or manage private banking accounts or correspondence
                accounts
                in the United States for non-United States persons or their
                representatives (including foreign individuals visiting the United
                States)
                to establish appropriate, specific, and, where necessary, enhanced
                due
                diligence policies, procedures, and controls designed to detect and
                report
                money laundering.




·
            Financial
                institutions are prohibited from establishing, maintaining, administering
                or managing correspondent accounts for foreign shell banks (foreign
                banks
                that do not have a physical presence in any country), and will be
                subject
                to certain record keeping obligations with respect to correspondent
                accounts of foreign banks.




·
            Bank
                regulators are directed to consider a holding company’s effectiveness in
                combating money laundering when ruling on Federal Reserve Act and
                Bank
                Merger Act applications.




The
      federal banking agencies have implemented regulations pursuant to the USA
      PATRIOT Act. These regulations require financial institutions to adopt the
      policies and procedures contemplated by the USA PATRIOT Act.




Lincoln
      Park Savings has adopted the policies and programs required by the USA PATRIOT
      Act, and has taken steps to implement and enforce those policies and programs.
      The policies adopted by Lincoln Park Savings relate to such matters as Bank
      Secrecy Act, customer identification, and anti-money laundering compliance.
      Lincoln Park Savings from time to time reviews and updates its USA PATRIOT
      Act
      and other regulatory compliance programs to ensure that all applicable
      regulatory requirements are being satisfied. See “Recent Regulatory
      Developments.”




**Sarbanes-Oxley
      Act of 2002**




On
      July 30, 2002, the President signed into law the Sarbanes-Oxley Act of 2002
      (the “Act”), which implemented legislative reforms intended to address corporate
      and accounting fraud. In addition to the establishment of a new accounting
      oversight board that will enforce auditing, quality control and independence
      standards and will be funded by fees from all publicly traded companies, the
      Act
      places certain restrictions on the scope of services that may be provided by
      accounting firms to their public company audit clients. Any non-audit services
      being provided to a public company audit client will require preapproval by
      the
      company’s audit committee. In addition, the Act makes certain changes to the
      requirements for partner rotation after a period of time. The Act requires
      chief
      executive officers and chief financial officers, or their equivalent, to certify
      to the accuracy of periodic reports filed with the Securities and Exchange
      Commission, subject to civil and criminal penalties if they knowingly or
      willingly violate this certification requirement. In addition, under the Act,
      counsel will be required to report evidence of a material violation of the
      securities laws or a breach of fiduciary duty by a company to its chief
      executive officer or its chief legal officer, and, if such officer does not
      appropriately respond, to report such evidence to the audit committee or other
      similar committee of the board of directors or the board itself.




Under
      the
      Act, longer prison terms will apply to corporate executives who violate federal
      securities laws; the period during which certain types of suits can be brought
      against a company or its officers is extended; and bonuses issued to top
      executives prior to restatement of a company’s financial statements are now
      subject to disgorgement if such restatement was due to corporate misconduct.
      Executives are also prohibited from insider trading during retirement plan
      “blackout” periods, and loans to company executives (other than loans by
      financial institutions permitted by federal rules and regulations) are
      restricted. In addition, a provision directs that civil penalties levied by
      the
      Securities and Exchange Commission as a result of any judicial or administrative
      action under the Act be deposited to a fund for the benefit of harmed investors.
      The Federal Accounts for Investor Restitution provision also requires the
      Securities and Exchange Commission to develop methods of improving collection
      rates. The legislation accelerates the time frame for disclosures by public
      companies, as they must immediately disclose any material changes in their
      financial condition or operations. Directors and executive officers must also
      provide information for most changes in ownership in a company’s securities
      within two business days of the change.




33


The
      Act
      also increases the oversight of, and codifies certain requirements relating
      to
      audit committees of public companies and how they interact with the company’s
“registered public accounting firm.” Audit Committee members must be independent
      and are absolutely barred from accepting consulting, advisory or other
      compensatory fees from the issuer. In addition, companies must disclose whether
      at least one member of the committee is a “financial expert” (as such term is
      defined by the Securities and Exchange Commission) and if not, why not. Under
      the Act, a company’s registered public accounting firm is prohibited from
      performing statutorily mandated audit services for a company if such company’s
      chief executive officer, chief financial officer, comptroller, chief accounting
      officer or any person serving in equivalent positions had been employed by
      such
      firm and participated in the audit of such company during the one-year period
      preceding the audit initiation date. The Act also prohibits any officer or
      director of a company or any other person acting under their direction from
      taking any action to fraudulently influence, coerce, manipulate or mislead
      any
      independent accountant engaged in the audit of the company’s financial
      statements for the purpose of rendering the financial statements materially
      misleading. The Act also requires the Securities and Exchange Commission to
      prescribe rules requiring inclusion of any internal control report and
      assessment by management in the annual report to shareholders. The Act requires
      the company’s registered public accounting firm that issues the audit report to
      attest to and report on management’s assessment of the company’s internal
      controls.




We
      anticipate that we will incur additional expense in complying with the
      provisions of the Act and the regulations that have been promulgated to
      implement the Act. Those expenses could have a material impact in our
      results of operations or financial condition.




**Holding
      Company Regulation**




***General*** .
      Federal law allows a state savings bank, such as Lincoln Park Savings, that
      qualifies as a “Qualified Thrift Lender,” discussed below, to elect to be
      treated as a savings association for purposes of the savings and loan company
      provisions of the Home Owners’ Loan Act. Such election results in its holding
      company being regulated as a savings and loan holding company by the Office
      of
      Thrift Supervision rather than as a bank holding company by the Federal Reserve
      Board. Lincoln Park Bancorp and Lincoln Park Bancorp, MHC have made such
      election.




Lincoln
      Park Bancorp, MHC and Lincoln Park Bancorp are nondiversified savings and loan
      holding companies within the meaning of the Home Owners’ Loan Act. As such,
      Lincoln Park Bancorp, MHC and Lincoln Park Bancorp are registered with the
      Office of Thrift Supervision and are subject to Office of Thrift Supervision
      regulations, examinations, supervision and reporting requirements. In addition,
      the Office of Thrift Supervision has enforcement authority over Lincoln Park
      Bancorp and Lincoln Park Bancorp MHC, and their subsidiaries. Among other
      things, this authority permits the Office of Thrift Supervision to restrict
      or
      prohibit activities that are determined to be a serious risk to the subsidiary
      savings institution. As federal corporations, Lincoln Park Bancorp and Lincoln
      Park Bancorp, MHC are generally not subject to state business organization
      laws.




***Permitted
      Activities*** .
      Pursuant to Section 10(o) of the Home Owners’ Loan Act and Office of Thrift
      Supervision regulations and policy, a mutual holding company and a federally
      chartered mid-tier holding company such as Lincoln Park Bancorp may engage
      in
      the following activities: (i) investing in the stock of a savings association;
      (ii) acquiring a mutual association through the merger of such association
      into
      a savings association subsidiary of such holding company or an interim savings
      association subsidiary of such holding company; (iii) merging with or acquiring
      another holding company, one of whose subsidiaries is a savings association;
      (iv) investing in a corporation, the capital stock of which is available for
      purchase by a savings association under federal law or under the law of any
      state where the subsidiary savings association or associations share their
      home
      offices; (v) furnishing or performing management services for a savings
      association subsidiary of such company; (vi) holding, managing or liquidating
      assets owned or acquired from a savings subsidiary of such company; (vii)
      holding or managing properties used or occupied by a savings association
      subsidiary of such company; (viii) acting as trustee under deeds of trust;
      (ix)
      any other activity (A) that the Federal Reserve Board, by regulation, has
      determined to be permissible for bank holding companies under Section 4(c)
      of
      the Bank Holding Company Act of 1956, unless the Director, by regulation,
      prohibits or limits any such activity for savings and loan holding companies;
      or
      (B) in which multiple savings and loan holding companies were authorized (by
      regulation) to directly engage on March 5, 1987; (x) any activity permissible
      for financial holding companies under Section 4(k) of the Bank Holding Company
      Act, including securities and insurance underwriting; and (xi) purchasing,
      holding, or disposing of stock acquired in connection with a qualified stock
      issuance if the purchase of such stock by such savings and loan holding company
      is approved by the Director. If a mutual holding company acquires or merges
      with
      another holding company, the holding company acquired or the holding company
      resulting from such merger or acquisition may only invest in assets and engage
      in activities listed in (i) through (xi) above, and has a period of two years
      to
      cease any nonconforming activities and divest of any nonconforming
      investments.




34


The
      Home Owners’ Loan Act prohibits a savings and loan holding company, including
      Lincoln Park Bancorp and Lincoln Park Bancorp, MHC, directly or indirectly,
      or
      through one or more subsidiaries, from acquiring more than 5% of another savings
      institution or holding company thereof, without prior written approval of the
      Office of Thrift Supervision. It also prohibits the acquisition or retention
      of,
      with certain exceptions, more than 5% of a nonsubsidiary company engaged in
      activities other than those permitted by the Home Owners’ Loan Act; or acquiring
      or retaining control of an institution that is not federally insured. In
      evaluating applications by holding companies to acquire savings institutions,
      the Office of Thrift Supervision must consider the financial and managerial
      resources, future prospects of the company and institution involved, the effect
      of the acquisition on the risk to the insurance fund, the convenience and needs
      of the community and competitive factors.




The
      Office of Thrift Supervision is prohibited from approving any acquisition that
      would result in a multiple savings and loan holding company controlling savings
      institutions in more than one state, subject to two exceptions: (i) the approval
      of interstate supervisory acquisitions by savings and loan holding companies,
      and (ii) the acquisition of a savings institution in another state if the laws
      of the state of the target savings institution specifically permit such
      acquisitions. The states vary in the extent to which they permit interstate
      savings and loan holding company acquisitions.




***Waivers
      of Dividends by Lincoln Park Bancorp, MHC*** .
      Office of Thrift Supervision regulations require Lincoln Park Bancorp, MHC
      to
      notify the Office of Thrift Supervision of any proposed waiver of its receipt
      of
      dividends from Lincoln Park Bancorp. The Office of Thrift Supervision reviews
      dividend waiver notices on a case-by-case basis, and, in general, does not
      object to any such waiver if the mutual holding company’s board of directors
      determines that such waiver is consistent with such directors’ fiduciary duties
      to the mutual holding company’s members and the dividend waiver is not
      detrimental to the safe and sound operation of the subsidiary savings bank.
      In
      addition, as a condition to its approval of the reorganization the Federal
      Deposit Insurance Corporation has required that (i)  any dividends waived
      by Lincoln Park Bancorp, MHC must be retained by Lincoln Park Bancorp or Lincoln
      Park Savings and segregated, earmarked or otherwise identified
      in the books and records of Lincoln Park Bancorp or Lincoln Park Savings, (ii)
      the amount of waived dividends will be taken into account in any valuation
      of
      Lincoln Park Savings and factored into the calculation used in establishing a
      fair and reasonable basis for exchanging shares in any subsequent conversion
      of
      Lincoln Park Bancorp, MHC to stock form, and (iii) any waived dividends shall
      not be available for payment to, or the value thereof transferred to, minority
      stockholders, by any means, including through dividend payments or on
      liquidation. The plan of reorganization also provides that if Lincoln Park Bancorp, MHC
      converts to stock form in the future, to the extent required by applicable
      state
      or federal law, regulation or policy, the benefit to minority stockholders
      of
      any waived dividends would reduce the percentage of the converted company’s
      shares of common stock issued to minority stockholders in connection with a
      conversion transaction. We anticipate that Lincoln Park Bancorp, MHC will waive
      dividends paid by Lincoln Park Bancorp.




***Conversion
      of Lincoln Park Bancorp, MHC to Stock Form*** .
      Office of Thrift Supervision regulations permit Lincoln Park Bancorp, MHC to
      convert from the mutual form of organization to the capital stock form of
      organization. There can be no assurance when, if ever, a conversion transaction
      will occur. In a conversion transaction a new holding company would be formed
      as
      the successor to Lincoln Park Bancorp (the “New Holding Company”), Lincoln Park
      Bancorp, MHC’s corporate existence would end, and certain depositors of Lincoln
      Park Savings would receive the right to subscribe for additional shares of
      the
      New Holding Company. In a conversion transaction, each share of common stock
      held by stockholders other than Lincoln Park Bancorp, MHC (“minority
      stockholders”) would be automatically converted into a number of shares of
      common stock of the New Holding Company determined pursuant an exchange ratio
      described in the plan of reorganization that ensures that minority stockholders
      own the same percentage of common stock in the New Holding Company as they
      owned
      in Lincoln Park Bancorp immediately prior to the conversion transaction, subject
      only (if required by applicable federal or state law, regulation or policy)
      to
      any adjustment necessary to reflect the benefit to minority stockholders of
      the
      waiver of dividends by Lincoln Park Bancorp, MHC and any assets held by Lincoln
      Park Bancorp, MHC (other than common stock of Lincoln Park Bancorp) and to
      reflect the receipt of cash in lieu of fractional shares. Under Office of Thrift
      Supervision regulations, minority stockholders would not be diluted because
      of
      any dividends waived by Lincoln Park Bancorp, MHC (and waived dividends would
      not be considered in determining an appropriate exchange ratio), in the event
      Lincoln Park Bancorp, MHC converts to stock form. The total number of shares
      held by minority stockholders after a conversion transaction also would be
      increased by any purchases by minority stockholders in the stock offering
      conducted as part of the conversion transaction.




35


**Federal
      Securities Laws**




Lincoln
      Park Bancorp common stock is registered with Securities and Exchange Commission
      under the Securities Exchange Act of 1934. Lincoln Park Bancorp is subject
      to
      the information, proxy solicitation, insider trading restrictions and other
      requirements under the Securities Exchange Act of 1934.




Lincoln
      Park Bancorp common stock held by persons who are affiliates (generally
      officers, directors and principal stockholders) of Lincoln Park Bancorp may
      not
      be resold without registration or unless sold in accordance with certain resale
      restrictions. If Lincoln Park Bancorp meets specified current public information
      requirements, each affiliate of Lincoln Park Bancorp is able to sell in the
      public market, without registration, a limited number of shares in any
      three-month period.




**Regulatory
      Developments**




On
      July
      30, 2004, Lincoln Park Savings entered into a Stipulation and Consent to
      Issuance of an Order of Assessment of Civil Money Penalties with the Office
      of
      Thrift Supervision. The Stipulation was based upon findings by the Office of
      Thrift Supervision of certain weaknesses by Lincoln Park Savings in implementing
      policies and procedures relating to Bank Secrecy Act compliance. Specifically,
      the Office of Thrift Supervision advised that Lincoln Park Savings had failed
      to
      implement the independent testing component of the Bank Secrecy Act compliance
      program required by Office of Thrift Supervision regulations. Pursuant to the
      Stipulation and the related Order of Assessment of Civil Money Penalties,
      Lincoln Park Savings agreed to pay to the Office of Thrift Supervision a penalty
      in the amount of $10,000. Lincoln Park Savings also retained an independent
      accounting firm to perform a compliance consulting review for Lincoln Park
      Savings. That firm has presented its compliance consulting report to the Board
      of Directors, and the Board has adopted certain changes in the compliance
      program as recommended in the report. These changes include additional training
      of bank personnel in Bank Secrecy Act related matters, and implementing new
      policies and procedures in Bank Secrecy Act compliance, including the proper
      preparation of currency transaction reports.




In
      addition, in connection with the Board’s authorization of the execution of the
      Stipulation and Order, the Board adopted resolutions at the request of the
      Office of Thrift Supervision providing that Lincoln Park Savings will implement
      an appropriate written Bank Secrecy Act compliance program, that it will take
      actions to ensure that the compliance program is managed by a qualified officer
      and that involved bank personnel receive appropriate training, that it will
      independently test the compliance program on no less than a semi-annual basis
      and that the compliance officer will report to the Board and the Board will
      review and evaluate the compliance program on no less than a quarterly basis.




Lincoln
      Park Savings has taken the following steps to implement the recommendations
      of
      the compliance consulting report and the foregoing resolutions. Lincoln Park
      Savings has obtained a new records management register to facilitate compliance
      with the record keeping requirements applicable to the sale of monetary
      instruments. In addition, new procedures have been adopted to ensure the proper
      completion of currency transaction reports. Further, the president has been
      designated as the manager of our Bank Secrecy Act compliance program, and in
      that role has been monitoring the new register on a regular basis. Under the
      president’s oversight properly trained personnel are responsible for reviewing
      all currency transaction reports for accuracy prior to filing. Officers of
      the
      Bank have attended Bank Secrecy Act compliance courses and have scheduled
      training sessions for our staff regarding Bank Secrecy Act compliance, including
      specifically the use of the new records management register and the proper
      completion of currency transaction reports. In addition, the Board of Directors
      plans to monitor and evaluate our Bank Secrecy Act compliance program on a
      quarterly basis. We have also retained an independent accounting firm to perform
      an independent assessment of our Bank Secrecy Act compliance program on a
      semi-annual basis.




36


**ITEM
      2.**  **Description
      of Property**




The
      following table provides certain information with respect to our office as
      of
      December 31, 2006:





**Location**
            
            **Leased**
              **or
                Owned**
            
            **Year
                Acquired**
            
            **Net
                Book Value of Real**
              **Property**Main
                Office:
              31
                Boonton Turnpike
              Lincoln
                Park, NJ 07035
            
            
            Owned
            
            
            1963
            
            $
            654,423





The
      net
      book value of our premises, land and equipment was approximately $851,357 at
      December 31, 2006.





For
      information regarding the Company’s investment in mortgages and mortgage-related
      securities, see “Item 1. Business” herein.





**ITEM
              3.**
            **Legal
                Proceedings**




From
      time
      to time, we are involved as plaintiff or defendant in various legal proceedings
      arising in the ordinary course of business. At December 31, 2006, we were not
      involved in any legal proceedings, the outcome of which would be material to
      our
      financial condition or results of operations.




**ITEM
              4.**
            **Submission
                of Matters to a Vote of Security
                Holders**




No
      matters were submitted to a vote of stockholders during the fourth quarter
      of
      the year under report.




**PART
      II**




**ITEM
              5.**
            **Market
                for Common Equity, Related Stockholder Matters and Small Business
                Issuer
                Purchases of
                Securities**




(a) Our
      common stock is traded on the OTC Electronic Bulletin Board under the symbol
      “LPBC”. Lincoln Park Bancorp, MHC owns 999,810 shares, or 54.0% of our
      outstanding common stock. The approximate number of holders of record of Lincoln
      Park Bancorp’s common stock as of March 9, 2007 was 229. Certain shares of
      Lincoln Park Bancorp are held in “nominee” or “street” name and accordingly, the
      number of beneficial owners of such shares is not known or included in the
      foregoing number. The following table presents quarterly market information
      for
      Lincoln Park Bancorp’s common stock for the two-year period ended December 31,
      2006. Lincoln Park Bancorp began trading on the Electronic Bulletin Board on
      December 20, 2004. Accordingly, no information prior to this date is available.
      The following information was provided by the Electronic Bulletin
      Board.





**Fiscal
                Period**
            
            **High**
            
            **Low**
            
            **Dividends**Quarter
                ended December 31, 2004
            
            $
            12.00
            
            $
            10.75
            
            $
            0.00Quarter
                ended March 31, 2005
            
            
            11.25
            
            
            9.90
            
            
            0.00Quarter
                ended June 30, 2005
            
            
            10.00
            
            
            8.60
            
            
            0.00Quarter
                ended September 30, 2005
            
            
            9.95
            
            
            8.80
            
            
            0.00Quarter
                ended December, 31, 2005
            
            
            9.50
            
            
            8.62
            
            
            0.00Quarter
                ended March 31, 2006
            
            
            10.10
            
            
            8.85
            
            
            0.05Quarter
                ended June 30, 2006
            
            
            10.05
            
            
            9.50
            
            
            0.00Quarter
                ended September 30, 2006
            
            
            9.70
            
            
            9.10
            
            
            0.00Quarter
                ended December 31, 2006
            
            
            9.48
            
            
            8.75
            
            
            0.00





37


Dividend
      payments by Lincoln Park Bancorp are dependent primarily on dividends it
      receives from Lincoln Park Savings Bank, because Lincoln Park Bancorp will
      have
      no source of income other than dividends from Lincoln Park Savings Bank,
      earnings from the investment of proceeds from the sale of shares of common
      stock
      retained by Lincoln Park Bancorp, and interest payments with respect to Lincoln
      Park Bancorp’s loan to the Employee Stock Ownership Plan. New Jersey law imposes
      limitations on dividends by New Jersey stock savings banks. See “Regulation—New
      Jersey Banking Regulation—Dividends.”





Set
      forth
      below is information as of December 31, 2006 regarding equity compensation
      plans. Other than the ESOP, Lincoln Park Bancorp does not have any equity
      compensation plans that were not approved by its stockholders.




**Plan**
              
              **Number
                  of securities to be issued upon exercise of outstanding options
                  and
                  rights**
              
              **Weighted
                  average**
                **exercise
                  price**
              
              **Number
                  of securities remaining available for issuance under
                  plan**Equity
                  compensation plans approved by stockholders
              
              84,225(1)
              
              $8.91(2)
              
              42,787(3)Equity
                  compensation plans not approved by stockholders
              
              —
              
              —
              
              —Total
              
              84,225(1)
              
              $8.91(2)
              
              42,787(3)







(1)
            Includes
                20,205 shares of restricted stock and 64,020 options to purchase
                shares of
                common stock awarded under the 2005 Plan.


(2)
            Relates
                to 64,020 outstanding stock options.


(3)
            Includes
                16,084 shares of restricted stock available for future issuance and
                26,703
                options to purchase shares of common stock under the 2005
                Plan.





In
      addition, reference is made to the “Market for Common Stock” section of Lincoln
      Park Bancorp’s 2006 Annual Report to Stockholders, which is incorporated herein
      by reference.





(b)
            Not
                applicable**.**





(c)
            Lincoln
                Park Bancorp did not repurchase any shares of its common stock in
                the
                fourth quarter of 2006.




**ITEM
              6.**
            **Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations**




The
      “Management’s Discussion and Analysis of Financial Condition and Results of
      Operations” section of Lincoln Park Bancorp’s 2006 Annual Report to Stockholders
      is incorporated herein by reference. For off-balance sheet arrangements, see
      Note 14 of the “Notes to Consolidated Financial Statements” within the Annual
      Report.




**ITEM
              7.**
            **Financial
                Statements**




The
      consolidated financial statements included in Lincoln Park Bancorp’s 2006 Annual
      Report to Stockholders are incorporated herein by reference.




**ITEM
              8.**
            **Changes
                In and Disagreements With Accountants on Accounting and Financial
                Disclosure**




None.




**ITEM
              8A.**
            **Controls
                and Procedures**




Under
      the
      supervision and with the participation of our management, including our Chief
      Executive Officer and Chief Financial Officer, we evaluated the effectiveness
      of
      the design and operation of our disclosure controls and procedures (as defined
      in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end
      of
      the period covered by this report. Based upon that evaluation, the Chief
      Executive Officer and Chief Financial Officer concluded that, as of the end
      of
      the period covered by this report, our disclosure controls and procedures were
      effective to ensure that information required to be disclosed in the reports
      that the Company files or submits under the Securities Exchange Act of 1934,
      is
      recorded, processed, summarized and reported, within the time periods specified
      in the SEC’s rules and forms. There has been no change in the Company’s internal
      control over financial reporting during the Company’s fourth quarter of fiscal
      year 2006 that has materially affected, or is reasonably likely to materially
      affect, the Company’s internal control over financial reporting.




38


ITEM
                8B.
            **Other
                Information**




None.




**PART
      III**




**ITEM
              9.**
            **Directors,
                Executive Officers, Promoters, Control Persons and Corporate Governance;
                Compliance with Section 16(a) of the Exchange
                Act**




Lincoln
      Park Bancorp has adopted a Code of Ethics that applies to Lincoln Park Bancorp’s
      principal executive officer, principal financial officer, principal accounting
      officer or controller or persons performing similar functions. The Code of
      Ethics may be accessed on Lincoln Park Bancorp’s website at www.lincoln
      parksavings.com. The Code of Ethics was also filed as Exhibit 14 to Lincoln
      Park
      Bancorp’s Form 10-KSB for the year ended December 31, 2004.




Information
      concerning Directors and executive officers of Lincoln Park Bancorp is
      incorporated herein by reference from our definitive Proxy Statement (the “Proxy
      Statement”), specifically the section captioned “Proposal I—Election of
      Directors.” Information concerning corporate governance matters is incorporated
      herein by reference from our Proxy Statement, specifically the section captioned
      “Proposal I - Election of Directors.”




**ITEM
              10.**
            **Executive
                Compensation**




Information
      concerning executive compensation is incorporated herein by reference from
      our
      Proxy Statement, specifically the section captioned “Proposal I — Election of
      Directors.”




**ITEM
              11.**
            **Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters**




Information
      concerning security ownership of certain owners and management is incorporated
      herein by reference from our Proxy Statement, specifically the sections
      captioned “Voting Securities and Principal Holders Thereof” and “Proposal I —
Election of Directors.”




**ITEM
              12.**
            **Certain
                Relationships and Related Transactions and Director
                Independence**




Information
      concerning relationships and transactions, and director independence, is
      incorporated herein by reference from our Proxy Statement, specifically the
      sections captioned “Transactions with Certain Related Persons” and “Board
      Independence,” respectively.




39




**ITEM
              13.**
            **Exhibits**




(a)
            Financial
                Statements





(A)
            Management
                Responsibility Statement





(B)
            Report
                of Independent Registered Public Accounting
                Firm





(C)
            Consolidated
                Statements of Financial Condition





(D)
            Consolidated
                Statements of Income




(E)
            Consolidated
                Statements of Changes In Stockholders’
Equity





(F)
            Consolidated
                Statements of Cash Flows





(G)
            Notes
                to Consolidated Financial
                Statements





(b)
            Financial
                Statement Schedules





(c)
            Exhibits





3.1
            Charter
                of Lincoln Park Bancorp*


3.2
            Bylaws
                of Lincoln Park Bancorp*


4
            Form
                of Common Stock Certificate of Lincoln Park
                Bancorp*


10.1
            Employee
                Stock Ownership Plan*


10.2
            Lincoln
                Park Bancorp 2005 Stock-Based Incentive
                Plan****


10.3
            Lincoln
                Park Bancorp Director Retirement Plan**  13
            Annual Report to Stockholders  14
            Code of Ethics***  21
            Subsidiaries of Registrant*


23
            Consent
                of Beard Miller Company LLP


31.1
            Certification
                of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
                Exchange Act of 1934, as amended, as adopted pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002


31.2
            Certification
                of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities
                Exchange Act of 1934, as amended, as adopted pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002


32
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002





*
            Incorporated
                by reference to the Registration Statement on Form SB-2 of Lincoln
                Park
                Bancorp (file no. 333-116639), originally filed with the Securities
                and
                Exchange Commission on June 18, 2004.


**
            Incorporated
                by reference to the Current Report on Form 8-K of Lincoln Park Bancorp
                (file no. 000-51078), filed with the Securities and Exchange Commission
                on
                March 15, 2006.


***
            Incorporated
                by reference to the Annual Report on Form 10-KSB of Lincoln Park
                Bancorp
                (file no. 000-51078), filed with the Securities and Exchange Commission
                on
                March 30, 2005.


****
            Incorporated
                by reference to the definitive proxy statement of Lincoln Park Bancorp
                (file no. 000-51078) for the special meeting of stockholders held
                on
                December 22, 2005, as filed with the Securities and Exchange Commission
                on
                November 22, 2005.





40





**ITEM
              14.**
            **Principal
                Accountant Fees and
                Services**





Information
      concerning principal accountant fees and services is incorporated herein by
      reference from our Proxy Statement, specifically the section captioned “Proposal
      II-Ratification of Appointment of Independent Registered Public Accounting
      Firm.”




41


**SIGNATURES**





Pursuant
      to the requirements of Section 13 of the Securities Exchange Act of 1934, the
      Company has duly caused this report to be signed on its behalf by the
      undersigned, thereunto duly authorized.




**LINCOLN
                PARK BANCORP**Date: March
              28, 2007
            By:
            /s/ David
              G.
              BakerDavid
              G. BakerPresident
                and
                Chief Executive Officer
              (Duly Authorized
                Representative)




Pursuant
      to the requirements of the Securities Exchange of 1934, this report has been
      signed by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.





**Signatures**
            ****
            **Title**
            ****
            **Date**/s/
                David G. Baker
            
            President
                and Chief Executive Officer
            
            March
                28, 2007David
                G. Baker
            
            (Principal
                Executive Officer), Director/s/
                Nandini Mallya
            
            Vice
                President and Treasurer
            
            March
                28, 2007Nandini
                Mallya
            
            (Principal
                Financial and Accounting Officer)/s/
                Stanford Stoller
            
            Chairman
                of the Board and Director
            
            March
                28, 2007Stanford
                Stoller/s/
                William H. Weisbrod
            
            Vice
                Chairman of the Board and Director
            
            March
                28, 2007William
                H. Weisbrod/s/
                John F. Feeney
            
            Director
            
            March
                28, 2007John
                F. Feeney/s/
                Edith M. Perrotti
            
            Director
            
            March
                28, 2007Edith
                M. Perrotti