UNITED
        STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-Q





(Mark
      One)


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





For
      the
      quarterly period ended June
      30, 2007




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 000-52826





BEACON
      FEDERAL BANCORP, INC.


(Exact
      name of registrant as specified in its charter)





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





5000
                Brittonfield Parkway, East Syracuse, New York
            13057(Address
                of principal executive office)
            (Zip
                Code)





Registrant's
      telephone number, including area code (315)
      433-0111





Not
      applicable


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






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





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer in rule 12b-2 of the Exchange Act. (Check
      one): Large
      accelerated filer o Accelerated filer o  Non-accelerated filer x





Indicate
      by checkmark whether the Registrant is a shell company (as defined in Rule
      12b-2
      of the Exchange Act). Yes o  No x




As
      of
      June 30, 2007 there were no shares of the registrant’s common stock
      outstanding.










**BEACON
        FEDERAL BANCORP, INC.**


Explanatory
      Note





Beacon
      Federal Bancorp, Inc. (“Company”) filed a registration statement on Form S-1
      (“Registration Statement”) with the Securities and Exchange Commission (the
“SEC”), which the SEC declared effective on August 10, 2007. The Registration
      Statement included financial statements for the year ended December 31, 2006
      and
      three months ended March 31, 2007 (unaudited). Therefore, Beacon Federal
      Bancorp, Inc. is filing this Form 10-Q pursuant to Rule 13a-13 of the Securities
      Exchange Act of 1934, as amended, in order to file financial statements for
      the
      first interim period subsequent to the last period reported in the Registration
      Statement.





























2


**BEACON
        FEDERAL BANCORP, INC.**


FORM
      10-Q





FOR
      THE
      QUARTER ENDED JUNE 30, 2007





INDEX





PAGE
                NO.PART
                I -
            Financial
                Information.
            4Item
                1.
            Financial
                Statements.
            4Consolidated
                Balance Sheets
            5Consolidated
                Statements of Income
            5Consolidated
                Statements of Comprehensive Income
            6Consolidated
                Statements of Cash Flows
            7Notes
                to Consolidated Financial Statements
            9Item
                2.
            Management's
                Discussion and Analysis of Financial Condition
                and Results of Operations.
            11Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk.
            25Item
                4.
            Controls
                and Procedures.
            26PART
                II -
            Other
                Information.
            27Item
                1.
            Legal
                Proceedings.
            27Item
                1A.
            Risk
                Factors
            27Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds.
            27Item
                3.
            Defaults
                Upon Senior Securities.
            27Item
                4.
            Submission
                of Matters to a Vote of Security Holders.
            27Item
                5.
            Other
                Information.
            27Item
                6.
            Exhibits.
            27Signatures
            
            28Certifications




3


**BEACON
        FEDERAL**


**PART
      1. FINANCIAL INFORMATION**


**ITEM
      1. FINANCIAL STATEMENTS**


Beacon
      Federal Bancorp, Inc. was formed by Beacon Federal (“Bank”) to become the
      holding company for the Bank upon the Bank’s conversion from a mutual savings
      association to a capital stock corporation. At June 30, 2007, Beacon Federal
      Bancorp, Inc. has no assets and conducted no operations, and accordingly, the
      information presented in this report is for the Bank.





**CONSOLIDATED
      BALANCE SHEETS**


(Dollars
      in thousands)


**June
                  30,**
              
              **December
                  31,****ASSETS**
              
              **2007**
              
              **2006***(Unaudited)*Cash
                  and due from financial institutions
              
              $
              6,969
              
              $
              8,799Federal
                  funds sold
              
              
              -
              
              
              -Cash
                  and cash equivalents
              
              
              6,969
              
              
              8,799Interest-bearing
                  deposits in other financial institutions
              
              
              1,835
              
              
              2,135Securities
                    held to maturity (fair value of $34,284 and $36,874,
                    respectively)
              
              
              35,151
              
              
              37,706Securities
                  available for sale
              
              
              18,833
              
              
              8,852Loans,
                    net of allowance for loan losses of $5,755and $5,192,
                    respectively
              
              
              612,266
              
              
              537,097Federal
                  Home Loan Bank stock of New York
              
              
              5,252
              
              
              4,091Premises
                  and equipment, net
              
              
              3,949
              
              
              3,717Accrued
                  interest receivable
              
              
              2,669
              
              
              2,233Foreclosed
                  and repossessed assets
              
              
              132
              
              
              952Other
                  assets
              
              
              1,752
              
              
              2,087Total
                  assets
              
              $
              688,808
              
              $
              607,669**LIABILITIES
                  AND EQUITY**Deposits
              
              $
              540,278
              
              $
              471,137Federal
                  Home Loan Bank advances
              
              
              96,600
              
              
              73,900Securities
                  sold under agreement to repurchase
              
              
              5,000
              
              
              15,227Accrued
                  interest payable and other liabilities
              
              
              1,626
              
              
              3,160Total
                  liabilities
              
              
              643,504
              
              
              563,424Commitments
                  and contingenciesAccumulated
                  other comprehensive loss, net
              
              
              (85
              )
              
              (9
              )Retained
                  earnings - substantially restricted
              
              
              45,389
              
              
              44,254Total
                  equity
              
              
              45,304
              
              
              44,245Total
                  liabilities and equity
              
              $
              688,808
              
              $
              607,669See
                  accompanying notes to consolidated financial statements.




4


**BEACON
          FEDERAL**




**CONSOLIDATED
      STATEMENTS OF INCOME**


(Dollars
      in thousands)




**Three
                  Months Ended**
              
              **Six
                  Months Ended****June
                  30,**
              
              **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Interest
                  and dividend income:
              
              
              *(Unaudited**)*
              
              
              *(Unaudited**)*Loans,
                  including fees
              
              $
              9,271
              
              $
              7,017
              
              $
              17,703
              
              $
              13,575Securities
              
              
              610
              
              
              530
              
              
              1,142
              
              
              1,014FHLB
                  stock
              
              
              142
              
              
              45
              
              
              168
              
              
              81Federal
                  funds sold and other
              
              
              157
              
              
              205
              
              
              264
              
              
              342Total
                  interest income
              
              
              10,180
              
              
              7,797
              
              
              19,277
              
              
              15,012Interest
                  expense:Deposits
              
              
              5,374
              
              
              3,366
              
              
              10,200
              
              
              6,090FHLB
                  advances
              
              
              932
              
              
              580
              
              
              1,786
              
              
              1,199Securities
                  sold under agreement to repurchase
              
              
              112
              
              
              195
              
              
              258
              
              
              397Total
                  interest expense
              
              
              6,418
              
              
              4,141
              
              
              12,244
              
              
              7,686Net
                  interest income
              
              
              3,762
              
              
              3,656
              
              
              7,033
              
              
              7,326Provision
                  for loan losses
              
              
              464
              
              
              226
              
              
              657
              
              
              408Net
                    interest income after provisionfor loan
                    losses
              
              
              3,298
              
              
              3,430
              
              
              6,376
              
              
              6,918Noninterest
                  income:Service
                  charges
              
              
              620
              
              
              558
              
              
              1,190
              
              
              1,117Commission
                  income
              
              
              119
              
              
              96
              
              
              257
              
              
              219Loss
                  on sale of loans
              
              
              -
              
              
              (5
              )
              
              -
              
              
              (5
              )Other
              
              
              51
              
              
              49
              
              
              95
              
              
              94Total
                  noninterest income
              
              
              790
              
              
              698
              
              
              1,542
              
              
              1,425Noninterest
                  expense:Salaries
                  and employee benefits
              
              
              1,709
              
              
              1,670
              
              
              3,398
              
              
              3,325Occupancy
                  and equipment
              
              
              304
              
              
              269
              
              
              598
              
              
              538Advertising
                  and marketing
              
              
              71
              
              
              92
              
              
              169
              
              
              180Telephone,
                  delivery and postage
              
              
              114
              
              
              102
              
              
              247
              
              
              170Supplies
              
              
              80
              
              
              136
              
              
              230
              
              
              240Audit
                  and examination
              
              
              238
              
              
              79
              
              
              322
              
              
              141Provision
                  for loss on foreclosed assets
              
              
              -
              
              
              -
              
              
              110
              
              
              -Other
              
              
              463
              
              
              520
              
              
              1,011
              
              
              970Total
                  noninterest expense
              
              
              2,979
              
              
              2,868
              
              
              6,085
              
              
              5,564Income
                  before income taxes
              
              
              1,109
              
              
              1,260
              
              
              1,833
              
              
              2,779Income
                  tax expense
              
              
              418
              
              
              446
              
              
              698
              
              
              1,011Net
                  income
              
              $
              691
              
              $
              814
              
              $
              1,135
              
              $
              1,768Basic
                  and diluted earnings per share
              
              $
              N/A
              
              $
              N/A
              
              $
              N/A
              
              $
              N/AN/A
                  Not applicable.See
                  accompanying notes to consolidated financial statements.







5


**BEACON
          FEDERAL**




**CONSOLIDATED
      STATEMENTS OF COMPREHENSIVE INCOME**


(Dollars
      in thousands)





**Three
                  Months Ended**
              
              **Six
                  Months Ended****June
                  30,**
              
              **June
                  30,****2007**
              
              **2006**
              
              **2007**
              
              **2006***(Unaudited)*
              
              *(Unaudited)*Net
                  income
              
              $
              691
              
              $
              814
              
              $
              1,135
              
              $
              1,768Other
                  comprehensive income:Unrealized
                    losses on securities arisingduring the period, net of
                    tax
              
              
              (95
              )
              
              (64
              )
              
              (76
              )
              
              (64
              )Comprehensive
                  income
              
              $
              596
              
              $
              750
              
              $
              1,059
              
              $
              1,704See
                  accompanying notes to consolidated financial statements.


































6


**BEACON
          FEDERAL**




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(Dollars
      in thousands)





**Six
                  Months Ended****June
                  30,****2007**
              
              **2006**Cash
                  flows from operating activities:
              
              
              *(Unaudited**)*Net
                  income
              
              $
              1,135
              
              $
              1,768Adjustments
                  to reconcile net income to net cash
                  provided by (used for) operating activities:Provision
                  for loan losses
              
              
              657
              
              
              408Depreciation
                  and amortization
              
              
              212
              
              
              216Amortization
                  of net deferred loan costs
              
              
              336
              
              
              361Net
                  amortization of premiums and discounts on securities
              
              
              (26
              )
              
              21Loss
                  on sale of loans
              
              
              -
              
              
              5Originations
                  of loans held for sale
              
              
              -
              
              
              (54
              )Proceeds
                  from loans held for sale
              
              
              -
              
              
              49Net
                  change in:Accrued
                  interest receivable
              
              
              (436
              )
              
              (8
              )Other
                  assets
              
              
              388
              
              
              199Accrued
                  interest payable and other liabilities
              
              
              (1,534
              )
              
              (1,383
              )Net
                  cash provided by operating activities
              
              
              732
              
              
              1,582Cash
                  flows from investing activities:Purchase
                  of FHLB stock
              
              
              (3,671
              )
              
              (1,564
              )Redemption
                  of FHLB stock
              
              
              2,510
              
              
              1,371Purchase
                  of interest-bearing deposits
              
              
              -
              
              
              (5,620
              )Maturities
                  of interest-bearing deposits
              
              
              300
              
              
              2,987Securities
                  held to maturity:Maturities,
                  prepayments and calls
              
              
              2,579
              
              
              3,828Purchases
              
              
              -
              
              
              (2,303
              )Securities
                  available for sale:Purchases
              
              
              (10,108
              )
              
              (4,220
              )Loan
                  originations and payments, net
              
              
              (75,262
              )
              
              (46,307
              )Purchase
                  of premises and equipment
              
              
              (444
              )
              
              (76
              )Proceeds
                  from (additions to) foreclosed and repossessed assets
              
              
              (80
              )
              
              38Net
                  cash used for investing activities
              
              $
              (84,176
              )
              $
              (51,866
              )












**Continued
      on following page**


7
 
 **BEACON
            FEDERAL**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(Dollars
      in thousands)


**Continued**








**Six
                  Months Ended****June
                  30,****2007**
              
              **2006**Cash
                  flows from financing activities:
              
              
              *(Unaudited**)*Net
                  change in deposits
              
              $
              69,141
              
              $
              49,084Proceeds
                  from FHLB advances
              
              
              434,450
              
              
              51,170Repayment
                  of FHLB advances
              
              
              (411,750
              )
              
              (50,170
              )Repayments
                  of securities sold under agreement to repurchase
              
              
              (10,227
              )
              
              (3,000
              )Net
                  cash provided by financing activities
              
              
              81,614
              
              
              47,084Net
                  change in cash and cash equivalents
              
              
              (1,830
              )
              
              (3,200
              )Cash
                  and cash equivalents at beginning of period
              
              
              8,799
              
              
              11,927Cash
                  and cash equivalents at end of period
              
              $
              6,969
              
              $
              8,727Supplemental
                  cash flow information:Interest
                  paid
              
              $
              12,047
              
              $
              7,395Income
                  taxes paid
              
              
              757
              
              
              1,616Real
                  estate and repossessions acquired in settlement of loans
              
              $
              -
              
              $
              -Loans
                  originated to finance the sale of foreclosed real estate
              
              $
              900
              
              $
              -See
                  accompanying notes to consolidated financial statements.





























8


**BEACON
          FEDERAL**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


*(Unaudited)*


(Dollars
      in thousands)





**NOTE
      1 - BASIS OF PRESENTATION**





The
      accompanying unaudited interim consolidated financial statements have been
      prepared in accordance with the instructions for Form 10-Q and Rule 10-01 of
      Regulation S-X and, therefore, do not include all disclosures necessary for
      a
      complete presentation of the financial statements in conformity with U.S.
      generally accepted accounting principles. In the opinion of management, the
      accompanying unaudited consolidated financial statements contain all adjustments
      (consisting only of normal recurring accruals) considered necessary for a fair
      presentation of the results of operations for the interim periods. The results
      of operations for the three and six months ended June 30, 2007 are not
      necessarily indicative of the results that may be expected for the entire year
      or any other interim period. For additional information, refer to the
      consolidated financial statements and footnotes thereto of Beacon Federal
      included in the prospectus of Beacon Federal Bancorp, Inc. dated August 10,
      2007.





**NOTE
      2 - PLAN OF CONVERSION**





On
      March
      22, 2007, the Board of Directors of the Bank adopted a Plan of Conversion to
      convert from a mutual savings association to a capital stock corporation
      (“Conversion”). A new holding company will be established as part of the
      Conversion. Shares of common stock of the new holding company will be offered
      in
      a subscription offering. Concurrently with the subscription offering, shares
      not
      subscribed for in the subscription offering will be offered to the general
      public in a direct community offering.





Subsequent
      to the Conversion, voting rights will be held and exercised exclusively by
      the
      stockholders of the new holding company. Deposit account holders will continue
      to be insured by the FDIC. A liquidation account will be established in an
      amount equal to the Bank’s total equity as of the latest balance sheet date in
      the final prospectus used in the Conversion.





Following
      completion of the Conversion, the Bank may not declare, pay a dividend on,
      or
      repurchase any of its capital stock of the Bank, if the effect thereof would
      cause retained earnings to be reduced below the liquidation account amount
      or
      regulatory capital requirements. Any purchase of the new holding company’s
      common stock will be conducted in accordance with applicable laws and
      regulations. The amount of the Company’s common stock sold to the public will be
      based upon the Company’s estimated pro forma market value determined by an
      independent appraisal. The Conversion costs will be deferred and reduce the
      proceeds from the shares sold in the Conversion. At June 30, 2007, Conversion
      costs of $413 had been deferred. The transaction is subject to certain
      conditions, including the required regulatory approvals and approval of the
      Plan
      of Conversion by the members of the Bank.





**NOTE
      3 - EARNINGS PER SHARE**




Since
      the
      Company had not issued any shares of common stock as of June 30, 2007, per
      share
      data is not applicable for any periods covered by the financial
      statements.





9




**BEACON
          FEDERAL**




**NOTE
      4 - UNREALIZED LOSSES ON SECURITIES**





Securities
      with unrealized losses, aggregated by investment category and length of time
      that individual securities have been in a continuous unrealized loss position,
      are as follows:





**Less
                  than 12 Months**
              
              **12
                  Months or Longer**
              
              **Total****Fair**
              
              **Unrealized**
              
              **Fair**
              
              **Unrealized**
              
              **Fair**
              
              **Unrealized****June
                  30, 2007**
              
              **Value**
              
              **loss**
              
              **Value**
              
              **loss**
              
              **Value**
              
              **loss**Agencies
              
              $
              1,739
              
              $
              (11
              )
              $
              -
              
              $
              -
              
              $
              1,739
              
              $
              (11
              )Mortgage-backedsecurities
              
              
              -
              
              
              -
              
              
              8,705
              
              
              (319
              )
              
              8,705
              
              
              (319
              )Collateralizedmortgage
                  obligations
              
              
              8,712
              
              
              (164
              )
              
              22,038
              
              
              (534
              )
              
              30,750
              
              
              (698
              )$
              10,451
              
              $
              (175
              )
              $
              30,743
              
              $
              (853
              )
              $
              41,194
              
              $
              (1,028
              )









For
      all
      of the above securities, the unrealized losses are primarily due to changes
      in
      market interest rates and not credit quality of the issuers and, as such, are
      considered to be temporary by the Bank. In addition, management of the Bank
      has
      the intent and ability to hold these securities for the foreseeable future
      and
      believes that the fair value of these securities will recover in the future.








10


**BEACON
          FEDERAL**




**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.**





Management’s
      discussion and analysis of the financial condition and results of operations
      at
      June 30, 2007 and for the three and six months ended June 30, 2007 and 2006
      is
      intended to assist in understanding our financial condition and results of
      operations of the Bank. The information contained in this section should be
      read
      in conjunction with the Unaudited Consolidated Financial Statements and the
      notes thereto, appearing in Part 1, Item 1 of this report.





**Forward-Looking
      Statements**





When
      used
      in this Form 10-Q, the words or phrases “will likely result,” “are expected to,”
“will continue,” “is anticipated,” “estimate,” “project” or similar expressions
      are intended to identify “forward-looking statements” within the meaning of the
      Private Securities Litigation Act of 1995. Such statements are subject to
      certain risks and uncertainties including changes in economic conditions in
      our
      market area, changes in policies by regulatory agencies, fluctuations in
      interest rates, demand for loans in our market area, and competition that could
      cause actual results to differ materially from historical earnings and those
      presently anticipated or projected. The Company wishes to caution you not to
      place undue reliance on any such forward-looking statements, which only speak
      as
      of the date made. The Company wishes to advise you that the factors listed
      above
      could affect the Company’s financial performance and could cause the Company’s
      actual results for future periods to differ materially from any opinions or
      statements expressed with respect to future periods in any current statements.





The
      Company does not undertake, and specifically disclaims any obligation, to
      publicly release the result of any revisions which may be made to any
      forward-looking statements to reflect events or circumstances after the date
      of
      such statements or to reflect the occurrence of anticipated or unanticipated
      events.





**Overview**





Our
      results of operations depend mainly on our net interest income, which is the
      difference between the interest income earned on our loan and investment
      portfolios and interest expense we pay on our deposits and borrowings. Results
      of operations are also affected by fee income from banking operations,
      provisions for loan losses, gains (losses) on sales of loans and other
      miscellaneous income. Our noninterest expense consists primarily of compensation
      and employee benefits, office occupancy, marketing, general administrative
      expenses and income tax expense.




Our
      results of operations are also significantly affected by general economic and
      competitive conditions, particularly with respect to changes in interest rates,
      government policies and actions of regulatory authorities. Future changes in
      applicable law, regulations or government policies may materially affect our
      financial condition and results of operations.




**Critical
      Accounting Policies**




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





11


**BEACON
          FEDERAL**





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





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





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





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





**Comparison
      of Financial Condition at June 30, 2007 and December 31,
      2006**





Total
      assets increased $81.1 million to $688.8 million at June 30, 2007 from $607.7
      million at December 31, 2006. The increase was primarily the result of an
      increase in net loans and securities available for sale, funded by a $69.1
      million increase in deposits and a $22.7 million increase in Federal Home Loan
      Bank advances.





Net
      loans
      increased $75.2 million, or 14.0%, to $612.3 million at June 30, 2007 from
      $537.1 million at December 31, 2006, reflecting continued strong business
      relationships maintained by our loan staff in our local markets. Securities
      available for sale increased to $18.8 million at June 30, 2007 from $8.9 million
      at December 31, 2006, while securities held to maturity decreased slightly
      to
      $35.2 million at June 30, 2007 from $37.7 million at December 31, 2006. The
      increase in securities available for sale reflected, in part, the deployment
      of
      excess liquidity.




12




**BEACON
          FEDERAL**




Deposits
      increased $69.1 million, or 14.7%, to $540.2 million at June 30, 2007 from
      $471.1 million at December 31, 2006 due to the success of recent promotions
      to
      attract additional deposits. Federal Home Loan Bank advances are utilized to
      the
      extent that liquidity needs are not met by cash received from customer deposits.
      Federal Home Loan Bank advances increased $22.7 million, or 30.7%, to $96.6
      million at June 30, 2007 from $73.9 million at December 31, 2006. The increases
      in deposits and Federal Home Loan Bank advances funded higher net loans and
      securities available for sale.





Equity
      increased $1.1 million, or 2.4%, to $45.3 million at June 30, 2007 from $44.2
      million at December 31, 2006. The increase resulted from net income of $1.1
      million for the six months ended June 30, 2007.





**Comparison
      of Operating Results for the Three Months Ended June 30, 2007 and
      2006**





***General*** .
      Net
      income decreased to $691,000 for the three months ended June 30, 2007 from
      $814,000 for the three months ended June 30, 2006. The decrease in net income
      reflected an increase in non-interest expense and the provision for loan losses,
      partially offset by an increase in net interest income and non-interest income.





***Interest
      Income.*** Interest
      income increased $2.4 million, or 30.6%, to $10.2 million for the three months
      ended June 30, 2007 from $7.8 million for the three months ended June 30, 2006.
      The increase resulted primarily from higher average balances of loans and higher
      yields on such loans in the 2007 period compared to the 2006
      period.





Interest
      income on loans increased to $9.3 million for the three months ended June 30,
      2007 from $7.0 million for the three months ended June 30, 2006. The increase
      was due to the higher average balance of loans to $587.0 million for the three
      months ended June 30, 2007 from $480.3 million for the three months ended June
      30, 2006, reflecting our continued emphasis on loan growth. The increase in
      interest income on loans also was due to higher yields earned on such loans
      to
      6.34% for the three months ended June 30, 2007 from 5.86% for the three months
      ended June 30, 2006, reflecting higher market interest rates generally,
      increases in interest rates on our adjustable-rate loans in the higher interest
      rate environment, and the greater proportion of higher-yielding commercial
      business and multi-family loans in our loan portfolio during the 2007 period
      compared to the 2006 period. Interest income on securities, including FHLB
      stock, increased $177,000, or 30.8%, to $752,000 for the three months ended
      June
      30, 2007 from $575,000 for the three months ended June 30, 2006, reflecting
      a
      higher average balance of such securities (to $50.6 million from $45.8 million)
      as well as higher yields on such securities to 5.96% from 5.04% in the generally
      higher market interest rate environment.





***Interest
      Expense.*** Interest
      expense increased $2.3 million, or 55.0%, to $6.4 million for the three months
      ended June 30, 2007 from $4.1 million for the three months ended June 30, 2006.
      The increase in interest expense reflected substantially higher average balances
      of deposits and borrowings to fund loan growth, as well as substantially higher
      rates on such deposits and borrowings in the higher market interest rate
      environment. Interest expense on deposits increased $2.0 million, or 59.7%,
      to
      $5.4 million for the three months ended June 30, 2007 from $3.4 million for
      the
      three months ended June 30, 2006, reflecting an increase in the average balance
      of such deposits to $520.9 million for the three months ended June 30, 2007
      from
      $424.3 million for the three months ended June 30, 2006. In addition, the
      average rate paid on such deposits increased to 4.14% from 3.18%. Interest
      expense on certificates of deposit increased to $3.5 million for the three
      months ended June 30, 2007 from $2.6 million for the three months ended June
      30,
      2006, due primarily to the higher average rate on such deposits (4.98% compared
      to 4.11%) in the higher market interest rate environment and, to a lesser
      extent, the higher average balance of such deposits ($280.7 million compared
      to
      $255.0 million). Interest expense on money market accounts also increased to
      $1.4 million from $313,000, reflecting substantially higher rates on such
      accounts (4.73% in the 2007 period compared to 2.65% in the 2006 period), as
      well as higher average balances of such accounts ($120.1 million compared to
      $47.4 million).




13


**BEACON
          FEDERAL**


Interest
      expense on borrowings increased to $1.0 million for the three months ended
      June
      30, 2007 from $775,000 for the three months ended June 30, 2006. The increase
      was due to a higher average balance of such borrowings, to $86.1 million for
      the
      three months ended June 30, 2007 from $80.2 million for the three months ended
      June 30, 2006, as borrowings were used to supplement deposits to fund loan
      growth. The average rates paid on such borrowings also increased to 4.86% from
      3.88%, reflecting generally higher market interest rates.





***Net
      Interest Income.*** Net
      interest income increased $106,000, or 2.9%, to $3.8 million for the three
      months ended June 30, 2007 from $3.7 million for the three months ended June
      30,
      2006. The increase in net interest income was due to an increase in net interest
      earning assets to $44.1 million for the three months ended June 30, 2007 from
      $42.3 million for the three months ended June 30, 2006, which more than offset
      decreases in our net interest rate spread (to 2.03% from 2.43%) and net interest
      margin (to 2.32% from 2.68%). The decreases in our net interest rate spread
      and
      net interest margin reflected the current interest rate environment and the
      continued flattened to inverted U.S. Treasury yield curve
      environment.





***Provision
      for Loan Losses.*** We
      recorded a provision for loan losses of $464,000 for the three months ended
      June
      30, 2007 compared to a provision for loan losses of $226,000 for the three
      months ended June 30, 2006. The provision for loan losses reflected substantial
      growth in our loan portfolio. Components of the provision for loan losses
      included a general allowance for each type of loan based on historical loan
      loss
      experience, and related adjustments to historical experience, and the risks
      associated with increased commercial lending. Loans increased $55.1 million,
      or
      9.9%, from $557.2 million at March 31, 2007 to $612.3 million at June 30, 2007.
      The provisions recorded also reflected net charge offs of $20,000 for the three
      months ended June 30, 2007 compared to net recoveries of $68,000 for the three
      months ended June 30, 2006. The allowance for loan losses was $5.8 million,
      or
      0.93% of total loans at June 30, 2007 compared to $4.9 million, or 0.97% of
      total loans at June 30, 2006. Total nonperforming assets were $733,000 at June
      30, 2007 compared to $2.0 million at June 30, 2006. We used the same methodology
      in assessing the allowances for both periods. To the best of our knowledge,
      we
      have recorded all losses that are both probable and reasonable to estimate
      for
      the three months ended June 30, 2007 and 2006.





***Non-Interest
      Income.*** Non-interest income increased to $790,000 for the three months ended June 30,
      2007 from $698,000 for the three months ended June 30, 2006. Service charges
      increased $62,000, to $620,000 for the three months ended June 30, 2007,
      reflecting higher deposit-related fees.





***Non-Interest
      Expense.*** Non-interest expense increased $111,000, or 3.9%, to $3.0 million for the three
      months ended June 30, 2007 from $2.9 million for the three months ended June
      30,
      2006. The increase reflected higher FDIC premium expenses, normal salary
      increases and higher occupancy and equipment expenses, partially offset by
      lower
      supplier costs and other non-interest expenses.





***Income
      Tax Expense.*** The
      provision for income taxes was $418,000 for the three months ended June 30,
      2007
      compared to $446,000 for the three months ended June 30, 2006. Our effective
      tax
      rate was 37.7% for the three months ended June 30, 2007 compared to 35.4% for
      the three months ended June 30, 2006.




14


**BEACON
          FEDERAL**


**Comparison
      of Operating Results for the Six Months Ended June 30, 2007 and
      2006**





***General*** .
      Net
      income decreased to $1.1 million for the six months ended June 30, 2007 from
      $1.8 million for the six months ended June 30, 2006. The decrease in net income
      reflected an increase in non-interest expense and the provision for loan losses,
      as well as a decrease in net interest income, which was partially offset by
      an
      increase in non-interest income.





***Interest
      Income.*** Interest
      income increased $4.3 million, or 28.4%, to $19.3 million for the six months
      ended June 30, 2007 from $15.0 million for the six months ended June 30, 2006.
      The increase resulted primarily from higher average balances of loans and higher
      yields on such loans in the 2007 period compared to the 2006
      period.





Interest
      income on loans increased to $17.7 million for the six months ended June 30,
      2007 from $13.6 million for the six months ended June 30, 2006. The increase
      was
      due to the higher average balance of loans to $569.8 million for the six months
      ended June 30, 2007 from $469.4 million for the six months ended June 30, 2006,
      reflecting our continued efforts to increase our loan portfolio. The increase
      in
      interest income on loans also was due to higher yields earned on such loans
      to
      6.27% for the six months ended June 30, 2007 from 5.84% for the six months
      ended
      June 30, 2006, reflecting higher market interest rates generally, increases
      in
      interest rates on our adjustable-rate loans in the higher interest rate
      environment, and the greater proportion of higher-yielding commercial business
      and multi-family loans in our loan portfolio during the 2007 period compared
      to
      the 2006 period. Interest income on securities, including FHLB stock, increased
      $215,000, or 19.6%, to $1.3 million for the six months ended June 30, 2007
      from
      $1.1 million for the six months ended June 30, 2006, reflecting a higher average
      balance of such securities (to $50.6 million from $46.0 million) as well as
      higher yields on such securities to 5.22% from 4.80% in the generally higher
      market interest rate environment.





***Interest
      Expense.*** Interest
      expense increased $4.6 million, or 59.3%, to $12.2 million for the six months
      ended June 30, 2007 from $7.7 million for the six months ended June 30, 2006.
      The increase in interest expense reflected substantially higher average balances
      of deposits and borrowings to fund loan growth, as well as substantially higher
      rates on such deposits and borrowings in the higher market interest rate
      environment. Interest expense on deposits increased $4.1 million, or 67.5%,
      to
      $10.2 million for the six months ended June 30, 2007 from $6.1 million for
      the
      six months ended June 30, 2006, reflecting an increase in the average balance
      of
      such deposits to $502.5 million for the six months ended June 30, 2007 from
      $407.6 million for the six months ended June 30, 2006. In addition, the average
      rate paid on such deposits increased to 4.10% from 3.01%. Interest expense
      on
      certificates of deposit increased to $6.8 million for the six months ended
      June
      30, 2007 from $4.8 million for the six months ended June 30, 2006, due primarily
      to the higher average rate on such deposits (4.94% compared to 3.97%) in the
      higher market interest rate environment and, to a lesser extent, the higher
      average balance of such deposits ($279.6 million compared to $243.1 million).
      Interest expense on money market accounts also increased to $2.4 million from
      $713,000, reflecting substantially higher rates on such accounts (4.65% in
      the
      2007 period compared to 2.64% in the 2006 period), as well as higher average
      balances of such accounts ($104.0 million compared to $54.5
      million).





Interest
      expense on borrowings increased to $2.0 million for the six months ended June
      30, 2007 from $1.6 million for the six months ended June 30, 2006. The increase
      was due to a higher average balance of such borrowings, to $85.8 million for
      the
      six months ended June 30, 2007 from $82.8 million for the six months ended
      June
      30, 2006, as borrowings were used to supplement deposits to fund loan growth.
      The average rates paid on such borrowings also increased to 4.81% from 3.89%,
      reflecting generally higher market interest rates.




15




**BEACON
          FEDERAL**




***Net
      Interest Income.*** Net
      interest income decreased $293,000, or 4.0%, to $7.0 million for the six months
      ended June 30, 2007 from $7.3 million for the six months ended June 30, 2006.
      The decrease in net interest income was due to a decrease in our net interest
      rate spread (to 1.96% from 2.53%) and net interest margin (to 2.25% from 2.78%,
      which more than offset an increase in net interest earning assets to $42.9
      million for the six months ended June 30, 2007 from $41.6 million for the six
      months ended June 30, 2006. The decreases in our net interest rate spread and
      net interest margin reflected the current interest rate environment and the
      continued flattened to inverted U.S. Treasury yield curve
      environment.





***Provision
      for Loan Losses.*** We
      recorded a provision for loan losses of $657,000 for the six months ended June
      30, 2007 compared to a provision for loan losses of $408,000 for the six months
      ended June 30, 2006. The provision for loan losses reflected substantial growth
      in our loan portfolio. Components of the provision for loan losses included
      a
      general allowance for each type of loan based on historical loan loss
      experience, and related adjustments to historical experience, and the risks
      associated with increased commercial lending. Loans increased $75.2 million,
      or
      14.0%, from $537.1 million at December 31, 2006 to $612.3 million at June 30,
      2007. The provisions also reflected net charge offs of $94,000 for the six
      months ended June 30, 2007 compared to net recoveries of $20,000 for the six
      months ended June 30, 2006. We used the same methodology in assessing the
      allowances for both periods. To the best of our knowledge, we have recorded
      all
      losses that are both probable and reasonable to estimate for the six months
      ended June 30, 2007 and 2006.





***Non-Interest
      Income.*** Non-interest income increased to $1.5 million for the six months ended June
      30,
      2007 from $1.4 million for the six months ended June 30, 2006. Service charges
      increased $73,000, to $1.2 million for the six months ended June 30, 2007,
      reflecting higher deposit-related fees.





***Non-Interest
      Expense.*** Non-interest expense increased $521,000, or 9.4%, to $6.1 million for the six
      months ended June 30, 2007 from $5.6 million for the six months ended June
      30,
      2006. The increase reflected higher FDIC premium expenses, normal salary
      increases, higher occupancy and equipment expenses, higher telephone and postage
      expenses, a higher provision for loss on foreclosed assets, and higher other
      non-interest expenses.





***Income
      Tax Expense.*** The
      provision for income taxes was $698,000 for the six months ended June 30, 2007
      compared to $1.0 million for the six months ended June 30, 2006, reflecting
      lower pre-tax income for the 2007 period compared to the 2006 period. Our
      effective tax rate was 38.1% for the six months ended June 30, 2007 compared
      to
      36.4% for the six months ended June 30, 2006.





**Average
      Balances and Yields** ******




The
      following tables set forth average balance sheets, average yields and rates,
      and
      certain other information for the periods indicated. No tax-equivalent yield
      adjustments were made, as the effect thereof was not material. All average
      balances are daily average balances. Non-accrual loans were included in the
      computation of average balances, but have been reflected in the table as loans
      carrying a zero yield. The yields set forth below include the effect of net
      deferred costs, discounts and premiums that are amortized or accreted to
      interest income.




16




**BEACON
          FEDERAL**


**For
                  the Six Months Ended June 30,****2007**
              
              **2006****Average**
              
              
              
              
              
              **Average****Outstanding**
              
              **Interest**
              
              **Yield
                  /**
              
              **Outstanding**
              
              **Interest**
              
              **Yield
                  /****Balance**
              
              **Earned/Paid**
              
              **Rate**
              
              **Balance**
              
              **Earned/Paid**
              
              **Rate**(Dollars
                  in thousands)**Interest-earning
                  assets:**Loans
              
              $
              569,773
              
              $
              17,703
              
              
              6.27
              %
              $
              469,387
              
              $
              13,575
              
              
              5.84
              %Securities
              
              
              46,371
              
              
              1,142
              
              
              4.97
              
              
              42,485
              
              
              1,014
              
              
              4.81FHLB
                  stock
              
              
              4,244
              
              
              168
              
              
              7.98
              
              
              3,524
              
              
              81
              
              
              4.64Interest-earning
                  deposits
              
              
              10,772
              
              
              264
              
              
              4.94
              
              
              16,646
              
              
              342
              
              
              4.14Total
                  interest-earning assets
              
              
              631,160
              
              
              19,277
              
              
              6.16
              
              
              532,042
              
              
              15,012
              
              
              5.69Non-interest-earning
                  assets
              
              
              8,026
              
              
              
              
              
              
              
              
              7,530Total
                  assets
              
              $
              639,186
              
              
              
              
              
              
              
              $
              539,572**Interest-bearing
                  liabilities:**Savings
              
              $
              67,216
              
              
              293
              
              
              0.88
              
              $
              71,968
              
              
              187
              
              
              0.53Money
                  market accounts
              
              
              103,978
              
              
              2,398
              
              
              4.65
              
              
              54,487
              
              
              713
              
              
              2.64NOW
                  accounts
              
              
              51,666
              
              
              662
              
              
              2.59
              
              
              38,069
              
              
              408
              
              
              2.16Time
                  accounts
              
              
              279,648
              
              
              6,847
              
              
              4.94
              
              
              243,117
              
              
              4,782
              
              
              3.97Total
                  deposits
              
              
              502,508
              
              
              10,200
              
              
              4.10
              
              
              407,641
              
              
              6,090
              
              
              3.01FHLB
                  advances
              
              
              73,945
              
              
              1,786
              
              
              4.87
              
              
              62,070
              
              
              1,199
              
              
              3.90Reverse
                  repurchase agreements
              
              
              11,818
              
              
              258
              
              
              4.40
              
              
              20,714
              
              
              397
              
              
              3.86Total
                  interest-bearing liabilities
              
              
              588,271
              
              
              12,244
              
              
              4.20
              
              
              490,425
              
              
              7,686
              
              
              3.16Non-interest-bearing
                  deposits
              
              
              5,089
              
              
              
              
              
              
              
              
              5,951Other
                  non-interest-bearing liabilities
              
              
              1,122
              
              
              
              
              
              
              
              
              398Total
                  liabilities
              
              
              594,482
              
              
              
              
              
              
              
              
              496,774Equity
              
              
              44,704
              
              
              
              
              
              
              
              
              42,798Total
                  liabilities and equity
              
              $
              639,186
              
              
              
              
              
              
              
              $
              539,572Net
                  interest income
              
              
              
              
              $
              7,033
              
              
              
              
              
              
              
              $
              7,326Net
                  interest rate spread
              
              
              
              
              
              
              
              
              1.96
              %
              
              
              
              
              
              
              
              2.53
              %Net
                  interest-earning assets
              
              
              42,889
              
              
              
              
              
              
              
              $
              41,617Net
                  interest margin
              
              
              
              
              
              
              
              
              2.25
              %
              
              
              
              
              
              
              
              2.78
              %Average
                  of interest-earning assets tointerest-bearing
                  liabilities
              
              
              
              
              
              
              
              
              107.29
              %
              
              
              
              
              
              
              
              108.49
              %








17





**BEACON
          FEDERAL**





**For
                  the Three Months Ended June 30,****2007**
              
              **2006****Average**
              
              
              
              
              
              **Average****Outstanding**
              
              **Interest**
              
              **Yield
                  /**
              
              **Outstanding**
              
              **Interest**
              
              **Yield
                  /****Balance**
              
              **Earned/Paid**
              
              **Rate**
              
              **Balance**
              
              **Earned/Paid**
              
              **Rate**(Dollars
                  in thousands)**Interest-earning
                  assets:**Loans
              
              $
              587,003
              
              $
              9,271
              
              
              6.34
              %
              $
              480,304
              
              $
              7,017
              
              
              5.86
              %Securities
              
              
              46,251
              
              
              610
              
              
              5.29
              
              
              42,366
              
              
              530
              
              
              5.03FHLB
                  stock
              
              
              4,359
              
              
              142
              
              
              13.07
              
              
              3,465
              
              
              45
              
              
              5.22Interest-earning
                  deposits
              
              
              13,424
              
              
              157
              
              
              4.70
              
              
              20,677
              
              
              205
              
              
              3.98Total
                  interest-earning assets
              
              
              651,037
              
              
              10,180
              
              
              6.28
              
              
              546,812
              
              
              7,797
              
              
              5.72Non-interest-earning
                  assets
              
              
              7,579
              
              
              
              
              
              
              
              
              7,659Total
                  assets
              
              $
              658,616
              
              
              
              
              
              
              
              $
              554,471**Interest-bearing
                  liabilities:**Savings
              
              $
              68,191
              
              
              152
              
              
              0.89
              
              $
              71,707
              
              
              96
              
              
              0.54Money
                  market accounts
              
              
              120,106
              
              
              1,415
              
              
              4.73
              
              
              47,356
              
              
              313
              
              
              2.65NOW
                  accounts
              
              
              51,922
              
              
              328
              
              
              2.53
              
              
              50,248
              
              
              346
              
              
              2.76Time
                  accounts
              
              
              280,652
              
              
              3,479
              
              
              4.98
              
              
              255,017
              
              
              2,611
              
              
              4.11Total
                  deposits
              
              
              520,871
              
              
              5,374
              
              
              4.14
              
              
              424,328
              
              
              3,366
              
              
              3.18FHLB
                  advances
              
              
              77,704
              
              
              932
              
              
              4.81
              
              
              60,487
              
              
              580
              
              
              3.85Reverse
                  repurchase agreements
              
              
              8,409
              
              
              112
              
              
              5.34
              
              
              19,714
              
              
              195
              
              
              3.97Total
                  interest-bearing liabilities
              
              
              606,984
              
              
              6,418
              
              
              4.25
              
              
              504,529
              
              
              4,141
              
              
              3.29Non-interest-bearing
                  deposits
              
              
              5,359
              
              
              
              
              
              
              
              
              6,377Other
                  non-interest-bearing liabilities
              
              
              1,285
              
              
              
              
              
              
              
              
              241Total
                  liabilities
              
              
              613,628
              
              
              
              
              
              
              
              
              511,147Equity
              
              
              44,988
              
              
              
              
              
              
              
              
              43,324Total
                  liabilities and equity
              
              $
              658,616
              
              
              
              
              
              
              
              $
              554,471Net
                  interest income
              
              
              
              
              $
              3,762
              
              
              
              
              
              
              
              $
              3,656Net
                  interest rate spread
              
              
              
              
              
              
              
              
              2.03
              %
              
              
              
              
              
              
              
              2.43
              %Net
                  interest-earning assets
              
              
              44,053
              
              
              
              
              
              
              
              
              42,283Net
                  interest margin
              
              
              
              
              
              
              
              
              2.32
              %
              
              
              
              
              
              
              
              2.68
              %Average
                  of interest-earning assets tointerest-bearing
                  liabilities
              
              
              
              
              
              
              
              
              107.26
              %
              
              
              
              
              
              
              
              108.38
              %







18


**BEACON
          FEDERAL**




**Liquidity
      and Capital Resources**




Our
      primary sources of funds consist of deposit inflows, loan repayments, advances
      from the Federal Home Loan Bank of New York, and maturities and sales of
      securities. In addition, we have the ability to collateralize borrowings in
      the
      wholesale markets. While maturities and scheduled amortization of loans and
      securities are predictable sources of funds, deposit flows and mortgage
      prepayments are greatly influenced by general interest rates, economic
      conditions and competition. We seek to maintain a liquidity ratio of 4.0% or
      greater. For the six months ended June 30, 2007, our liquidity ratio averaged
      9.6%. We believe that we have enough sources of liquidity to satisfy our short-
      and long-term liquidity needs as of June 30, 2007. We anticipate that we will
      maintain higher liquidity levels following the completion of the stock offering.
      Excess liquid assets are invested generally in interest-earning deposits and
      short- and intermediate-term securities .




Our
      most
      liquid assets are cash and cash equivalents. The levels of these assets are
      dependent on our operating, financing, lending and investing activities during
      any given period. At June 30, 2007, cash and cash equivalents totaled $7.0
      million. Securities classified as available-for-sale, which provide additional
      sources of liquidity, totaled $18.8 million at June 30, 2007. On that date,
      we
      had $96.6 million in advances outstanding, with the ability to borrow an
      additional $72.7 million. Our cash flows are derived from operating activities,
      investing activities and financing activities as reported in our Consolidated
      Statements of Cash Flows included in our Consolidated Financial
      Statements.




At
      June
      30, 2007, we had $45.7 million in loan commitments outstanding. In addition
      to
      commitments to originate loans, we had $53.9 million in unused lines of credit
      to borrowers. Certificates of deposit due within one year of June 30, 2007
      totaled $198.2 million, or 36.7% of total deposits. **** If
      these
      deposits do not remain with us, we will be required to seek other sources of
      funds, including loan sales, brokered deposits and Federal Home Loan Bank
      advances. Depending on market conditions, we may be required to pay higher
      rates
      on such deposits or other borrowings than we currently pay on the certificates
      of deposit due on or before June 30, 2008. We believe, however, based on past
      experience, that a significant portion of such deposits will remain with us.
      We
      have the ability to attract and retain deposits by adjusting the interest rates
      offered.




Our
      primary investing activity is originating loans. During the six months ended
      June 30, 2007, we originated $150.0 million of loans, and during the six months
      ended June 30, 2006, we originated $114.9 million of loans. We purchased $10.1
      million of securities during the six months ended June 30, 2007 and we purchased
      $6.5 million of securities during the six months ended June 30, 2006.




Financing
      activities consist primarily of activity in deposit accounts and Federal Home
      Loan Bank advances. We experienced a net increase in total deposits of $69.1
      million for the six months ended June 30, 2007 and a net increase in total
      deposits of $49.1 million for the six months ended June 30, 2006. Deposit flows
      are affected by the overall level of interest rates, the interest rates and
      products offered by us and our local competitors, and by other factors.




If
      we
      require funds beyond our ability to generate them internally, borrowing
      agreements exist with the Federal Home Loan Bank of New York, which provide
      an
      additional source of funds. Federal Home Loan Bank advances increased by $22.7
      million for the six months ended June 30, 2007, compared to an increase of
      $1.0
      million for the six months ended June 30, 2006. Federal Home Loan Bank advances
      have primarily been used to fund loan demand. At June 30, 2007, we had the
      ability to borrow up to $169.3 million from the Federal Home Loan Bank of New
      York.




19




**BEACON
          FEDERAL**




The
      net
      proceeds from the stock offering will significantly increase our liquidity
      and
      capital resources. Over time, the initial level of liquidity will be reduced
      as
      net proceeds from the stock offering are used for general corporate purposes,
      including the funding of loans. Our financial condition and results of
      operations will be enhanced by the net proceeds from the stock offering,
      resulting in increased net interest-earning assets and net interest income.
      However, due to the increase in equity resulting from the net proceeds raised
      in
      the stock offering, our return on equity will be adversely affected following
      the stock offering.




Banks
      are
      subject to regulatory capital requirements administered by federal banking
      agencies. Capital adequacy guidelines and prompt corrective action regulations
      involve quantitative measures of assets, liabilities, and certain
      off-balance-sheet items calculated under regulatory accounting practices.
      Capital amounts and classifications are also subject to qualitative judgments
      by
      regulators. Failure to meet capital requirements can initiate regulatory action.
      At June 30, 2007 the Bank met all capital adequacy requirements.





Prompt
      corrective action regulations provide five classifications: well capitalized,
      adequately capitalized, undercapitalized, significantly undercapitalized, and
      critically undercapitalized, although these terms are not used to represent
      overall financial condition. If adequately capitalized, regulatory approval
      is
      required to accept brokered deposits. If undercapitalized, capital distributions
      are limited, as is asset growth and expansion, and capital restoration plans
      are
      required. At June 30, 2007 and December 31, 2006, the most recent regulatory
      notification categorized the Bank as well capitalized under the regulatory
      framework for prompt corrective action. There are no conditions or events since
      that notification that management believes have changed the institution's
      category.





Actual
      and required capital amounts and ratios for the Bank are presented
      below:




**To
                  Be Well****Capitalized
                  Under****For
                  Capital**
              
              **Prompt
                  Corrective****Actual**
              
              **Adequacy
                  Purposes**
              
              **Action
                  Provisions****June
                  30, 2007 (Dollars in Thousands)**
              
              **Amount**
              
              **Ratio**
              
              **Amount**
              
              **Ratio**
              
              **Amount**
              
              **Ratio**Equity
              
              $
              45,304Unrealized
                  loss on AFS securities
              
              
              85Tier
                  1 (Core) Capital and Tangible Capital
              
              
              45,389
              
              
              
              
              $
              10,334
              
              
              1.50
              %General
                  valuation allowance
              
              
              5,370Deduction
                  for low-level recourse
              
              
              (118
              )Total
                  Capital to risk-weightedassets
              
              $
              50,641
              
              
              10.75
              %
              $
              37,694
              
              
              8.00
              %
              $
              47,118
              
              
              10.00
              %Tier
                  1 (Core) Capital to risk-weighted
                  assets
              
              $
              45,271
              
              
              9.61
              %
              $
              18,847
              
              
              4.00
              %
              $
              28,271
              
              
              6.00
              %Tier
                  1 (Core) Capital to adjustedtotal
                  assets
              
              $
              45,389
              
              
              6.59
              %
              $
              27,558
              
              
              4.00
              %
              $
              34,448
              
              
              5.00
              %




20


**BEACON
          FEDERAL**




**To
                  Be Well****Capitalized
                  Under****For
                  Capital**
              
              **Prompt
                  Corrective****Actual**
              
              **Adequacy
                  Purposes**
              
              **Action
                  Provisions****December
                  31, 2006 (Dollars in Thousands)**
              
              **Amount**
              
              **Ratio**
              
              **Amount**
              
              **Ratio**
              
              **Amount**
              
              **Ratio**Equity
              
              $
              44,245Unrealized
                  loss on AFS securities
              
              
              9Tier
                  1 (Core) Capital and Tangible Capital
              
              
              44,254
              
              
              
              
              $
              9,110
              
              
              1.50
              %General
                  valuation allowance
              
              
              5,192Deduction
                  for low-level recourse
              
              
              (96
              )Total
                  Capital to risk-weightedassets
              
              $
              49,350
              
              
              11.74
              %
              $
              33,624
              
              
              8.00
              %
              $
              42,030
              
              
              10.00
              %Tier
                  1 (Core) Capital to risk-weighted
                  assets
              
              $
              44,158
              
              
              10.51
              %
              $
              16,812
              
              
              4.00
              %
              $
              25,218
              
              
              6.00
              %Tier
                  1 (Core) Capital to adjustedtotal
                  assets
              
              $
              44,254
              
              
              7.29
              %
              $
              24,293
              
              
              4.00
              %
              $
              30,366
              
              
              5.00
              %




**Off-Balance
      Sheet Arrangements**




***Commitments.*** ** As
      a
      financial services provider, we routinely are a party to various financial
      instruments with off-balance-sheet risks, such as commitments to extend credit
      and unused lines of credit. While these contractual obligations represent our
      future cash requirements, a significant portion of commitments to extend credit
      may expire without being drawn upon. Such commitments are subject to the same
      credit policies and approval process accorded to loans we make.




The
      contractual amount of financial instruments with off-balance-sheet risk was
      as
      follows:





**June
                  30, 2007**
              
              **December
                  31, 2006****Fixed**
              
              **Variable**
              
              **Fixed**
              
              **Variable****Rate**
              
              **Rate**
              
              **Rate**
              
              **Rate**(Dollars
                  in Thousands)Commitments
                  to make loans
              
              $
              26,179
              
              $
              19,564
              
              $
              11,012
              
              $
              4,894Unused
                    lines of credit and lettersof credit
              
              $
              8,293
              
              $
              45,576
              
              $
              8,716
              
              $
              34,229Range
                  of fixed-rate commitments
              
              
              4.49%-15.00
              %
              
              -
              
              
              5.625%-9.50
              %
              
              -





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




**June
                  30, 2007**
              
              **December
                  31, 2006****Contract**
              
              **Carrying**
              
              **Contract**
              
              **Carrying****Amount**
              
              **Value**
              
              **Amount**
              
              **Value**(Dollars
                  in Thousands)Standby
                  letters of credit
              
              $
              736
              
              $
              -
              
              $
              729
              
              $
              -Loans
                  sold with limited recourse
              
              $
              4,650
              
              $
              -
              
              $
              4,782
              
              $
              -






21


**BEACON
          FEDERAL**




Loans
      sold to the Federal Home Loan Bank (FHLB) of New York under the Mortgage
      Partnership Finance program are sold with limited recourse. The Bank has an
      agreement to sell residential loans up to $10 million to the FHLB of New York.
      Approximately $5.6 million has been sold through June 30, 2007. Under the
      agreement, the Bank has a maximum credit enhancement of $118,000 at June 30,
      2007. Based upon a favorable payment history, the Bank does not anticipate
      recognizing any losses on these residential loans, and accordingly, has not
      recorded a liability for the credit enhancement. ****





**Recent
      Accounting Pronouncements**





The
      following paragraphs summarize recent accounting pronouncements:





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004)
      (SFAS No. 123(R)) “Share-Based Payment”. SFAS No. 123(R) requires all entities
      to recognize compensation expense equal to the fair value of share-based
      payments such as stock options granted to employees. SFAS No. 123(R) is
      effective for the first interim period after the effective date of our stock
      offering. The effect on future operations will depend on the level of future
      option grants, vesting period of such options and fair value of options granted
      at such future dates.





In
      March
      2005, the Securities and Exchange Commission (“SEC”) issued SEC Staff Accounting
      Bulletin No. 107 (SAB 107), which expresses views of the staff regarding the
      interaction between SFAS No. 123(R) and certain SEC rules and regulations and
      provides the staff’s views regarding the valuation of share-based payment
      arrangements for public entities. We will consider the guidance provided by
      SAB
      107 as part of our adoption of SFAS No. 123(R).





In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments - an amendment of FASB Statements No. 133 and No. 140.”
SFAS No. 155 amends FASB Statements No. 133, “Accounting for Derivative
      Instruments and Hedging Activities,” and No. 140, “Accounting for Transfers and
      Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No. 155
      resolves issues addressed in Statement 133 Implementation Issue No. D1,
“Application of Statement 133 to Beneficial Interests in Securitized Financial
      Assets.” The Statement is effective for all financial instruments acquired or
      issued after the beginning of an entity’s first fiscal year that begins after
      September 15, 2006. SFAS No. 155 did not have a material impact on our financial
      position or results of operation.





In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets - an amendment of FASB Statement No. 140.” SFAS No. 156 amends FASB
      Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets
      and Extinguishments of Liabilities,” with respect to the accounting for
      separately recognized servicing assets and servicing liabilities. Statement
      No.
      156 is effective as of the beginning of an entity’s first fiscal year that
      begins after September 15, 2006. SFAS No. 156 did not have a material impact
      on
      our financial position or results of operation.





In
      June
      2006, the FASB issued FASB Interpretation No. 48 “Accounting for Uncertainty in
      Income Taxes - an Interpretation of FASB No. 109” (FIN 48”). This Interpretation
      prescribes a recognition threshold and measurement attribute for financial
      statement recognition and measurement of a tax position taken in a tax return,
      and provides guidance on derecognition, classification, interest and penalties,
      accounting for interim periods and transition. We adopted
      the provisions of FIN 48, effective January 1, 2007. No adjustments were
      recognized for uncertain tax positions. We are subject to U.S. Federal income
      taxes, as well as State of New York, Massachusetts, Texas and Tennessee income
      taxes. Tax years ending December 31, 2004 through December 31, 2006 remain
      open
      to examination by these jurisdictions. We recognize interest and penalties
      related to tax positions in income tax expense. At June 30, 2007, there was
      no
      accrual for uncertain tax positions or related interest.




22
 
  **BEACON
            FEDERAL**


In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” to
      define fair value, establish a framework for measuring fair value and expand
      disclosures about fair values. The Statement is effective for financial
      statements issued for fiscal years beginning after November 15, 2007, and
      interim periods within those fiscal years. We do not expect SFAS No. 157 to
      have
      a material impact on the Bank’s financial position or results of
      operation.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities.” SFAS No. 159 permits entities to
      choose to measure many financial instruments and certain other items at fair
      value. Entities shall report unrealized gains and losses on those items which
      the fair value option has been elected in earnings. SFAS No. 159 is effective
      as
      of the beginning of an entity’s first fiscal year that begins after November 15,
      2007. We are currently evaluating the requirements of the Statement and impact
      on our financial position and results of operations.




**Asset
      Quality**





***General.*** The
      table below sets forth the amounts and categories of our non-performing assets
      at the dates indicated. At each date presented, we had no troubled debt
      restructurings (loans for which a portion of interest or principal has been
      forgiven and loans modified at interest rates materially less than current
      market rates).





**June
                  30,**
              
              **December
                  31,****2007**
              
              **2006***(In
                  Thousands)*Nonaccrual
                  loans
              
              $
              216
              
              $
              -Loans
                  past due over 90 days still on accrual
              
              
              -
              
              
              4Impaired
                  loan
              
              
              385
              
              
              -Total
                  nonperforming loans
              
              
              601
              
              
              4Foreclosed
                  and repossessed assets
              
              
              132
              
              
              952Total
                  nonperforming assets
              
              $
              733
              
              $
              956




The
      allowance for losses on the impaired loan was $385,000 at June 30, 2007. The
      average balance of the impaired loan for the six months ended June 30, 2007
      and
      interest income recognized during the period that the loan was impaired was
      $257,000 and $4,000, respectively.





At
      June
      30, 2007, Beacon Federal had no loans that were not currently classified as
      nonaccrual, 90 days past due or impaired but where known information about
      possible credit problems of borrowers caused management to have serious concerns
      as to the ability of the borrowers to comply with present loan repayment terms
      and that may result in disclosure as nonaccrual, 90 days past due or
      impaired.





***Classification
      of Assets.*** We
      regularly review our asset portfolio to determine whether any assets require
      classification in accordance with applicable regulations. On the basis of our
      review of our assets at June 30, 2007, classified assets consisted of
      substandard assets of $1.9 million, no doubtful assets and loss assets of
      $385,000. As of June 30, 2007, our largest substandard asset was a loan secured
      by commercial real estate located in Morrison, Tennessee, with a principal
      balance of $1.1 million. As of June 30, 2007, we had $14.0 million of assets
      designated as special mention.




23




**BEACON
          FEDERAL**


***Allowance
      for losses.*** The
      following table sets forth activity in our allowance for loan losses for the
      periods indicated.


**Six
                  Months Ended****June
                  30,****2007**
              
              **2006***(In
                  Thousands)*Beginning
                  balance
              
              $
              5,192
              
              $
              4,437Provision
                  for loan losses
              
              
              657
              
              
              408Loans
                  charged off
              
              
              (292
              )
              
              (134
              )Recoveries
              
              
              198
              
              
              154Ending
                  balance
              
              $
              5,755
              
              $
              4,865



































24





**BEACON
          FEDERAL**





**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK.**





***General*** .
      Because
      the majority of our assets and liabilities are sensitive to changes in interest
      rates, our most significant form of market risk is interest rate risk. We are
      vulnerable to an increase in interest rates to the extent that our
      interest-bearing liabilities mature or reprice more quickly than our
      interest-earning assets. As a result, a principal part of our business strategy
      is to manage interest rate risk and limit the exposure of our net interest
      income to changes in market interest rates.




Our
      interest rate sensitivity is monitored through the use of a net interest income
      simulation model, which generates estimates of the change in our net interest
      income over a range of interest rate scenarios. The modeling assumes loan
      prepayment rates, reinvestment rates and deposit decay rates based on historical
      experience and current economic conditions.





We
      have
      not engaged in hedging through the use of derivatives. In February 2007, we
      purchased a two-year, $30 million notional value interest rate cap, in order
      to
      limit our potential exposure to rising interest rates. The cost of the
      transaction was $37,000. The counter-party in the transaction, a nationally
      recognized broker-dealer firm, will pay us if and when the one-month LIBOR
      rate
      is above the rate cap of 5.75%. The interest rate cap agreement expires in
      February 2009.





***Net
      Portfolio Value*** **.** The
      Office of Thrift Supervision requires the computation of amounts by which the
      net present value of an institution’s cash flow from assets, liabilities and
      off-balance sheet items (the institution’s net portfolio value or “NPV”) would
      change in the event of a range of assumed changes in market interest rates.
      The
      Office of Thrift Supervision simulation model uses a discounted cash flow
      analysis and an option-based pricing approach to measuring the interest rate
      sensitivity of net portfolio value. The Office of Thrift Supervision provides
      us
      the results of the interest rate sensitivity model, which is based on
      information we provide to the Office of Thrift Supervision to estimate the
      sensitivity of our net portfolio value.





***Net
      Interest Income.*** In
      addition to NPV calculations, we analyze our sensitivity to changes in interest
      rates through our internal net interest income model. Net interest income is
      the
      difference between the interest income we earn on our interest-earning assets,
      such as loans and securities, and the interest we pay on our interest-bearing
      liabilities, such as deposits and borrowings. In our model, we estimate what
      our
      net interest income would be for a twelve-month period using historical data
      for
      assumptions such as loan prepayment rates and deposit decay rates, the current
      term structure for interest rates, and current deposit and loan offering rates.
      We then calculate what the net interest income would be for the same period
      in
      the event of an instantaneous 200 basis point increase or decrease in market
      interest rates.





As
      of
      June 30, 2007, our exposure to interest rate risk has not changed significantly
      from disclosures included in the prospectus of Beacon Federal Bancorp, Inc.
      dated August 10, 2007.





25


**BEACON
          FEDERAL BANCORP, INC.**





**ITEM
      4. CONTROLS AND PROCEDURES.**





As
      of the
      end of the period covered by this report, the Company carried out an evaluation,
      under the supervision and with the participation of the Company’s principal
      executive officer and principal financial officer, of the effectiveness of
      the
      design and operation of the Company’s disclosures and procedures. Based on this
      evaluation, the Company’s principal executive officer and principal financial
      officer concluded that, as of the end of the period covered by this report,
      the
      Company’s disclosure controls and procedures were effective to ensure that
      information required to be disclosed in the reports that the Company files
      or
      submits under the Securities and Exchange Act of 1934 is recorded, processed,
      summarized and reported within the time periods specified in the Securities
      and
      Exchange Commission’s rules and forms. It should be noted that the design of any
      system of controls is based in part upon certain assumptions about the
      likelihood of future events, and there can be no assurance that any design
      will
      succeed in achieving its stated goals under all potential future conditions,
      regardless of how remote.





In
      addition, there have been no changes in the Company’s internal control over
      financial reporting during the most recent fiscal quarter that has materially
      affected, or is reasonably likely to materially affect, the Company’s internal
      control over financial reporting.




















26





**BEACON
          FEDERAL BANCORP, INC.**


**PART
      II - OTHER INFORMATION**





**Item
      1 - Legal Proceedings.**





There
      are
      no material legal proceedings to which the Company is a party or of which any
      of
      its property is subject. From time to time, the Company is a party to various
      legal proceedings incident to its business.





**Item
      1A - Risk Factors**





For
      information regarding the Company’s risk factors see “Risk Factors”, in the prospectus
      of Beacon Federal Bancorp, Inc. (Company) dated August 10, 2007 contained in
      the
      Company’s Registration Statement on Form S-1 (Commission File No.
      333-143522).





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





(a)
            There
                were no sales of unregistered equity securities during the period
                covered
                by this Report.(b)
            The
                Company’s stock offering has not been completed. Information with respect
                to use of proceeds will be furnished in subsequent
                filings.(c)
            There
                were no issuer repurchases of equity securities during the period
                covered
                by this Report.





**Item
      3 - Defaults upon Senior Securities.**





Not
      applicable.





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





Not
      applicable.





**Item
      5 - Other Information.**





None





**Item
      6 - Exhibits.**





(a)
            Exhibits.2.0
            Plan
                of Conversion. (1)3.1
            Articles
                of Incorporation of Beacon Federal Bancorp Inc. (1)3.2
            Bylaws
                of Beacon Federal Bancorp, Inc. (1)4.0
            Stock
                Certificate of Beacon Federal Bancorp, Inc. (1)31.1
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.31.2
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.32.0
            Certification
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.(1)
            Incorporated
                by reference into this document from the Exhibits filed with the
                Securities Exchange Commission in the Registration Statement on Form
                S-1,
                and any amendments thereto, Registration No.
                333-143522.





27


**BEACON
        FEDERAL BANCORP, INC.**
  **SIGNATURES**





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





BEACON
              FEDERAL BANCORP, INC.(Registrant)DATE:September
                24**,**2007
            BY:
            /s/
                Ross J. ProssnerRoss
                J. Prossner, President and Chief Executive OfficerBY:
            /s/
                James D. LapsleyJames
                D. Lapsley, Senior Vice-President and Chief Financial
                Officer















28