UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-Q





(Mark
One)


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


For the
quarterly period ended March 31, 2010





oTRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT


For the
transition period from __________ to ___________





Commission
File Number:  0-503777





FLATBUSH
      FEDERAL BANCORP, INC.(Exact
      name of registrant as specified in its charter)FEDERAL
            11-3700733(State
      or other jurisdiction of incorporation or organization)
            (IRS
      Employer Identification No.)2146
      NOSTRAND AVENUE, BROOKLYN, NEW YORK  11210(Address
      of principal executive offices)(718)
      859-6800(Registrant’s
      telephone number)(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 Section 13 or 15(d) of the 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.  YesxNoo





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


Yes
o  No
o





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




Large
      Accelerated filer     o
            
            Accelerated
      filer     oNon-accelerated
      filer (Do not check if a smaller reporting
      company)     o
            
            Smaller
      reporting company     x





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





APPLICABLE
ONLY TO CORPORATE ISSUERS


As
of  May 14,
2010  the Registrant had outstanding 2,736,907 shares of common
stock.







FLATBUSHFEDERAL BANCORP, INC. AND SUBSIDIARIES





INDEX


PageNumberPART
      I – FINANCIAL INFORMATIONItem
      1:
            Financial StatementsConsolidated Statements of Financial
    Conditionat March 31, 2010 and December 31, 2009
      (Unaudited)
            1Consolidated Statements of Income for the Three
      monthsended March 31, 2010 and 2009 (Unaudited)
            2Consolidated Statements of Comprehensive Income for
      theThree months ended March 31, 2010 and 2009
      (Unaudited)
            3Consolidated Statements of Cash Flows for the Three
      monthsended March 31, 2010 and 2009 (Unaudited)
            4Notes to Consolidated Financial
      Statements(Unaudited)
            5 –
      14Item
      2:
            Management’s Discussion and Analysis of Financial Condition
      andResults of Operation
            15
      – 20Item
      3:
            Quantitative and Qualitative Disclosure About Market
      Risk
            21Item
      4T:
            Controls and Procedures
            21PART
      II – OTHER INFORMATIONItem
      1:
            Legal Proceedings
            22Item
      1A:
            Risk Factors
            22Item
      2:
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            22Item
      3:
            Defaults upon Senior Securities
            22Item
      4:
            (Removed
      and Reserved)
            22Item
      5:
            Other Information
            22Item
      6:
            Exhibits
            23SIGNATURES
            24


Index


PARTI – FINANCIAL INFORMATION


ITEM
1 – FINANCIAL STATEMENTS


FLATBUSH
FEDERAL BANCORP, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION


(Unaudited)


March31,
            
            
            December 31,ASSETS
            
            2010
            
            
            2009Cash
      and amounts due from depository institutions
            
            $
            1,903,564
            
            
            $
            1,846,911Interest
      earning deposits in other banks
            
            
            948,518
            
            
            
            1,861.116Federal
      funds sold
            
            
            3,400,000
            
            
            
            1,750,000Cash
      and cash equivalents
            
            
            6,252,082
            
            
            
            5,458,027Mortgage-backed
      securities held to maturity; fair value of $27,648,691 (2010) and
      $29,566,571 (2009)
            
            
            26,325,658
            
            
            
            28,340,092Loans
      receivable, net of allowance for loan losses of $982,002 (2010) and
      $828,534 (2009)
            
            
            113,438,233
            
            
            
            110,987,520Premises
      and equipment
            
            
            2,402,863
            
            
            
            2,440,313Federal
      Home Loan Bank of New York stock
            
            
            1,232,200
            
            
            
            1,274,900Accrued
      interest receivable
            
            
            657,659
            
            
            
            657,552Bank
      owned life insurance
            
            
            4,257,286
            
            
            
            4,219,982Other
      assets
            
            
            2,357,953
            
            
            
            2,601,027Total
      assets
            
            $
            156,923,934
            
            
            $
            155,979,413LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilities:Deposits:Non-interest
      bearing
            
            $
            6,091,333
            
            
            $
            5,862,496Interest
      bearing
            
            
            110,559,307
            
            
            
            109,305,224Total
      deposits
            
            
            116,650,640
            
            
            
            115,167,720Federal
      Home Loan Bank of New York advances
            
            
            21,902,811
            
            
            
            22,851,481Advance
      payments by borrowers for taxes and insurance
            
            
            596,665
            
            
            
            292,581Other
      liabilities
            
            
            2,338,238
            
            
            
            2,434,678Total
      liabilities
            
            
            141,488,354
            
            
            
            140,746,460Stockholders’
      equity:Preferred
      stock $0.01 par value; 1,000,000 shares authorized; none issued and
      outstanding
            
            
            ---
            
            
            
            ---Common
      stock $0.01 par value;  authorized 9,000,000 shares; issued
      2,799,657 shares; outstanding 2,736,907 shares
            
            
            27,998
            
            
            
            27,998Paid-in
      capital
            
            
            12,598,637
            
            
            
            12,581,519Retained
      earnings
            
            
            5,490,031
            
            
            
            5,349,941Unearned
      employees’ stock ownership plan (ESOP) shares
            
            
            (470,138
            )
            
            
            (478,857
            )Treasury
      stock, 62,750 shares
            
            
            (446,534
            )
            
            
            (446,534
            )Accumulated
      other comprehensive loss
            
            
            (1,764,414
            )
            
            
            (1,801,114
            )Total
      stockholders’ equity
            
            
            15,435,580
            
            
            
            15,232,953Total
      liabilities and stockholders’ equity
            
            $
            156,923,934
            
            
            $
            155,979,413





See notes
to consolidated financial statements.


1
 Index


FEDERALBANCORP, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME


(Unaudited)


Three
      months endedMarch31,2010
            
            
            2009Interest
      IncomeLoans,
      including fees
            
            $
            1,676,546
            
            
            $
            1,546,198Mortgage-backed
      securities
            
            
            392,207
            
            
            
            454,555Federal
      Home Loan Bank of New York stock
            
            
            17,282
            
            
            
            11,151Other
      interest earning assets
            
            
            814
            
            
            
            1,919Total
      interest income
            
            
            2,086,849
            
            
            
            2,013,823Interest
      ExpenseDeposits
            
            
            459,903
            
            
            
            599,251Borrowings
            
            
            96,601
            
            
            
            259,135Total
      interest expense
            
            
            556,504
            
            
            
            858,386Net
      Interest Income
            
            
            1,530,345
            
            
            
            1,155,437Provision
      for loan losses
            
            
            154,472
            
            
            
            -Net
      interest income after provision for loan losses
            
            
            1,375,873
            
            
            
            1,155,437Non-interest
      incomeFees
      and service charges
            
            
            25,389
            
            
            
            25,007BOLI
      income
            
            
            37,304
            
            
            
            39,555Other
            
            
            645
            
            
            
            740Total
      non-interest income
            
            
            63,338
            
            
            
            65,302Non-interest
      expensesSalaries
      and employee benefits
            
            
            603,979
            
            
            
            130,493Net
      occupancy expense of premises
            
            
            111,992
            
            
            
            115,558Equipment
            
            
            124,564
            
            
            
            127,777Directors’
      compensation
            
            
            45,991
            
            
            
            43,454Professional
      fees
            
            
            106,500
            
            
            
            90,200Other
      insurance premiums
            
            
            35,443
            
            
            
            35,581Federal
      Deposit Insurance premiums
            
            
            57,993
            
            
            
            25,563Other
            
            
            125,152
            
            
            
            113,350Total
      non-interest expenses
            
            
            1,211,614
            
            
            
            681,976Income
      before income tax
            
            
            227,597
            
            
            
            538,763Income
      tax expense
            
            
            87,507
            
            
            
            214,896Net
      income
            
            $
            140,090
            
            
            $
            323,867Net
      income per common share – Basic and diluted
            
            $
            0.05
            
            
            $
            0.12Weighted
      average number of shares outstanding – Basic and diluted
            
            
            2,664,875
            
            
            
            2,660,218





See notes
to consolidated financial statements.


2
 Index


FLATBUSHFEDERAL BANCORP, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME


(Unaudited)








Three months ended
              March 31,2010
            
            
            2009Net
      Income
            
            $
            140,090
            
            
            $
            323,867Other
      comprehensive income,net
      of income taxes:Benefit
      plans
            
            
            63,112
            
            
            
            69,170Deferred
      income taxes
            
            
            (26,412
            )
            
            
            (28,947
            )36,700
            
            
            
            40,223Comprehensive
      income
            
            $
            176,790
            
            
            $
            364,090





See notes to consolidated financial
statements.


3
 Index


FLATBUSHFEDERAL BANCORP, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)


Three months endedMarch31,2010
            
            
            2009Cash
      flow from operating activities:Net
      income
            
            $
            140,090
            
            
            $
            323,867Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization of premises and equipment
            
            
            45,535
            
            
            
            46,024Net
      accretion of discounts, premiums and deferred loan fees and
      costs
            
            
            (47,536
            )
            
            
            (1,615
            )Provision
      for loan losses
            
            
            154,472
            
            
            
            -ESOP
      shares committed to be released
            
            
            5,338
            
            
            
            4,539MRP
      expense
            
            
            10,146
            
            
            
            10,146Stock
      option expense
            
            
            10,353
            
            
            
            10,416(Increase)
      decrease in accrued interest receivable
            
            
            (107
            )
            
            
            10,496Increase
      in cash surrender value of BOLI
            
            
            (37,304
            )
            
            
            (39,555
            )Decrease
      in other assets
            
            
            216,662
            
            
            
            41,587Decrease
      in other liabilities
            
            
            (33,328
            )
            
            
            (1,415,494
            )Net
      cash provided by (used in) operating activities
            
            
            464,321
            
            
            
            (1,009,589
            )Cash
      flow from investing activities:Principal
      repayments on mortgage-backed securities held to maturity
            
            
            2,045,769
            
            
            
            903,692Purchases
      of mortgage-backed securities held to maturity
            
            
            -
            
            
            
            (905,604
            )Purchases
      of loan participation interests
            
            
            (311,024
            )
            
            
            (1,030,417
            )Net
      (increase) decrease in loans receivable
            
            
            (2,277,960
            )
            
            
            721,083Additions
      to premises and equipment
            
            
            (8,085
            )
            
            
            (1,536
            )Redemption
      of Federal Home Loan Bank of New York stock
            
            
            42,700
            
            
            
            154,200Net
      cash used in investing activities
            
            
            (508,600
            )
            
            
            (158,582
            )Cash
      flow from financing activities:Net
      increase in deposits
            
            
            1,482,920
            
            
            
            6,107,923Repayment
      of advances from Federal Home Loan Bank of New York
            
            
            (448,670
            )
            
            
            (1,427,487
            )Net
      change to short-term borrowings
            
            
            (500,000
            )
            
            
            (2,000,000
            )Increase
      (decrease) in advance payments by borrowers for taxes and
      insurance
            
            
            304,084
            
            
            
            (152,220
            )Purchase
      of treasury stock
            
            
            -
            
            
            
            (3,550
            )Net
      cash provided by financing activities
            
            
            838,334
            
            
            
            2,524,666Net
      increase in cash and cash equivalents
            
            
            794,055
            
            
            
            1,356,495Cash
      and cash equivalents – beginning
            
            
            5,458,027
            
            
            
            7,678,488Cash
      and cash equivalents – ending
            
            $
            6,252,082
            
            
            $
            9,034,983Supplemental
      disclosure of cash flow informationCash
      paid during the year for:Interest
            
            $
            558,678
            
            
            $
            862,918Income
      taxes
            
            $
            4,000
            
            
            $
            173,050





See notes
to consolidated financial statements.


4
 Index


FLATBUSHFEDERAL BANCORP, INC. AND SUBSIDIARIES





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





(Unaudited)





NOTE
1.  PRINCIPLES OF CONSOLIDATION





The
consolidated financial statements include the accounts of Flatbush Federal
Bancorp, Inc. (the “Company”),  Flatbush Federal Savings and Loan
Association (the “Association”) and the Association’s subsidiary Flatbush REIT,
Inc.  The Company’s business is conducted principally through the
Association.  All significant intercompany accounts and transactions
have been eliminated in consolidation.





NOTE 2.  BASIS OF
PRESENTATION





The
accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and Regulation S-X and do not include
information or footnotes necessary for a complete presentation of financial
condition, results of operations and cash flows in accordance with U.S.
generally accepted accounting principles.  However, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the consolidated financial statements have
been included.  The results of operations for the three months ended
March 31, 2010, are not necessarily indicative of the results which may be
expected for the entire year.





The
unaudited consolidated financial statements should be read in conjunction with
the Company’s audited consolidated financial statements and related notes for
the year ended December 31, 2009, which are included in the Company’s Annual
Report on Form 10-K as filed with the Securities and Exchange
Commission.





In
accordance with Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) Topic 855, “Subsequent Events”, the Company has
evaluated events and transactions occurring subsequent to the Statement of
Financial Condition date of March 31, 2010 for items that should potentially be
recognized or disclosed in these consolidated financial
statements.  The evaluation was conducted through the date these
consolidated financial statements were issued.





NOTE 3.  NET
INCOME PER COMMON SHARE





Net
income per common share was computed by dividing net income for the three months
ended March 31, 2010 and 2009 by the weighted average number of shares of common
stock outstanding adjusted for unearned shares of the ESOP.  Stock
options and restricted stock awards granted are considered common stock
equivalents and therefore considered in diluted net income per share
calculations, if dilutive, using the treasury stock method. At and for the three
months ended March 31, 2010 and 2009, there was no dilutive effect for the
82,378 and 82,879 respectively, of stock options outstanding. At and for the
three months ended March 31, 2010 and 2009, there was no dilutive effect for the
11,398 and 15,198, respectively, of non-vested restricted stock
awards.





NOTE 4.  CRITICAL
ACCOUNTING POLICIES





The
Company considers accounting policies involving significant judgments and
assumptions by management that have, or could have, a material impact on the
carrying value of certain assets or on income to be critical accounting
policies. A material estimate that is particularly susceptible to significant
change relates to the determination of the allowance for loan
losses.  Determining the amount of the allowance for loan losses
necessarily involves a high degree of judgment.  Management reviews
the level of the allowance on a quarterly basis, at a minimum, and establishes
the provision for loan losses based on the composition of the loan portfolio,
delinquency levels, loss experience, economic conditions, and other factors
related to the collectibility of the loan portfolio. Management
has


5
 Index


NOTE 4.  CRITICAL
ACCOUNTING POLICIES (CONTINUED)





allocated
the allowance among categories of loan types as well as classification status at
each period-end date.  Assumptions and allocation percentages based on
loan types and classification status have been consistently
applied.  Management regularly evaluates various risk factors related
to the loan portfolio, such as type of loan, underlying collateral and payment
status, and the corresponding allowance allocation percentages.





Although
management believes that it uses the best information available to establish the
allowance for loan losses, future additions to the allowance may be necessary
based on estimates that are susceptible to change as a result of changes in
economic conditions and other factors.  In addition, the regulatory
authorities, as an integral part of their examination process, periodically
review the allowance for loan losses.  Such agencies may require
management to recognize adjustments to the allowance based on their judgments
about information available to them at the time of their
examinations.





NOTE
5.  MORTGAGE-BACKED SECURITIES HELD TO MATURITY








March 31, 2010Amortized Cost
            
            
            GrossUnrealizedGains
            
            
            GrossUnrealizedLosses
            
            
            Estimated FairValueGovernment
      National Mortgage Association
            
            $
            2,486,072
            
            
            $
            131,875
            
            
            $
            -
            
            
            $
            2,617,947Federal
      National Mortgage Association
            
            
            19,015,980
            
            
            
            1,079,283
            
            
            
            -
            
            
            
            20,095,263Federal
      Home Loan Mortgage Corporation
            
            
            4,823,606
            
            
            
            126,844
            
            
            
            14,969
            
            
            
            4,935,481Total
            
            $
            26,325,658
            
            
            $
            1,338,002
            
            
            $
            14,969
            
            
            $
            27,648,691





December 31, 2009Amortized Cost
            
            
            GrossUnrealizedGains
            
            
            GrossUnrealizedLosses
            
            
            Estimated FairValueGovernment
      National Mortgage Association
            
            $
            2,587,153
            
            
            $
            101,800
            
            
            $
            7,233
            
            
            $
            2,681,720Federal
      National Mortgage Association
            
            
            20,126,402
            
            
            
            997,964
            
            
            
            -
            
            
            
            21,124,366Federal
      Home Loan Mortgage Corporation
            
            
            5,626,537
            
            
            
            151,058
            
            
            
            17,110
            
            
            
            5,760,485Total
            
            $
            28,340,092
            
            
            $
            1,250,822
            
            
            $
            24,343
            
            
            $
            29,566,571


6
 Index


NOTE
5.  MORTGAGE-BACKED SECURITIES HELD TO MATURITY
(CONTINUED)





The age
of unrealized losses and fair value of related mortgage-backed securities held
to maturity are as follows:





Less than 12 Months
            
            
            12 Months or More
            
            
            TotalFair Value
            
            
            Unrealized Losses
            
            
            Fair Value
            
            
            Unrealized Losses
            
            
            Fair Value
            
            
            Unrealized LossesMarch
      31, 2010:Federal
      Home Loan
              Mortgage
              Corporation
            
            $
            372,040
            
            
            $
            2,737
            
            
            $
            730,508
            
            
            $
            12,232
            
            
            $
            1,102,548
            
            
            $
            14,969Total
            
            $
            372,040
            
            
            $
            2,737
            
            
            $
            730,508
            
            
            $
            12,232
            
            
            $
            1,102,548
            
            
            $
            14,969





Less than 12 Months
            
            
            12 Months or More
            
            
            TotalFair
                Value
            
            
            Unrealized Losses
            
            
            Fair
                Value
            
            
            Unrealized Losses
            
            
            Fair
                Value
            
            
            Unrealized LossesDecember
      31, 2009:Government
      National
              Mortgage
      Association
            
            $
            359,809
            
            
            $
            7,233
            
            
            $
            -
            
            
            $
            -
            
            
            $
            359,809
            
            
            $
            7,233Federal
      National
              Mortgage
              Association
            
            
            1,041,073
            
            
            
            14,952
            
            
            
            319,344
            
            
            
            2,158
            
            
            
            1,360,417
            
            
            
            17,110Total
            
            $
            1,400,882
            
            
            $
            22,185
            
            
            $
            319,344
            
            
            $
            2,158
            
            
            $
            1,720,226
            
            
            $
            24,343





When the
fair value of a security is below its amortized cost, and depending on the
length of time the condition exists and the extent the fair value is below
amortized cost, additional analysis is performed to determine whether an
other-than-temporary impairment condition exits. Securities are analyzed
quarterly for possible other-than-temporary impairment. The analysis considers
(i) whether the Association has the intent to sell its securities prior to
recovery and/or maturity and (ii) whether it is more likely than not that the
Association will have to sell its securities prior to recovery and/or
maturity.  Often, the information available to conduct these
assessments is limited and rapidly changing, making estimates of fair value
subject to judgment.  If actual information or conditions are
different than estimated, the extent of the impairment of the security may be
different than previously estimated, which could have a material effect on the
Association’s consolidated financial statements.





At March
31, 2010, and December 31, 2009, management concluded that the unrealized losses
above (which, at March 31, 2010, related to four Federal Home Loan Mortgage
Corporation securities) are temporary in nature since they are primarily related
to market interest rates and not related to the underlying credit quality of the
issuer of the securities.


7
 Index


NOTE
5.  MORTGAGE-BACKED SECURITIES HELD TO MATURITY
(CONTINUED)





The
amortized cost and estimated fair value of mortgage-backed securities at March
31, 2010 by contractual maturity, are shown below.  Actual maturities
will differ from contractual maturities because borrowers generally have the
right to prepay obligations.





March 31, 2010Amortized Cost
            
            
            Estimated Fair ValueDue
      within one year
            
            $
            322,684
            
            
            $
            328,652Due
      after one year through five years
            
            
            126,620
            
            
            
            129,597Due
      after five years through ten years
            
            
            212,784
            
            
            
            223,002Due
      after ten years
            
            
            25,663,570
            
            
            
            26,967,440Total
            
            $
            26,325,658
            
            
            $
            27,648,691





NOTE
6.  RETIREMENT PLANS – COMPONENTS OF  NET PERIODIC PENSION
COST





Periodic
pension expense was as follows:





Three
      months endedMarch31,2010
            
            
            2009Service
      cost
            
            $
            -
            
            
            $
            18,391Interest
      cost
            
            
            76,343
            
            
            
            77,553Expected
      return on assets
            
            
            (106,170
            )
            
            
            (68,126
            )Amortization
      of past service cost (credit)
            
            
            -
            
            
            
            (15,799
            )Amortization
      of unrecognized net loss
            
            
            57,401
            
            
            
            79,019Curtailment
      credit
            
            
            -
            
            
            
            (507,058
            )Net
      periodic benefit cost (credit)
            
            $
            27,574
            
            
            $
            (416,020
            )





On
February 26, 2009, the Company froze its defined benefit pension plan effective
March 31, 2009. The freezing of the Plan is consistent with ongoing cost
reduction strategies and shifts focus on future savings of retirement benefit
expense. The changes included a discontinuation of accrual of future service
cost in the defined benefit pension plan and fully preserving retirement
benefits that employees will have earned as of March 31, 2009. As a result of
freezing the plan, the Company   recorded a one-time pre-tax
curtailment credit of approximately $416,000, net of periodic pension expense,
in the first quarter of 2009.


8
 Index


NOTE
6.  RETIREMENT PLANS – COMPONENTS OF NET PERIODIC PENSION COST
(CONTINUED)





Periodic
pension expense for other plans was as follows:





Three
      months endedMarch31,2010
            
            
            2009Service
      cost
            
            $
            4,674
            
            
            $
            4,344Interest
      cost
            
            
            16,782
            
            
            
            17,711Amortization
      of past service cost
            
            
            5,278
            
            
            
            5,278Amortization
      of unrecognized net loss
            
            
            433
            
            
            
            672Net
      periodic benefit cost
            
            $
            27,167
            
            
            $
            28,005





NOTE 7. FAIR VALUE
MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS





In
September 2006, the FASB issued ASC Topic 820 “Fair Value Measurement and
Disclosure,” which defines fair value, establishes a framework for measuring
fair value under generally accepted accounting principles in the United States
of America (“GAAP”), and expands disclosures about fair value measurements. FASB
ASC 820 applies to other accounting pronouncements that require or permit fair
value measurements.





ASC Topic
820 establishes a fair value hierarchy that prioritizes the inputs to valuation
methods used to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurements) and the lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value hierarchy under ASC Topic 820
are as follows:





Level
1:Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities.





Level
2:Quoted prices in markets that are not active, or inputs that are
observable either directly or indirectly, for substantially the full term of the
asset or liability.





Level
3:Prices or valuation techniques that require inputs that are both
significant to the fair value measurement and unobservable (i.e. supported with
little or no market activity).





An asset
or liability’s level within the fair value hierarchy is based on the lowest
level of input that is significant to the fair value measurement.





The
Company had no financial assets which are required to be measured on a recurring
basis at March 31, 2010 and December 31, 2009.


9
 Index


NOTE 7. FAIR VALUE
MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS
(CONT’D)





For
assets measured at fair value on a non-recurring basis, the fair value
measurements by level within the fair value hierarchy used are as
follows:





Description
            
            (Level
      1)
              Quoted
      Prices in Active Markets for Identical Total
            
            
            (Level
      2)
              Significant
      Other Observable Assets
            
            
            (Level
      3)
              Significant
      Unobservable Inputs
            
            
            Inputs(In
      Thousands)Impaired
      Loans:March
      31, 2010
            
            $
            1,440
            
            
            $
            -
            
            
            $
            -
            
            
            $
            1,440December
      31, 2009
            
            $
            992
            
            
            $
            -
            
            
            $
            -
            
            
            $
            992





The
Company had no liabilities which are required to be measured on a recurring or
non-recurring basis at March 31, 2010 and December 31, 2009.





The
following information should not be interpreted as an estimate of the fair value
of the entire Association since a fair value calculation is only provided for a
limited portion of the Association’s assets and liabilities.  Due to a
wide range of valuation techniques and the degree of subjectivity used in making
the estimates, comparisons between the Association’s disclosures and those of
other companies may not be meaningful.  The following methods and
assumptions were used to estimate the fair values of  financial
instruments at March 31, 2010 and December 31, 2009:





Cash
and Cash Equivalents, Interest Receivable and Interest Payable





The
carrying amounts for cash and cash equivalents, interest receivable and interest
payable  approximate fair value because they mature in three months or
less.





Securities





The fair
value of securities held to maturity (carried at amortized cost) are determined
by obtaining quoted market prices on nationally recognized securities exchanges
(Level 1), or matrix pricing (Level 2), which is a mathematical technique used
widely in the industry to value debt securities without relying exclusively on
quoted market prices for the specific securities but rather by relying on the
securities’ relationship to other benchmark quoted prices.  For
certain securities which are not traded in active markets or are subject to
transfer restrictions, valuations are adjusted to reflect illiquidity and/or non
transferability, and such adjustments are generally based on available market
evidence (Level 3).  In the absence of such evidence, management’s
best estimate is used.  Management’s best estimate consists of both
internal and external support on certain Level 3
investments.  Internal cash flow models using a present value formula
that includes assumptions market participants would use along with indicative
exit pricing obtained from broker/dealers (where available) were used to support
fair value of certain Level 3 investments if applicable.


10
 Index


NOTE 7. FAIR VALUE
MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS
(CONT’D)





Loans
Receivable





The fair
value of loans are estimated using discounted cash flow analyses, using market
rates at the balance sheet date that reflect the credit and interest rate-risk
inherent in the loans.  Projected future cash flows are calculated
based upon contractual maturity or call dates, projected repayments and
prepayments of principal.  Generally, for variable rate loans that
reprice frequently and with no significant change in credit risk, fair values
are based on carrying values.





Impaired
Loans





Impaired
loans are those for which the Company has measured and recorded impairment
generally based on the fair value of the loan’s collateral.  Fair
value is generally determined based upon independent third-party appraisals of
the properties, or discounted cash flows based upon the expected
proceeds.  These assets are included as Level 3 fair values, based
upon the lowest level of input that is significant to the fair value
measurements.  The fair value at March 31, 2010 and December 31, 2009
consists of the loan balance of $1,906,000 and $1,455,000, net of a valuation
allowance $466,000 and $463,000, respectively.





Federal
Home Loan Bank of New York (FHLB) Stock





The
carrying amount of restricted investment in FHLB stock approximates fair value,
and considers the limited marketability of such securities.





Deposit
Liabilities





The fair
value disclosed for demand deposits (e.g., interest and noninterest checking,
passbook savings and money market accounts) are, by definition, equal to the
amount payable on demand at the reporting date (i.e., their carrying
amounts).  Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered in the market on certificates to a schedule of
aggregated expected monthly maturities on time deposits.





Advances
from FHLB





Fair
values of FHLB advances are estimated using discounted cash flow analysis, based
on quoted prices for new FHLB advances with similar credit risk characteristics,
terms and remaining maturity.





Off-Balance
Sheet Financial Instruments





Fair
value for the Association’s off-balance sheet financial instruments (lending
commitments and letters of credit) are based on fees currently charged in the
market to enter into similar agreements, taking into account, the remaining
terms of the agreements and the counterparties’ credit standing.





As of
March 31, 2010 and December 31, 2009, the fair value of commitments to extend
credit were not considered to be material.


11
 Index


NOTE 7. FAIR VALUE
MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS
(CONT’D)





The
estimated fair values of financial instruments were as follows at March 31, 2010
and December 31, 2009.




March 31,
            
            
            December 31,2010
            
            
            2009Carrying Amount
            
            
            Estimated Fair Value
            
            
            Carrying Amount
            
            
            Estimated Fair Value(In
      Thousands)Financial
      assets:Cash
      and cash equivalents
            
            $
            6,252
            
            
            $
            6,252
            
            
            $
            5,458
            
            
            $
            5,458Mortgage-backed
      securities held to maturity
            
            
            26,326
            
            
            
            27,649
            
            
            
            28,340
            
            
            
            29,567FHLB
      stock
            
            
            1,232
            
            
            
            1,232
            
            
            
            1,275
            
            
            
            1,275Loans
      receivable
            
            
            113,438
            
            
            
            118,510
            
            
            
            110,988
            
            
            
            115,692Accrued
      interest receivable
            
            
            658
            
            
            
            658
            
            
            
            658
            
            
            
            658Financial
      liabilities:Deposits
            
            
            116,651
            
            
            
            118,247
            
            
            
            115,168
            
            
            
            116,709Advances
      from FHLB
            
            
            21,903
            
            
            
            22,262
            
            
            
            22,851
            
            
            
            23,352Accrued
      interest payable
            
            
            38
            
            
            
            38
            
            
            
            42
            
            
            
            42





NOTE 8. RECENT ACCOUNTING
PRONOUNCEMENTS





The
following is a summary of recently issued authoritative pronouncements that
could have an impact on the accounting, reporting, and/or disclosure of the
consolidated financial information of the Company.





In
January 2010, the FASB issued Accounting Standard Update (“ASU”) 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. This ASU requires some new disclosures and clarifies some
existing disclosure requirements about fair value measurement as set forth in
Codification Subtopic 820-10. The FASB’s objective is to improve these
disclosures and, thus, increase the transparency in financial reporting.
Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now require
that  a reporting entity disclose separately the amounts of
significant transfers in and out of Level 1 and Level 2 fair value measurements
and describe the reasons for the transfers; and present separately information
about purchases, sales, issuances, and settlements in the reconciliation for
fair value measurements using significant unobservable inputs. In addition, ASU
2010-06 clarifies the requirements of the following existing
disclosures:





a) For
purposes of reporting fair value measurement for each class of assets and
liabilities, a reporting entity needs to use judgment in determining the
appropriate classes of assets and liabilities; and





b) A
reporting entity should provide disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair value
measurements.


12
 Index


NOTE 8. RECENT ACCOUNTING
PRONOUNCEMENTS (CONTINUED)





ASU
2010-06 is effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances,
and settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal
years.  The adoption of this guidance did not have a material impact
on the consolidated financial statements.





The FASB
has issued ASU 2010-08, Technical Corrections to Various
Topics,thereby amending the Codification. This ASU resulted from a
review by the FASB of its standards to determine if any provisions are outdated,
contain inconsistencies, or need clarifications to reflect the FASB’s original
intent. The FASB believes the amendments do not fundamentally change U.S. GAAP.
However, certain clarifications on embedded derivatives and hedging reflected in
Topic 815, Derivatives and
Hedging,may cause a change in the application of the guidance in
Subtopic 815-15. Accordingly, the FASB provided special transition provisions
for those amendments.





The ASU
contains various effective dates. The clarifications of the guidance on embedded
derivatives and hedging (Subtopic 815-15) are effective for fiscal years
beginning after December 15, 2009. The amendments to the guidance on accounting
for income taxes in a reorganization (Subtopic 852-740) applies to
reorganizations for which the date of the reorganization is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. All other amendments are effective as of the first reporting period
(including interim periods) beginning after the date this ASU was issued
(February 2, 2010). The adoption of this guidance did not have a material impact
on the consolidated financial statements.





The FASB
has issued ASU 2010-10, Consolidation (Topic 810):
Amendments for Certain Investment Funds. The amendments in the ASU defer
the effective date of certain amendments to the consolidation requirements of
Topic 810, Consolidation,resulting from the issuance of FASB Accounting Standard No. 167, Amendments to FASB Interpretation
46(R). Specifically, the amendments to the consolidation requirements of
Topic 810 resulting from the issuance of Statement 167 are deferred for a
reporting entity’s interest in an entity:





·
            That
      has all the attributes of an investment company;
  or


·
            For
      which it is industry practice to apply measurement principles for
      financial reporting purposes that are consistent with those followed by
      investment companies.





The ASU
does not defer the disclosure requirements in the Statement 167 amendments to
Topic 810. The amendments in this ASU are effective as of the beginning of a
reporting entity's first annual period that begins after November 15, 2009, and
for interim for interim periods within that first annual reporting period. The
adoption of this guidance did not have a material impact on the consolidated
financial statements.





The FASB
issued ASU 2010-11, Derivatives and Hedging (Topic 815):
Scope Exception Related to Embedded Credit Derivatives. The FASB believes
this ASU clarifies the type of embedded credit derivative that is exempt from
embedded derivative bifurcation requirements. Specifically, only one form of
embedded credit derivative qualifies for the exemption - one that is related
only to the subordination of one financial instrument to another. As a result,
entities that have contracts containing an embedded credit derivative feature in
a form other than such subordination may need to separately account for the
embedded credit derivative feature.


13
 Index


NOTE 8. RECENT ACCOUNTING
PRONOUNCEMENTS (CONTINUED)





The
amendments in the ASU are effective for each reporting entity at the beginning
of its first fiscal quarter beginning after June 15, 2010. Early adoption is
permitted at the beginning of each entity’s first fiscal quarter beginning after
March 5, 2010. The adoption of this guidance is not expected to have a material
impact on the consolidated financial statements.





The FASB
issued ASU 2010-13, Compensation—Stock Compensation
(Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment
Award in the Currency of the Market in Which the Underlying Equity Security
Trades. The ASU codifies the consensus reached in Emerging Issues Task
Force (EITF) Issue No. 09-J. The amendments to the Codification clarify that an
employee share-based payment award with an exercise price denominated in the
currency of a market in which a substantial portion of the entity’s equity
shares trades should not be considered to contain a condition that is not a
market, performance, or service condition. Therefore, an entity would not
classify such an award as a liability if it otherwise qualifies as
equity.





The
amendments in the ASU are effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2010. The amendments are
to be applied by recording a cumulative-effect adjustment to beginning retained
earnings. The adoption of this guidance is not expected to have a material
impact on the consolidated financial statements.





NOTE 9. FEDERAL HOME LOAN
BANK OF NEW YORK STOCK





Federal
Home Loan Bank of New York (“FHLB”) stock, which represents required investment
in the common stock of a correspondent bank, is carried at cost and as of March
31, 2010 and December 31, 2009, consists of the common stock of
FHLB.





Management
evaluates the FHLB stock for impairment in accordance with FASB ASC Topic
942-325-35 (Prior authoritative literature: Statement of Position (SOP) 01-6,
Accounting by Certain Entities
(Including Entities With Trade Receivables) That Lend to or Finance the
Activities of Others).Management’s determination of whether
this investment is impaired is based on their assessment of the ultimate
recoverability of their cost rather than by recognizing temporary declines in
value.  The determination of whether a decline affects the ultimate
recoverability of their cost is influenced by criteria such as (1) the
significance of the decline in net assets of the FHLB as compared to the capital
stock amount for the FHLB and the length of time this situation has persisted,
(2) commitments by the FHLB to make payments required by law or regulation and
the level of such payments in relation to the operating performance of the FHLB
and (3) the impact of legislative and regulatory changes on institutions and,
accordingly, on the customer base of the FHLB.





Management
believes no impairment charge is necessary related to the FHLB stock as of March
31, 2010.


14
 Index


ITEM2





FLATBUSH
FEDERAL BANCORP, INC. AND SUBSIDIARIES


MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION





Forward-Looking
Statements





This Form
10-Q may include certain forward-looking statements based on current management
expectations.  The Company’s actual results could differ materially
from those management expectations.  Factors that could cause future
results to vary from current management expectations include, but are not
limited to, general economic conditions, legislative and regulatory changes,
monetary and fiscal policies of the federal government, changes in tax policies,
rates and regulations of federal, state and local tax authorities, changes in
interest rates, deposit flows, the cost of funds, demand for loan products,
demand for financial services, competition, changes in the quality or
composition of loan and investment portfolios of the Company, changes in
accounting principles, policies or guidelines, and other economic, competitive,
governmental and technological factors affecting the Company’s operations,
markets, products, services and prices.





Comparison
of Financial Condition at March 31, 2010 and December 31, 2009





The
Company’s total assets as of March 31, 2010 were $156.9 million compared to
$156.0 million at December 31, 2009, an increase of $945,000 or 0.6%. Loans
receivable increased $2.4 million, or 2.2%, to $113.4 million at March 31, 2010
from $111.0 million at December 31, 2009.  Mortgage-backed securities
decreased $2.0 million,  or 7.1%, to $26.3 million at March 31, 2010
from $28.3 million as of December 31, 2009. Cash and cash equivalents increased
$794,000 or 14.5%, to $6.3 million at March 31, 2010 from $5.5 million at
December 31, 2009.





Total
deposits increased $1.5 million, or 1.3%, to $116.7 million at  March
31, 2010 from $115.2 million at  December 31, 2009.  As
of March 31, 2010, advances from the Federal Home Loan Bank of New York (“FHLB”)
were $21.9 million compared to $22.9 million as of December 31, 2009, a decrease
of $1.0 million, or 4.4%.





Total
stockholders’ equity increased $203,000, or 1.3%, to $15.4 million at March 31,
2010 from $15.2 million at December 31, 2009.  The increase to
stockholders’ equity reflects net income of $140,000, an amortization of $6,000
of unearned ESOP shares, amortization of $10,000 of restricted stock awards,
amortization of $10,000 of stock option awards and $37,000, net of tax, of
accumulated other comprehensive income.





On August
30, 2007, the Company approved a stock repurchase program and authorized the
repurchase of up to 50,000 shares of the Company’s outstanding shares of common
stock. Stock repurchases are made from time to time and may be effected through
open market purchases, block trades and in privately negotiated
transactions.  Repurchased stock will be held as treasury stock and
will be available for general corporate purposes.  During the quarter
ended March 31, 2010, the Company did not repurchase any shares. As of March 31,
2010, under the current program, a total of 12,750 shares had been repurchased
at a weighted average price of $4.44 per share.





Comparison
of Operating Results for the Three Months Ended  March 31, 2010
and  March 31, 2009





General.Net
income decreased by $184,000, to $140,000 for the quarter ended March 31, 2010
from $324,000 for the same quarter in 2009.  The decrease in net
income for the quarter was primarily due to increases of $154,000 in provision
for loan loss and $530,000 in non-interest expense and a decrease of $2,000 in
non-interest income.  This was partially offset by an increase of
$73,000 in interest income and decreases of $139,000 in interest expense on
deposits, $162,000 in interest expense on borrowings from the FHLB and $127,000
in income tax expense.





Interest
Income.Total interest income increased $73,000, or 3.6%, to
$2.1 million for the quarter ended March 31, 2010 from $2.0 million for the
quarter ended March 31, 2009. The increase in interest income can be primarily
attributed to a higher interest earning asset base and a higher average yield
for these assets.  For the three months ended March 31, 2010, the
average balance of $145.1 million in interest-earning assets earned an
average


15
 Index


yield of
5.75% compared to an average yield of 5.73% on an average balance of $140.6
million for the three months ended March 31, 2009.





Interest
income on loans increased $131,000, or 8.5%, to $1.7 million for the quarter
ended March 31, 2010, from $1.5 million for the same quarter in
2009.  The average balance of loans increased $14.6 million to $112.9
million for the quarter ended March 31, 2010 from $98.3 million for the quarter
ended March 31, 2009.  The average yield on loans decreased by 35
basis points to 5.94% for the quarter ended March 31, 2010 from 6.29% for the
quarter ended March 31, 2009.





Interest
income on mortgage-backed securities decreased $63,000, or 13.8%, to $392,000
for the quarter ended March 31, 2010 from $455,000 for the quarter ended March
31, 2009.  The average balance of mortgage-backed securities decreased
$6.2 million, or 18.6%, to $27.1 million for the quarter ended March 31, 2010
from $33.3 million for the quarter ended March 31, 2009.  The average
yield increased by 34 basis points to 5.80% for the quarter ended March 31, 2010
from 5.46% for the same period in 2009.





Interest
income on FHLB stock increased $6,000, or 54.5%, to $17,000 for the quarter
ended March 31, 2010 from $11,000 for the quarter ended March 31,
2009.   The average yield on FHLB stock increased 211 basis
points to 5.32%, for the quarter ended March 31, 2010 from an average yield of
3.21% for the quarter ended March 31, 2009.





Interest
income on other interest-earning assets, primarily interest-earning deposits and
federal funds sold, decreased $1,000, or 50.0%, to $1,000 for the quarter ended
March 31, 2010 from $2,000 for the quarter ended March 31,
2009.   The average yield on other interest earning assets
decreased by 2 basis points to 0.08% for the quarter ended March 31, 2010 from
0.10% for the quarter ended March 31, 2009 primarily due to the decline in
interest rates on interest-earning deposits and federal funds sold. The average
balance of other interest earning assets decreased $3.6 million, or 48.0%, to
$3.9 million for the quarter ended March 31, 2010 from $7.5 million for the
quarter ended March 31, 2009.





Interest
Expense.Total interest expense, comprised of interest
expense on deposits and FHLB borrowings, decreased $301,000, or 35.1%, to
$557,000 for the quarter ended March 31, 2010 from $858,000 for the quarter
ended March 31, 2009. The average cost of interest-bearing liabilities decreased
by 99 basis points to 1.67% for the quarter ended March 31, 2010 from 2.66% for
the quarter ended March 31, 2009.  The average balance of
interest-bearing liabilities increased $4.2 million, or 3.3% to $133.0 million
for the quarter ended March 31, 2010 from $128.8 million for the quarter ended
March 31, 2009.





Interest
expense on deposits decreased $139,000, or 23.2%, to $460,000 for the quarter
ended March 31, 2010, from $599,000 for the quarter ended March 31,
2009.  The average cost of interest-bearing deposits decreased by 64
basis points to 1.68% for the quarter ended March 31, 2010 from 2.32% for the
quarter ended March 31, 2009, reflecting the declining trend of interest rates
on deposits.  As a partial offset, the average balance of
interest-bearing deposits increased $6.4 million, or 6.2%, to $109.6 million for
the quarter ended March 31, 2010 from $103.2 million for the quarter ended March
31, 2009.





Interest
expense on FHLB borrowings decreased $162,000, or 62.5%, to $97,000 for the
quarter ended March 31, 2010, from $259,000 for the quarter ended March 31,
2009.  The average balance of FHLB borrowings decreased $2.2 million
or 8.6%, to $23.4 million for the quarter ended March 31, 2010, from $25.6
million for the quarter ended March 31, 2009. The average cost of FHLB
borrowings decreased by 239 basis points to 1.65% for the quarter ended March
31, 2010, from 4.04% for the quarter ended March 31, 2009.





Net Interest
Income.Net interest income increased $375,000, or 32.5%, to
$1.5 million for the quarter ended March 31, 2010 from $1.2 million for the same
quarter in 2009.  The interest rate spread was 4.08% for the quarter
ended March 31, 2010 compared to 3.06% for the quarter ended March 31, 2009, an
increase of 102 basis points.  Interest margin for the quarter ended
March 31, 2010 was 4.22% compared to 3.29% for the quarter ended March 31, 2009,
an increase of 93 basis points.  The increase in interest rate spread
and interest margin can be attributed primarily to the decrease in the average
cost of interest-bearing deposits and FHLB borrowings, as well as the increase
in the average balance of loans receivable.


16
 Index


Provision for Loan
Losses.The Company establishes the provision for loan losses,
which is charged to operations, at a level deemed appropriate to absorb known
and inherent losses that are both probable and reasonably estimable at the date
of the financial statements.  In evaluating the level of the allowance
for loan losses, management considers historical loss experience, the types of
loans and the amount of loans in the loan portfolio, adverse situations that may
affect the borrower’s ability to repay, the estimated value of any underlying
collateral, and prevailing economic conditions.  This evaluation is
inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available or as future events
change.  Based on the evaluation of these factors, a provision of
$154,000 was recorded for the three months ended March 31, 2010. No provision
for loan losses was recorded for the three months ended March 31,
2009.   The level of the allowance at March 31, 2010 is based on
estimates, and the ultimate losses may vary from the
estimates.  Non-performing loans increased to $4.8 million, or 3.1% of
total assets as of March 31, 2010 from $891,000 or 0.59% of total assets as of
March 31, 2009. As of March 31, 2010, the non-performing loans total included
seven 1-4 residential loans totaling $2.6 million, one non-residential loan of
$766,000 and a construction loan of $1.4 million which, at quarter-end,
maintained a specific allowance for loan loss of $463,000.





Non-Interest
Income.Non-interest income decreased $2,000, or 3.1%, to
$63,000 for the quarter ended March 31, 2010 from $65,000 for the quarter ended
March 31, 2009.  This was primarily attributable to the decrease of
$2,000 in BOLI investment income to $37,000 for quarter ended March 31, 2010
from $39,000 for the same period ended in 2009.





Non-Interest Expenses.  Non-interest expenses increased $530,000, or 77.7%, to $1.2
million for the quarter ended March 31, 2010 from $682,000 for the quarter ended
March 31, 2009.  The net increase of $530,000 in non-interest expenses
is primarily attributable to increases to salaries and employee benefits,
professional fees, Federal insurance premiums and other non-interest expenses,
partially offset by decreases to net occupancy expense of premises and
equipment. Salaries and employee benefits increased $474,000 to $604,000 for the
three months ended March 31, 2010 from $130,000 for the three months ended March
31, 2009 primarily due to the one-time pre-tax curtailment credit of $416,000,
net of periodic pension expense, resulting from the freezing of the defined
benefit pension plan during the quarter ended March 31, 2009. Excluding the
curtailment credit, salaries and employee benefits increased $58,000, or 10.6%
primarily due to defined benefit pension expenses and employee compensation
expenses. Federal Deposit Insurance Corporation Premiums increased $32,000 to
$58,000 for the three months ended March 31, 2010 from $26,000 for the three
months ended March 31, 2009 primarily due to higher premiums and assessments.
All other categories of non-interest expenses, in the aggregate, increased
$25,000, or 4.8%, to $550,000 for the quarter ended March 31, 2010, from
$525,000 for the prior year quarter.





Income Tax
Expense.  The provision for income taxes decreased $127,000, to
$88,000 for the quarter endedMarch 31, 2010 compared
to an expense of $215,000 for the same quarter in 2009 primarily due to a
decrease in income before income taxes of $311,000.





Liquidity
and Capital Resources





The
Association is required to maintain levels of liquid assets under the Office of
Thrift Supervision (the “OTS”) regulations sufficient to ensure the
Association’s safe and sound operation.  The Association’s liquidity,
calculated by a ratio of short-term assets to short-term liabilities, averaged
5.89% during the month of March 2010.  The Association adjusts its
liquidity levels in order to meet funding needs for deposit outflows, payment of
real estate taxes from escrow accounts on mortgage loans, repayment of
borrowings, when applicable, and loan funding commitments. The Association also
adjusts its liquidity level as appropriate to meet its asset/liability
objectives.





The
Association’s primary sources of funds are deposits, borrowings, amortization
and prepayments of loans and mortgage-backed securities, maturities of
investment securities and funds provided from operations.  While
scheduled loan and mortgage-backed securities amortization and maturing
investment securities are a relatively predictable source of funds, deposit
flows and loan and mortgage-backed securities prepayments are greatly influenced
by market interest rates, economic conditions and competition.





The
Association’s liquidity, represented by cash and cash equivalents, is a product
of its operating, investing and financing activities.


17
 Index


The
primary sources of investing activity are lending and the purchase of investment
securities and mortgage-backed securities.  Net loans totaled $113.4
million and $111.0 million at March 31, 2010 and December 31, 2009,
respectively.  Mortgage-backed securities held to maturity totaled
$26.3 million and $28.3 million at March 31, 2010 and December 31, 2009,
respectively.  In addition to funding new loans and mortgage-backed
and investment securities purchases through operating and financing activities,
such activities were funded by principal repayments on existing loans,
mortgage-backed securities and maturities of investment securities.





Liquidity
management is both a daily and long-term function of business
management.  Excess liquidity is generally invested in short-term
investments, such as federal funds and interest-bearing deposits.  If
the Association requires funds beyond its ability to generate them internally,
borrowing agreements exist with the FHLB which provides an additional source of
funds.  At March 31, 2010, the Company had a borrowing limit of $70.9
million from the FHLB, of which $21.9 million was advanced. At December 31,
2009, advances from the FHLB totaled $22.9 million.





The
Association anticipates that it will have sufficient funds available to meet its
current loan commitments and obligations.  At March 31, 2010, the
Association had outstanding commitments to originate or purchase loans of $1.7
million. Certificates of deposit scheduled to mature in one year or less at
March 31, 2010, totaled $60.1 million.  Management believes that,
based upon its experience and the Association’s deposit flow history, a
significant portion of such deposits will remain with the
Association.





Under OTS
regulations, three separate measurements of capital adequacy (the “Capital
Rule”) are required.  The Capital Rule requires each savings
institution to maintain tangible capital equal to at least 1.5% and core capital
equal to 4.0% of its adjusted total assets.  The Capital rule further
requires each savings institution to maintain total capital equal to at least
8.0% of its risk-weighted assets.





The
following tables set forth the Association’s capital position at March 31, 2010
and December 31, 2009, as compared to the minimum regulatory capital
requirements:




Actual
            
            
            Minimal Capital
Requirements
            
            
            Under Prompt Corrective Actions
      ProvisionsAmount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio
            
            
            Amount
            
            
            RatioMarch
      31, 2010:
            
            
            
            
            (Dollars
      in Thousands)Total
      Capital
            
            $
            16,742
            
            
            
            18.68
            %
            
            >$7,170
            
            
            >8.00%
            
            
            >$8,963
            
            
            >10.00%(to
      risk-weighted assets)Tier
      1 Capital
            
            
            16,227
            
            
            
            18.11
            %
            
            >
      -
            
            
            >
      -
            
            
            >5,378
            
            
            > 6.00%(to
      risk-weighted assets)Core
      (Tier 1) Capital
            
            
            16,311
            
            
            
            10.47
            %
            
            >
      6,229
            
            
            >4.00%
            
            
            >7,786
            
            
            > 5.00%(to
      adjusted total assets)Tangible
      Capital
            
            
            16,311
            
            
            
            10.47
            %
            
            >
      2,336
            
            
            >1.50%
            
            
            >-
            
            
            >-(to
      adjusted total assets)


18
 Index




Actual
            
            
            Minimal Capital
Requirements
            
            
            Under Prompt Corrective Actions
      ProvisionsAmount
            
            
            Ratio
            
            
            Amount
            
            
            Ratio
            
            
            Amount
            
            
            RatioDecember
      31, 2009:
            
            
            
            
            (Dollars
      in Thousands)Total
      Capital
            
            $
            16,408
            
            
            
            18.66
            %
            
            >$7,036
            
            
            >8.00%
            
            
            >$8,795
            
            
            >10.00%(to
      risk-weighted assets)Tier
      1 Capital
            
            
            16,044
            
            
            
            18.24
            %
            
            >
      -
            
            
            >
      -
            
            
            >5,277
            
            
            > 6.00%(to
      risk-weighted assets)Core
      (Tier 1) Capital
            
            
            16,128
            
            
            
            10.42
            %
            
            >
      6,192
            
            
            >4.00%
            
            
            >7,739
            
            
            > 5.00%(to
      adjusted total assets)Tangible
      Capital
            
            
            16,128
            
            
            
            10.42
            %
            
            >
      2,322
            
            
            >1.50%
            
            
            >-
            
            
            >-(to
      adjusted total assets)





Management
of Interest Rate Risk





The
ability to maximize net interest income largely depends upon maintaining a
positive interest rate spread during periods of fluctuating market interest
rates.  Interest rate sensitivity is a measure of the difference
between amounts of interest-earning assets and interest-bearing liabilities
which either reprice or mature within a given period of time.  The
difference, or the interest rate repricing “gap,” provides an indication of the
extent to which an institution’s interest rate spread will be affected by
changes in interest rates.  A gap is considered positive when the
amount of interest-rate sensitive assets exceeds the amount of interest-rate
sensitive liabilities, and is considered negative when the amount of
interest-rate sensitive liabilities exceeds the amount of interest-rate
sensitive assets.  Generally, during a period of rising interest
rates, a negative gap within shorter maturities would adversely affect net
interest income, while a positive gap within shorter maturities would result in
an increase in net interest income, and during a period of falling interest
rates, a negative gap within shorter maturities would result in an increase in
net interest income while a positive gap within shorter maturities would result
in a decrease in net interest income.





The
Association’s current investment strategy is to maintain an overall securities
portfolio that provides a source of liquidity and that contributes to the
Association’s overall profitability and asset mix within given quality and
maturity considerations.


19
 Index


Net
Portfolio Value





The
Association’s interest rate sensitivity is monitored by management through the
use of the OTS model which estimates the change in the Association’s net
portfolio value (“NPV”) over a range of interest rate scenarios.  NPV
is the present value of expected cash flows from assets, liabilities, and
off-balance sheet contracts.  The NPV ratio, under any interest rate
scenario, is defined as the NPV in that scenario divided by the market value of
assets in the same scenario. The OTS produces its analysis based upon data
submitted on the Association’s quarterly Thrift Financial Reports. The following
table sets forth the Association’s NPV as of March 31, 2010, the most recent
date the Association’s NPV was calculated by the OTS.




Change in
              
              Net
      Portfolio Value
              
              
              Net
      Portfolio Value as a Percentage of Present Value of
      AssetsInterest
      Rates
                (basis
      points)
              
              Estimated
                NPV
              
              
              Amount
      of
                  Change
              
              
              Percent
      of Change
              
              
              NPV
      Ratio
              
              
              Change
      in Basis Points(Dollars
      in Thousands)+300
              
              $
              10,944
              
              
              $
              (11,036
              )
              
              
              (50
              %)
              
              
              7.16
              %
              
              
              -605+200
              
              
              15,050
              
              
              
              (6,930
              )
              
              
              (32
              %)
              
              
              9.55
              %
              
              
              -367+100
              
              
              18,913
              
              
              
              (3,067
              )
              
              
              (14
              %)
              
              
              11.65
              %
              
              
              -
      157+
      50
              
              
              20,597
              
              
              
              (1,382
              )
              
              
              (
      6
              %)
              
              
              12.52
              %
              
              
              -
      690
              
              
              21,980
              
              
              
              —
              
              
              
              —
              
              
              
              13.22
              %
              
              
              —-
      50
              
              
              23,151
              
              
              
              1,172
              
              
              
              5
              %
              
              
              13.79
              %
              
              
              57-100
              
              
              23,977
              
              
              
              1,997
              
              
              
              9
              %
              
              
              14.18
              %
              
              
              97





Certain
shortcomings are inherent in the methodology used in the above interest rate
risk measurement.  Modeling changes in net portfolio value require
making certain assumptions that may or may not reflect the manner in which
actual yields and costs respond to changes in market interest
rates.  In this regard, the net portfolio value table presented
assumes that the composition of interest-sensitive assets and liabilities
existing at the beginning of a period remains constant over the period being
measured, and assumes that a particular change in interest rates is reflected
uniformly across the yield curve regardless of the duration or repricing of
specific assets and liabilities.  Accordingly, although the net
portfolio value table provides an indication of the Association’s interest rate
risk exposure at a particular point in time, such measurements are not intended
to and do not provide a precise forecast of the effect of changes in market
interest rates on its net interest income and will differ from actual
results.


20
 Index


ITEM3. Quantitative and Qualitative
Disclosure About Market Risk





As a
smaller reporting company, the Company is not required to provide the
information required of this item.





ITEM4T. FLATBUSH FEDERAL BANCORP,
INC. AND SUBSIDIARIES CONTROLS AND PROCEDURES





(a)
            Evaluation
      of disclosure controls and
procedures.





Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as defined
in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2010
(the “Evaluation Date”).  Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of the
Evaluation Date, our disclosure controls and procedures were effective in timely
alerting them in a timely manner to material information relating to us (or our
consolidated subsidiary) required to be included in our periodic SEC
filings.





(b)
            Changes
      in Internal Controls over Financial
Reporting.





There
were no significant changes made in our internal controls during the period
covered by this report or, to our knowledge, in other factors that has
materially affected or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.





See the
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.


21
 Index


PART
II – OTHER INFORMATION





ITEM1. Legal
Proceedings





As of
March 31, 2010, the Company was not involved in any legal proceedings other than
routine legal proceedings occurring in the ordinary course of business, which,
in the aggregate, involve amounts that  management believes are
immaterial to the Company’s consolidated financial condition, results of
operations and cash flows.





ITEM1A.Risk
Factors





A smaller
reporting company is not required to provide the information required of this
item.





ITEM2. Unregistered Sales of Equity
Securities and Use of Proceeds





On August
30, 2007, the Company approved a stock repurchase program and authorized the
repurchase of up to 50,000 shares of the Company’s outstanding shares of common
stock.  Stock repurchases will be made from time to time and may be
effected through open market purchases, block trades and in privately negotiated
transactions. Repurchased stock will be held as treasury stock and will be
available for general corporate purposes. As of March 31, 2010, 12,750 total
shares have been repurchased by the Company under this repurchase program.
During the quarter ended March 31, 2010, no shares were repurchased. These total
repurchased shares do not include the stock dividend shares of 1,340 which,
along with the repurchased shares, are held as treasury stock.








Company
      Purchases of Common StockPeriod
            
            Total
      number of shares purchased
            
            
            Average
      price paid per share
            
            
            Total
      number of shares purchased as part of publicly announced plans or
      programs
            
            
            Maximum
      number (or approximate dollar value) of shares that may yet be purchased
      under the plans or programsJanuary
      1, 2010 through January 31, 2010
            
            
            -
            
            
            $
            -
            
            
            
            12,750
            
            
            
            37,250February
      1, 2010 through February 28, 2010
            
            
            -
            
            
            
            -
            
            
            
            12,750
            
            
            
            37,250March
      1, 2010 through March 31, 2010
            
            
            -
            
            
            
            -
            
            
            
            12,750
            
            
            
            37,250





ITEM3. Defaults Upon Senior
Securities





Not
applicable.





ITEM5. Other
Information





None


22
 Index


ITEM6. Exhibits





The
following Exhibits are filed as part of this report.





3.1
            Federal
      Stock Charter of Flatbush Federal Bancorp,
Inc.*


3.2
            Bylaws
      of Flatbush Federal Bancorp, Inc.*


4.0
            Form
      of common stock certificate of Flatbush Federal Bancorp, Inc.
      *


11.0
            Computation
      of earnings per share.


31.1
            Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002 (filed herewith).


31.2
            Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes- Oxley
      Act of 2002 (filed herewith).


32.1
            Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to 18
      U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (filed
herewith).





*Incorporated
by reference to the Registration Statement on Form SB-2 of Flatbush Federal
Bancorp, Inc. (file no. 333-106557), originally filed with the Securities and
Exchange Commission on June 27, 2003.


23
 Index


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.





FLATBUSH
      FEDERAL BANCORP, INC.Date:
            May 17, 2010
            
            
            By:
            /s/
            Jesus R. AdiaJesus
      R. AdiaPresident
      andChief
      Executive OfficerDate:
            May 17, 2010
            
            
            By:
            /s/
            John S. LotardoJohn
      S. LotardoExecutive
      Vice President and Chief Financial Officer






24