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 September 30, 2008





[   ]TRANSITION
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.  Yes [
X]  No [   ]





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


Large
      Accelerated filer o
            Accelerated
      fileroNon-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).  Yes [  ]  No
[X]




APPLICABLE
ONLY TO CORPORATE ISSUERS


As
of  November13, 2008  the
Registrant had outstanding 2,744,597 shares of common stock.





FLATBUSH
FEDERAL BANCORP, INC. AND SUBSIDIARIES





INDEX


PageNumberPART I – FINANCIAL INFORMATIONItem 1:
            Financial StatementsConsolidated Statements of Financial Condition at September 30,
      2008 and December 31, 2007 (Unaudited)
            1Consolidated Statements of Income for the Three months and Nine
      months ended September 30, 2008 and 2007 (Unaudited)
            2Consolidated Statements of Comprehensive Income for the Three
      months and Nine months ended September 30, 2008 and 2007
      (Unaudited)
            3Consolidated Statements of Cash Flows for the Nine months
      ended September 30, 2008 and 2007 (Unaudited)
            4Notes to Consolidated Financial Statements
      (Unaudited)
            5 –
      8Item 2:
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operation
            9 –
      15Item 3:
            Quantitative and Qualitative Disclosure About Market
      Risk
            15Item 4T:
            Controls and Procedures
            15PART II – OTHER INFORMATIONItem 1:
            Legal Proceedings
            16Item 1A:
            Risk Factors
            16Item 2:
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            16Item 3:
            Defaults upon Senior Securities
            16Item 4:
            Submission of Matters to a Vote of Securities
      Holders
            16Item 5:
            Other Information
            16Item 6:
            Exhibits
            17SIGNATURES
            
            18





Index


PART
I – FINANCIAL INFORMATION


ITEM
1 – FINANCIAL STATEMENTS


FLATBUSH
FEDERAL BANCORP, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION


(Unaudited)




September
      30,
            
            
            December 31,ASSETS
            
            2008
            
            
            2007Cash
      and amounts due from depository institutions
            
            $
            1,856,718
            
            
            $
            1,830,973Interest
      earning deposits in other banks
            
            
            4,395,756
            
            
            
            686,607Federal
      Funds sold
            
            
            -
            
            
            
            2,450,000Cash
      and cash equivalents
            
            
            6,252,474
            
            
            
            4,967,580Investment
      securities held to maturity; fair value of
              $2,000,800
      in 2008 and $6,499,390 in 2007
            
            
            2,000,000
            
            
            
            6,491,188Mortgage-backed
      securities held to maturity; fair value of
              $28,966,677  in
      2008 and $25,205,441 in 2007
            
            
            28,719,899
            
            
            
            25,350,593Loans
      receivable, net of allowance for loan losses of $190,506
              in
      2008 and $202,388 in 2007
            
            
            95,777,918
            
            
            
            101,482,925Premises
      and equipment
            
            
            2,653,623
            
            
            
            2,778,177Federal
      Home Loan Bank of New York stock
            
            
            1,450,600
            
            
            
            1,512,900Accrued
      interest receivable
            
            
            584,169
            
            
            
            698,270Bank
      owned life insurance
            
            
            4,021,513
            
            
            
            3,901,624Other
      assets
            
            
            1,415,212
            
            
            
            1,655,244Total
      assets
            
            $
            142,875,408
            
            
            $
            148,838,501LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilities:Deposits:Non-interest
      bearing
            
            $
            3,729,906
            
            
            $
            3,835,685Interest
      bearing
            
            
            93,806,531
            
            
            
            98,835,840Total
      Deposits
            
            
            97,536,437
            
            
            
            102,671,525Federal
      Home Loan Bank of New York advances
            
            
            27,015,236
            
            
            
            28,252,084Advance
      payments by borrowers for taxes and insurance
            
            
            582,230
            
            
            
            421,399Other
      liabilities
            
            
            2,069,651
            
            
            
            1,931,875Total
      liabilities
            
            
            127,203,554
            
            
            
            133,276,883Stockholders’
      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 (2008 and 2007) 2,799,657 shares;
              outstanding (2008 and 2007)  2,744,597 shares
            
            
            27,998
            
            
            
            27,998Paid-in
      capital
            
            
            12,498,462
            
            
            
            12,441,913Retained
      earnings
            
            
            5,094,981
            
            
            
            5,117,100Unearned
      employees’ stock ownership plan (ESOP) shares
            
            
            (522,449
            )
            
            
            (548,605
            )Treasury
      stock,  55,060 shares
            
            
            (418,650
            )
            
            
            (418,650
            )Accumulated
      other comprehensive loss
            
            
            (1,008,488
            )
            
            
            (1,058,138
            )Total
      stockholders’ equity
            
            
            15,671,854
            
            
            
            15,561,618Total
      liabilities and stockholders’ equity
            
            $
            142,875,408
            
            
            $
            148,838,501





See notes
to consolidated financial statements.


1
 Index


FLATBUSH
FEDERAL BANCORP, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME


(Unaudited)


Three
      months ended
            
            
            Nine
      months endedSeptember
      30,
            
            
            September
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Interest
      IncomeLoans,
      including fees
            
            $
            1,505,304
            
            
            $
            1,724,854
            
            
            $
            4,621,761
            
            
            $
            5,253,255Mortgage-backed
      securities
            
            
            366,021
            
            
            
            376,234
            
            
            
            1,036,722
            
            
            
            1,097,976Investments
            
            
            50,128
            
            
            
            120,922
            
            
            
            220,554
            
            
            
            357,193Other
      interest earning assets
            
            
            22,008
            
            
            
            29,728
            
            
            
            108,843
            
            
            
            122,311Totalinterestincome
            
            
            1,943,461
            
            
            
            2,251,738
            
            
            
            5,987,880
            
            
            
            6,830,735Interest
      ExpenseDeposits
            
            
            576,485
            
            
            
            726,462
            
            
            
            1,935,132
            
            
            
            2,153,149Borrowings
            
            
            264,606
            
            
            
            365,170
            
            
            
            852,417
            
            
            
            1,136,738Total interest
      expense
            
            
            841,091
            
            
            
            1,091,632
            
            
            
            2,787,549
            
            
            
            3,289,887Net Interest
      Income
            
            
            1,102,370
            
            
            
            1,160,106
            
            
            
            3,200,331
            
            
            
            3,540,848Provision
      for loan losses
            
            
            -
            
            
            
            45
            
            
            
            66
            
            
            
            2,101Net
      interest income after provision for loan losses
            
            
            1,102,370
            
            
            
            1,160,061
            
            
            
            3,200,265
            
            
            
            3,538,747Non-interest
      incomeFees
      and service charges
            
            
            28,755
            
            
            
            33,805
            
            
            
            90,462
            
            
            
            106,128BOLI
      income
            
            
            40,675
            
            
            
            37,172
            
            
            
            119,889
            
            
            
            110,630Life
      insurance proceeds
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            500,000Other
            
            
            43,307
            
            
            
            6,355
            
            
            
            47,417
            
            
            
            8,994Total non-interest
      income
            
            
            112,737
            
            
            
            77,332
            
            
            
            257,768
            
            
            
            725,752Non-interest
      expensesSalaries
      and employee benefits
            
            
            579,256
            
            
            
            642,801
            
            
            
            1,729,407
            
            
            
            1,980,386Net
      occupancy expense of premises
            
            
            120,047
            
            
            
            131,857
            
            
            
            366,917
            
            
            
            384,768Equipment
            
            
            122,419
            
            
            
            122,973
            
            
            
            370,683
            
            
            
            387,213Directors’
      compensation
            
            
            43,572
            
            
            
            42,920
            
            
            
            141,017
            
            
            
            426,840Professional
      fees
            
            
            73,600
            
            
            
            88,424
            
            
            
            234,706
            
            
            
            208,266Other
      insurance premiums
            
            
            36,192
            
            
            
            37,004
            
            
            
            109,323
            
            
            
            113,986Other
            
            
            125,747
            
            
            
            124,705
            
            
            
            376,110
            
            
            
            384,288Total non-interest
      expenses
            
            
            1,100,833
            
            
            
            1,190,684
            
            
            
            3,328,163
            
            
            
            3,885,747Income
      before income taxes (benefit)
            
            
            114,274
            
            
            
            46,709
            
            
            
            129,870
            
            
            
            378,752Income
      taxes (benefit)
            
            
            36,731
            
            
            
            16,039
            
            
            
            41,142
            
            
            
            (37,346
            )Net
      income
            
            $
            77,543
            
            
            $
            30,670
            
            
            $
            88,728
            
            
            $
            416,098Net
      income  per common share – Basic and diluted
            
            $
            0.03
            
            
            $
            0.01
            
            
            $
            0.03
            
            
            $
            0.16Weighted
      average number of shares outstanding – Basic and diluted
            
            
            2,664,658
            
            
            
            2,655,047
            
            
            
            2,663,349
            
            
            
            2,663,209







See notes
to consolidated financial statements.


2
 Index


FLATBUSH
FEDERAL BANCORP, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME


(Unaudited)








Three
      months ended September 30,
            
            
            Nine
      months ended September 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Net
      Income
            
            $
            77,543
            
            
            $
            30,670
            
            
            $
            88,728
            
            
            $
            416,098Other
      comprehensive income,net
      of income taxes:Benefit
      Plans
            
            
            28,460
            
            
            
            43,147
            
            
            
            85,381
            
            
            
            128,256Deferred
      income taxes
            
            
            (11,910
            )
            
            
            (18,057
            )
            
            
            (35,731
            )
            
            
            (53,676
            )16,550
            
            
            
            25,090
            
            
            
            49,650
            
            
            
            74,580Comprehensive
      income
            
            $
            94,093
            
            
            $
            55,760
            
            
            $
            138,378
            
            
            $
            490,678


























See notes to consolidated financial
statements.


3
 Index








FLATBUSH
FEDERAL BANCORP, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)


Nine
      months ended September 30,2008
            
            
            2007Cash
      flow from operating activities:Net income
            
            $
            88,728
            
            
            $
            416,098Adjustments
      to reconcile net income to net cash
              provided
      by (used in) operating activities:Depreciation
      and amortization of premises and equipment
            
            
            136,677
            
            
            
            135,715Net
      amortization (accretion) of (discounts), premiums and
              deferred
      loan fees and costs
            
            
            44,468
            
            
            
            (40,894
            )Provision
      for loan losses
            
            
            66
            
            
            
            2,101ESOP
      shares committed to be released
            
            
            21,019
            
            
            
            27,657MRP
      amortization
            
            
            30,438
            
            
            
            165,727Stock
      option amortization
            
            
            31,248
            
            
            
            170,814Decrease
      in accrued interest receivable
            
            
            114,101
            
            
            
            53,741Increase
      in cash surrender value of BOLI
            
            
            (119,889
            )
            
            
            (89,397
            )Decrease
      (increase) in other assets
            
            
            204,300
            
            
            
            (158,640
            )Increase
      (decrease) in other liabilities
            
            
            112,311
            
            
            
            (939,998
            )Net
      cash  provided by (used in) operating activities
            
            
            663,467
            
            
            
            (257,076
            )Cash
      flow from investing activities:Proceeds
      from calls and maturities of investment securities held to
      maturity
            
            
            4,500,000
            
            
            
            -Principal
      repayments on mortgage-backed securities held to maturity
            
            
            2,560,885
            
            
            
            3,250,983Purchases
      of mortgage-backed securities held to maturity
            
            
            (6,010,458
            )
            
            
            (2,682,323
            )Purchases
      of loan participation interests
            
            
            (4,615,108
            )
            
            
            (2,578,133
            )Net
      change in loans receivable
            
            
            10,347,036
            
            
            
            4,526,340Additions
      to premises and equipment
            
            
            (12,123
            )
            
            
            (55,378
            )Redemption
      of Federal Home Loan Bank of New York stock
            
            
            62,300
            
            
            
            45,600Net
      cash provided by investing activities
            
            
            6,832,532
            
            
            
            2,507,089Cash
      flow from financing activities:Net  decrease 
      in deposits
            
            
            (5,135,088
            )
            
            
            (2,053,057
            )Advances
      from Federal Home Loan Bank of New York
            
            
            2,000,000
            
            
            
            5,800,000Repayment
      of advances from Federal Home Loan Bank of New York
            
            
            (5,236,848
            )
            
            
            (7,132,080
            )Net
      change to short-term borrowings
            
            
            2,000,000
            
            
            
            (3,000,000
            )Increase  in
      advance payments by borrowers
              for
      taxes and insurance
            
            
            160,831
            
            
            
            217,128Purchase
      of treasury stock
            
            
            -
            
            
            
            (103,313
            )Net
      cash used in financing activities
            
            
            (6,211,105
            )
            
            
            (3,271,322
            )Net
      increase in cash and cash equivalents
            
            
            1,284,894
            
            
            
            1,021,309Cash
      and cash equivalents – beginning
            
            
            4,967,580
            
            
            
            4,006,886Cash
      and cash equivalents – ending
            
            $
            6,252,474
            
            
            $
            2,985,577Supplemental
      disclosure of cash flow informationCash
      paid during the year for:Interest
            
            $
            2,795,379
            
            
            $
            3,295,442Income
      taxes
            
            $
            8,769
            
            
            $
            205,229











See notes
to consolidated financial statements.


4
 Index


FLATBUSH
FEDERAL 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”), the 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 and
nine months ended September 30, 2008, are not necessarily indicative of the
results which may be expected for the entire year.




NOTE 3.
ENDORSEMENT  SPLIT-DOLLAR LIFE INSURANCE
ARRANGEMENTS




On
January 1, 2008, the Company changed its accounting policy and recognized a
cumulative-effect adjustment to retained earnings totaling $110,846 related to
accounting for certain endorsement split-dollar life insurance arrangements in
connection with the adoption of Emerging Issues Task Force (“EITF”) Issue No.
06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects
of Endorsement Split Dollar Life Insurance Arrangements.”




NOTE 4.  NET
INCOME PER COMMON SHARE




Net
income per common share was computed by dividing net income for the three months
and nine months ended September 30, 2008 and 2007 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 and nine months ended September 30, 2008, there was no
dilutive effect of stock options.




NOTE 5.  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.  Material estimates that are particularly susceptible to
significant changes relate 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 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.




5
 Index


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
6.  RETIREMENT PLANS – COMPONENTS OF  NET PERIODIC PENSION
COST




Periodic
pension expense was as follows:




Three
      months ended
            
            
            Nine
      months endedSeptember
      30,
            
            
            September 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Service
      Cost
            
            $
            24,151
            
            
            $
            13,100
            
            
            $
            72,453
            
            
            $
            86,156Interest
      Cost
            
            
            82,145
            
            
            
            65,744
            
            
            
            246,435
            
            
            
            207,629Expected
      return on assets
            
            
            (104,895
            )
            
            
            (108,134
            )
            
            
            (314,685
            )
            
            
            (295,411
            )Amortization
      of past service cost
            
            
            (15,799
            )
            
            
            (15,642
            )
            
            
            (47,397
            )
            
            
            (26,489
            )Amortization
      of unrecognized net loss
            
            
            36,497
            
            
            
            31,521
            
            
            
            109,491
            
            
            
            93,446Net
      periodic benefit cost
            
            $
            22,099
            
            
            $
            (13,411
            )
            
            $
            66,297
            
            
            $
            65,331







Periodic
pension expense for other plans was as
follows:




Three
      months ended
            
            
            Nine months endedSeptember
      30,
            
            
            September 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Service
      Cost/Interest Cost
            
            $
            25,004
            
            
            $
            26,432
            
            
            $
            75,012
            
            
            $
            75,124Amortization
      of unrecognized transition obligation
            
            
            1,134
            
            
            
            4,292
            
            
            
            3,402
            
            
            
            12,828Amortization
      of past service cost
            
            
            5,278
            
            
            
            5,278
            
            
            
            15,835
            
            
            
            15,834Amortization
      of unrecognized net loss
            
            
            1,350
            
            
            
            2,045
            
            
            
            4,050
            
            
            
            6,135Net
      periodic benefit cost
            
            $
            32,766
            
            
            $
            38,047
            
            
            $
            98,299
            
            
            $
            109,921





The
Company expects to contribute $20,000 during 2008 for these retirement
plans.





NOTE 7.  RECENT
ACCOUNTING PRONOUNCEMENTS





In March
2008, the FASB issued Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No. 133”
(Statement 161).  Statement 161 requires entities that utilize
derivative instruments to provide qualitative disclosures about their objectives
and strategies for using such  instruments, as well as any details of
credit-risk-related contingent features contained within
derivatives.  Statement 161 also requires entities to disclose
additional information about the amounts and location of derivatives located
within the financial statements, how the provisions of SFAS 133 have been
applied, and the impact that hedges have on an entity’s financial statements,
financial performance, and cash flows. Statement 161 is effective for fiscal
years and  interim periods beginning after November 15, 2008, with
early application encouraged.   The Company is currently
evaluating the potential impact the new pronouncement will have on its
consolidated financial statements.





In
February 2008, the FASB issued a FASB Staff Position (FSP) FAS 140-3,
“Accounting for Transfers of Financial Assets and Repurchase Financing
Transactions.”  This FSP addresses the issue of whether or not these
transactions should be viewed as two separate transactions or as one “linked”
transaction.  The FSP includes a “rebuttable presumption” that
presumes linkage of the two transactions unless the presumption can be overcome
by meeting


6
 Index


certain
criteria.  The FSP will be effective for fiscal years beginning after
November 15, 2008 and will apply only to original transfers made after that
date: early adoption will not be allowed.  The Company is currently
evaluating the potential impact the new pronouncement will have on its
consolidated financial statements.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.”  This Statement identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements.  This statement is effective 60
days following the SEC’s approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity
with Generally Accepted Accounting Principles.”  The Company is
currently evaluating the potential impact the new pronouncement will have on its
consolidated financial statements.





FASB
Staff Position (FSP) 157-3





In
October 2008, the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active” (FSP 157-3), to
clarify the application of the provisions of SFAS 157 in an inactive market and
how an entity would determine fair value in an inactive market.  FSP
157-3 is effective immediately and applies to our September 30, 2008
consolidated financial statements.  The application of the provisions
of FSP 157-3 did not materially affect our results of operations or financial
condition as of and for the periods ended September 30, 2008.





FSP 133-1
and FIN 45-4





In
September 2008, the FASB issued FSP 133-1 and FIN 45-4, “Disclosures about
Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No.
133 and FASB Interpretation No. 45; and Clarification of the Effective Date of
FASB Statement No. 161




(FSP
133-1 and FIN 45-4). FSP 133-1 and FIN 45-4 amends and enhances disclosure
requirements for sellers of credit derivatives and financial
guarantees.  It also clarifies that the disclosure requirements of
SFAS Nos. 161 are effective for quarterly periods beginning after November 15,
2008, and fiscal years that include those periods. FSP 133-1 and FIN 45-4 is
effective for reporting periods (annual or interim) ending after November 15,
2008.  The implementation of this standard will not have a material
impact on our consolidated financial position and results of
operations.





EITF
08-5





In
September 2008, the FASB ratified EITF Issue No. 08-5, “Issuer’s Accounting for
Liabilities Measured at Fair Value With a Third-Party Credit Enhancement” (EITF
08-5).  EITF 08-5 provides guidance for measuring liabilities issued
with an attached third-party credit enhancement (such as a guarantee). It
clarifies that the issuer of a liability with a third-party credit enhancement
should not include the effect of the credit enhancement in the fair value
measurement of the liability.  EITF 08-5 is effective for the first
reporting period beginning after December 15, 2008.  The Company is
currently assessing the impact of EITF 08-5 on its consolidated financial
position and results of operations.





Emergency
Economic Stabilization Act of 2008





In
response to recent unprecedented market turmoil, the Emergency Economic
Stabilization Act (“EESA”) was enacted on October 3, 2008.  EESA
authorizes the Secretary of the Treasury to purchase up to $700 billion in
troubled assets from financial institutions under the Troubled Asset Relief
Program or TARP.  Troubled assets include residential or commercial
mortgages and related instruments originated prior to March 14, 2008 and any
other financial instrument that the Secretary determines, after consultation
with the Chairman of the Board of Governors of the Federal Reserve System, the
purchase of which is necessary to promote financial stability.  If the
Secretary exercises his authority under TARP, EESA directs the Secretary of
Treasury to establish a program to guarantee troubled assets originated or
issued prior to March 14, 2008.  The Secretary is authorized to
purchase up to $250 billion in troubled assets immediately and up to $350
billion upon certification by the President that such authority is
needed.  The Secretary’s authority will be increased to $700 billion
if the President submits a written report to Congress detailing the Secretary’s
plans to use such authority unless Congress passes a joint resolution
disapproving such amount within 15 days after receipt of the
report.  The Secretary’s authority under TARP expires


7
 Index


on
December 31, 2009 unless the Secretary certifies to Congress that extension is
necessary provided that his authority may not be extended beyond October 3,
2010.





Institutions
selling assets under TARP will be required to issue warrants for common or
preferred stock or senior debt to the Secretary.  If the Secretary
purchases troubled assets directly from an institution without a bidding process
and acquires a meaningful equity or debt position in the institution as a result
or acquires more than $300 million in troubled assets from an institution
regardless of method, the institution will be required to meet certain standards
for executive compensation and corporate governance, including a prohibition
against incentives to take unnecessary and excessive risks, recovery of bonuses
paid to senior executives based on materially inaccurate earnings or other
statements and a prohibition against agreement for the payment of golden
parachutes.  Institutions that sell more then $300 million in assets
under TARP auctions will not be entitled to a tax deduction for compensation in
excess of $500.00 paid to its chief executive or chief financial official or any
of its other three most highly compensated officers.  In addition, any
severance paid to such officers for involuntary termination or termination in
connection with a bankruptcy or receivership will be subject to the golden
parachute rules under the Internal Revenue Code.





EESA
increases the maximum deposit insurance amount up to $250,000 until December 31,
2009 and removes the statutory limits on the FDIC’s ability to borrow from the
Treasury during this period.  The FDIC may not take the temporary
increase in deposit insurance coverage into account when setting assessments.
EESA allows financial institutions to treat any loss on the preferred stock of
the Federal National Mortgage Association or Federal Home Loan Mortgage
Corporation as an ordinary loss for tax purposes.  This provision is
effective October 3, 2008.





Pursuant
to his authority under EESA, the Secretary of the Treasury has created the TARP
Capital Purchase Plan under which the Treasury Department will invest up to $250
billion in senior preferred stock of U.S. banks and savings associations or
their holding companies.  Qualifying financial institutions may issue
senior preferred stock with a value equal to not less than 1% of risk-weighted
assets and not more than the lesser of $25 billion or 3% of risk-weighted
assets.  The senior preferred stock will pay dividends at the rate of
5% per annum until the fifth anniversary of the investment and thereafter at the
rate of 9% per annum.  The senior preferred stock may not be redeemed
for three years except with the proceeds from any offering of common stock or
preferred stock qualifying as Tier 1 capital in an amount of equal to not less
then 25% of the amount of the senior preferred.  After three years,
the senior preferred may be redeemed at any time in whole or in part by the
financial institution.  No dividends may be paid on common stock
unless dividends have been paid on the senior preferred stock.  Until
the third anniversary of the issuance of the senior preferred, the consent of
the U.S. Treasury will be required for any increase in the dividends on the
common stock or for any stock repurchases unless the senior preferred has been
redeemed in its entirety or the Treasury has transferred the senior preferred to
third parties.  The senior preferred will not have voting rights other
than the rights to vote as a class on the issuance of any preferred stock
ranking senior, any change in its terms or any merger, exchange or similar
transaction that would adversely affect its rights.  The senior
preferred will also have the right to elect two directors if dividends have not
been paid for six periods.  The senior preferred will be feely
transferable and participating institutions will be required to file a shelf
registration statement covering the senior preferred.  The issuing
institution must grant the Treasury piggyback registration rights prior to
issuance, the financial institution and its senior executive officers must
modify or terminate all benefit plans and arrangements to comply with
EESA.  Senior executives must also waive any claims against the
Department of Treasury.





In
connection with the issuance of the senior preferred, participating institutions
must issue to the Secretary immediately exercisable 10-year warrants to purchase
common stock with an aggregate market price equal of 15% of the amount of senior
preferred.  The exercise price of the warrants will equal the market
price of the common stock on the date of the investment.  The
Secretary may only exercise or transfer one-half of the warrants prior to the
earlier of December 31, 2009 or the date the issuing financial institution has
received proceeds equal to the senior preferred investment form one or more
offerings of common or preferred stock qualifying as Tier 1
capital.  The Secretary will not exercise voting rights with respect
to any shares of common stock acquired through exercise of the
warrants.  The financial institution must file a shelf registration
statement covering the warrants and underlying common stock as soon as
practicable after issuance and grant piggyback registration rights. The number
of warrants will be reduced by one-half if the financial institution raises
capital equal to the amount of the senior preferred through one or more
offerings of common stock or preferred stock qualifying a Tier 1
capital.  If the financial institution does not have sufficient
authorized shares of common stock available to satisfy the warrants or their
issuance otherwise requires shareholder approval the financial institution must
call a meeting of shareholders for that purpose as soon as practicable after the
date of investment.  The exercise price of the warrants will be
reduced by 15% for each six months that lapse before shareholder approval
subject to a maximum reduction of 45%.





The
Company has a filing deadline of November 14, 2008 to participate in the Capital
Purchase Plan (CPP).  The Company is currently evaluating the impact
of participating or not participating in the CPP.


8
 Index














ITEM
2


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 September 30, 2008 and December 31, 2007




The
Company’s total assets as of September 30, 2008 were $142.9 million compared to
$148.8 million at December 31, 2007, a decrease of $5.9 million, or
4.0%.  Cash and cash equivalents increased $1.3 million, or 26.0%, to
$6.3 million at September 30, 2008 from $5.0 million at December 31,
2007.  Loans receivable decreased $5.7 million, or 5.6%, primarily due
to slower loan demand along with increased construction loan payoffs, to $95.8
million at September 30, 2008 from $101.5 million at December 31, 2007.
Mortgage-backed securities increased $3.3 million, or 13.0%, to $28.7 million at
September 30, 2008 from $25.4 million as of December 31, 2007. Investment
securities decreased $4.5 million, or 69.2%, primarily due to security
calls during the period, to $2.0 million as of September 30, 2008 from $6.5
million as of December 31, 2007.





Total
deposits decreased $5.2 million, or 5.1%, to $97.5 million at September 30, 2008
from $102.7 million at  December 31, 2007.  As of
September 30, 2008, borrowings from the Federal Home Loan Bank of New York
(“FHLB”) were $27.0 million compared to $28.3 million as of December 31, 2007, a
decrease of $1.3 million, or 4.6%.





Total
stockholders’ equity increased $110,000 to $15.7 million at September 30, 2008
from $15.6 million at December 31, 2007.





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 September 30, 2008, the Company did not repurchase any shares.
As of September 30, 2008, under the current program 5,060 shares were
repurchased at a weighted average price of $5.67 per share.





Comparison
of Operating Results for the Three Months Ended September 30, 2008 and September
30, 2007




General.Net
income increased by $47,000, to $78,000 for the quarter ended September 30, 2008
from $31,000 for the same quarter in 2007.  The increase in net income
for the quarter was primarily due to decreases of $150,000
in  interest expense on deposits, $101,000 in interest expense on
borrowings from the FHLB and $90,000 in  non-interest expenses, and an
increase of $35,000 in non-interest income. These decreases were partially
offset by a decrease of $308,000 in total interest income and an increase of
$21,000 in income taxes.





Interest
Income.Total interest income decreased $308,000, or 13.7%, to
$1.9 million for the quarter ended September 30, 2008 from $2.3 million for the
quarter ended September 30 2007. The decrease in interest income can be
primarily attributed to a lower interest earning asset base combined with a
lower average yield.  For the three months ended September 30, 2008,
the average balance of $131.6 million in interest-earning assets earned an
average yield of 5.91% compared to an average yield of 6.39% on an average
balance of $141.0 million for the three months ended September  30,
2007.




9
 Index


Interest
income on loans decreased $220,000, or 12.7%, to $1.5 million for the quarter
ended September 30, 2008 from $1.7 million for the same quarter in
2007.  The average balance of loans decreased $8.0 million to $95.9
million for the quarter ended September 30, 2008 from $103.9 million for the
quarter ended September 30, 2007.  The average yield on loans
decreased by 36 basis points to 6.28% for the quarter ended September 30,
2008 from 6.64% for the quarter ended September 30, 2007.




Interest
income on mortgage-backed securities decreased $10,000, or 2.6%, to $366,000 for
the quarter ended September 30, 2008 from $376,000 for the quarter ended
September 30, 2007.  The average balance of mortgage-backed securities
increased $1.1 million, or 4.1%, to $27.7 million for the quarter ended
September 30, 2008 from $26.6 million for the quarter ended September 30,
2007.  The average yield decreased by 36 basis points to 5.29% for the
quarter ended September 30, 2008 from 5.65% for the same period in
2007.




Interest
income on investment securities decreased $71,000, or 58.7%, to $50,000 for the
quarter ended September 30, 2008 from $121,000 for the quarter ended September
30, 2007.    The average balance of investment securities
decreased by $5.2 million, or 61.2%, to $3.3 million for the quarter ended
September 30, 2008 from $8.5 million for the quarter ended September 30,
2007.  As a partial offset, the average yield on investment securities
increased 33 basis points to 6.01%, primarily due to a higher dividend received
on FHLB stock, for the quarter ended September 30, 2008 from an average yield of
5.68% for the quarter ended September 30, 2007.




Interest
income on other interest-earning assets, primarily interest-earning deposits and
federal funds sold, decreased $8,000, or 26.7%, to $22,000 for the quarter ended
September 30, 2008 from $30,000 for the quarter ended September 30, 2007.  
The average yield on other interest earning assets decreased by 395 basis
points to 1.88% for the quarter ended September 30, 2008 from 5.83% for the
quarter ended September 30, 2007 primarily due to the decline in interest rates
on interest-earning deposits and federal funds sold. As a partial offset, the
average balance of other interest earning assets increased $2.7 million, or
135.0%, to $4.7 million for the quarter ended September 30, 2008 from $2.0
million for the quarter ended September 30, 2007.




Interest
Expense.Total interest expense, comprised of interest
expense on deposits and interest expense on FHLB borrowings, decreased $251,000,
or 23.0%, to $841,000 for the quarter ended September 30, 2008 from
$1.1 million for the quarter ended September 30, 2007. The average balance
of interest-bearing liabilities decreased $9.0 million to $120.1 million for the
quarter ended September 30, 2008 from $129.1 million for the quarter ended
September 30, 2007. The average cost of interest-bearing liabilities decreased
by 58 basis points to 2.80% for the quarter ended September 30, 2008 from 3.38%
for the quarter ended September 30, 2007.




Interest
expense on deposits decreased $150,000, or 20.6%, to $576,000 for the quarter
ended September 30, 2008 from $726,000 for the quarter ended September 30,
2007.  The average cost of interest-bearing deposits decreased by 48
basis points to 2.41% for the quarter ended September 30, 2008 from 2.89% for
the quarter ended September 30, 2007, reflecting the declining trend of interest
rates on deposits.  The average balance of interest-bearing deposits
decreased $4.9 million, or 4.9%, to $95.6 million for the quarter ended
September 30, 2008 from $100.5 million for the quarter ended September 30,
2007.




Interest
expense on FHLB borrowings decreased $100,000, or 27.4%, to $265,000 for the
quarter ended September 30, 2008, from $365,000 for the quarter ended September
30, 2007.  The average balance of FHLB borrowings decreased $4.1
million, or 14.3%, to $24.5 million for the quarter ended September 30, 2008,
from $28.6 million for the quarter ended September 30, 2007. The average cost of
FHLB borrowings decreased by 78 basis points to 4.32% for the quarter ended
September 30, 2008, from 5.10% for the quarter ended September 30,
2007.




Net Interest
Income.Net interest income decreased $58,000, or 5.0%, to
$1.1 million for the quarter ended September 30, 2008 from $1.2 million for the
same quarter in 2007.  The interest rate spread was 3.10% for the
quarter ended September 30, 2008 compared to 3.01% for the quarter ended
September 30, 2007, an increase of nine basis points.  Interest margin
for the quarter ended September 30, 2008 was 3.35% compared to 3.29% for the
quarter ended September 30, 2007, an increase of six basis
points.  The increase in interest rate spread and interest margin can
be attributed primarily to the decrease in the average balance and average yield
of interest-bearing deposits and FHLB borrowings.




10
 Index


Provision for Loan
Losses.The Company establishes provision for loan losses,
which is charged to operations, at a level necessary 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, no
provision was recorded for the three months ended September 30,
2008.  For the three months ended September 30, 2007, a provision of
$45 was recorded.   The level of the allowance at September 30,
2008 is based on estimates, and the ultimate losses may vary from the
estimates.  Non-performing loans increased to $737,000, or 0.52% of
total assets as of September 30, 2008, from $316,000 or 0.20% of total assets as
of September 30, 2007. As of September 30, 2008, the non-performing loans total
included two 1-4 residential loans totaling $734,000 which, at quarter-end, did
not warrant a specific provision for loan loss.




Non-Interest
Income.Non-interest income increased $36,000, or 46.8%, to
$113,000 for the quarter ended September 30, 2008 from $77,000 for the quarter
ended September 30, 2007.  This was primarily attributable to the
one-time legal settlement proceeds of $41,000 and an increase of BOLI income of
$3,000, partially offset by a decline of $5,000 in fees and service
charges.




Non-Interest Expenses.  Non-interest expenses decreased $90,000, or 7.5%, to $1.1
million for the quarter ended September 30, 2008 from $1.2 million for the
quarter ended September 30, 2007.  The net decrease of $90,000 in
non-interest expenses is primarily attributable to decreases to salaries and
employee benefits, net occupancy expense of premises, professional fees and
other insurance premiums, partially offset by increases to directors’
compensation and other expenses. Salaries and employee benefits decreased
$64,000 to $579,000 for the three months ended September 30, 2008, from $643,000
for the three months ended September 30, 2007, primarily due to the reduction in
staff.




The
Company anticipates a significant increase in the cost of federal deposit
insurance from current levels of five to seven basis points.  The FDIC
has recently proposed to increase the assessment rate for the most highly rated
institutions to between 12 and 14 basis points for the first quarter of 2009 and
to between 10 and 14 basis points thereafter.  Assessment rates could
be further increased if an institution’s FHLB advances exceed 15% of
deposits.  The FDIC has also established a program under which it
fully guarantees all non-interest bearing transaction accounts and senior
unsecured debt of a bank or its holding company.  Institutions that do
not opt out of the program by November 14, 2008 will be assessed ten basis
points for non interest bearing transaction account balances in excess of
$250,000 and 75 basis points of the amount of debt issued.




Income Tax
Expense.  The provision for income taxes increased $21,000, to
$37,000 for the quarter ended September 30, 2008 from  $16,000 for the
same quarter in 2007 primarily due to an increase in income before income taxes
of $67,000.




Comparison
of Operating Results for the Nine Months Ended September 30, 2008 and September
30, 2007




General.Net
income decreased by $327,000, to $89,000 for the nine months ended September 30,
2008 from $416,000 for the same nine months in 2007.  The decrease in
net income for the nine months was primarily due to decreases of $843,000 in
total interest income and $468,000 in non-interest income, and an increase of
$78,000 in  income taxes. These were partially offset by decreases of
$218,000 in interest expense on deposits, $284,000 in interest expense on FHLB
borrowings, $558,000 in non-interest expenses and $2,000 in provision for loan
losses.





Interest
Income.Total interest income decreased $843,000, or 12.3%, to
$6.0 million for the nine months ended September 30, 2008 from $6.8 million for
the nine months ended September 30 2007. The decrease in interest income can be
primarily attributed to a lower interest earning asset base combined with a
lower average yield.  For the nine months ended September 30, 2008 the
average balance of $133.8 million in interest-earning assets earned an average
yield of 5.97% compared to an average yield of 6.35% on an average balance of
$143.4 million for the nine months ended September 30, 2007.




11
 Index


Interest
income on loans decreased $631,000, or 12.0%, to $4.6 million for the nine
months ended September 30, 2008 from $5.3 million for the same nine months in
2007.  The average balance of loans decreased $7.5 million, or 7.2%,
to $97.3 million for the nine months ended September 30, 2008 from $104.8
million for the nine months ended September 30, 2007.  The average
yield on loans decreased by 34 basis points to 6.34% for the nine months ended
September 30, 2008 from 6.68% for the nine months ended September 30,
2007.




Interest
income on mortgage-backed securities decreased $61,000, or 5.6%, to $1.0 million
for the nine months ended September 30, 2008 from $1.1 for the nine months ended
September 30, 2007.  The average balance of mortgage-backed securities
decreased $982,000, or 3.7%, to $25.7 million for the nine months ended
September 30, 2008 from $26.7 million for the nine months ended September 30,
2007.  The average yield decreased by 11 basis points to 5.37% for the
nine months ended September 30, 2008 from 5.48% for the same period in
2007.




Interest
income on investment securities decreased $136,000, or 38.1%, to $221,000 for
the nine months ended September 30, 2008 from $357,000 for the nine months ended
September 30, 2007.  The average balance of investment securities
decreased by $4.5 million, or 52.3%, to $4.1 million for the nine months ended
September 30, 2008 from $8.6 million for the nine months ended September 30,
2007.  As a partial offset, the average yield on investment securities
increased 153 basis points to 7.09%, primarily due to a higher dividend received
on FHLB stock, for the nine months ended September 30, 2008 from an average
yield of 5.56% for the nine months ended September 30, 2007.




Interest
income on other interest-earning assets, primarily interest-earning deposits and
federal funds sold, decreased $13,000, or 10.7%, to $109,000 for the nine months
ended September 30, 2008 from $122.000, for the nine months ended September 30,
2007. The  average yield on other interest earning assets decreased by
267 basis points to 2.17% for the nine months ended September 30, 2008 from
4.84% for the nine months ended September 30, 2007. As a partial offset, the
average balance of other interest earning assets increased $3.3 million, or
97.1%, to $6.7 million for the nine months ended September 30, 2008 from $3.4
million for the nine months ended September 30, 2007.




Interest
Expense.Total interest expense, comprised of interest
expense on deposits and interest expense on FHLB borrowings, decreased $502,000,
or 15.3%, to $2.8 million for the nine months ended September 30, 2008 from $3.3
million for the nine months ended September 30, 2007. The average balance of
interest-bearing liabilities decreased $9.1 million, or 6.9%, to $122.4 million
for the nine months ended September 30, 2008 from $131.5 million for the nine
months ended September 30, 2007. The average cost of interest-bearing
liabilities decreased by 30 basis points to 3.04% for the nine months ended
September 30, 2008 from 3.34% for the nine months ended September 30,
2007.




Interest
expense on deposits decreased $218,000, or 10.1%, to $1.9 million for the nine
months ended September 30, 2008 from $2.2 million for the nine months ended
September 30, 2007.  The average cost of interest-bearing deposits
decreased by 17 basis points to 2.65% for the nine months ended September 30,
2008 from 2.82% for the nine months ended September 30, 2007. The average
balance of interest-bearing deposits decreased $4.6 million, or 4.5%, to $97.2
million for the nine months ended September 30, 2008 from $101.8 million for the
nine months ended September 30, 2007.




Interest
expense on FHLB borrowings decreased $284,000, or 25.0%, to $852,000 for the
nine months ended September 30, 2008, from $1.1 million for the nine months
ended September 30, 2007.  The average balance of FHLB borrowings
decreased $4.5 million, or 15.2%, to $25.2 million for the nine months ended
September 30, 2008, from $29.7 million for the nine months ended September 30,
2007. The average cost of FHLB borrowings decreased by 59 basis points to 4.51%
for the nine months ended September 30, 2008, from 5.10% for the nine months
ended September 30, 2007.




Net Interest
Income.Net interest income decreased $341,000, or 9.6%, to
$3.2 million for the nine months ended September 30, 2008 from $3.5 million for
the same nine months in 2007.  The interest rate spread was 2.93% for
the nine months ended September 30, 2008 compared to 3.01% for the nine months
ended September 30, 2007, a decrease of 8 basis points.  Interest
margin for the nine months ended September 30, 2008 was 3.19% compared to 3.29%
for the nine months ended September 30, 2007, a decrease of 10 basis
points.  The decrease in interest rate spread and interest margin can
be attributed primarily to the decrease in the average balance and




12
 Index


average
yield of loans receivable, the decrease in the average yield of mortgage-backed
securities, the decrease in the average balance of investment securities and the
decrease in the average yield of other interest-earning assets.




Provision for Loan
Losses.The Company establishes provisions for loan losses,
which are charged to operations, at a level necessary 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 $66
was recorded for the nine months ended September 30, 2008.  For the
nine months ended September 30, 2007, a provision of $2,000 was
recorded.  The provision for loan losses was established to address
probable and estimable losses in the loan portfolio.  The level of the
allowance at September 30, 2008 is based on estimates, and the ultimate losses
may vary from the estimates.  Non-performing loans increased to
$737,000, or 0.52% of total assets as of September 30, 2008, from $316,000 or
0.20% of total assets as of September 30, 2007. As of September 30, 2008, the
non-performing loans total included two 1-4 residential loans totaling $734,000
which, at this time, did not warrant a specific provision for loan
loss.




Non-Interest
Income.Non-interest income decreased $468,000, or 64.5%, to
$258,000 for the nine months ended September 30, 2008 from $726,000 for the nine
months ended September 30, 2007.  This was primarily attributable to
the life insurance proceeds of $500,000 received during the nine months ended
September 30, 2007 and a decrease in fees and service charges of $16,000,
partially offset by a one-time legal settlement amount of $41,000 and an
increase from BOLI income of $9,000.




Non-Interest Expenses.  Non-interest expenses decreased $558,000, or 14.4%, to $3.3
million for the nine months ended September 30, 2008 from $3.9 million for the
nine months ended September 30, 2007.  The net decrease of $558,000 in
non-interest expense is primarily attributable to decreases to salaries and
employee benefits, directors’ compensation, net occupancy expense of premises,
equipment, other insurance premiums and other expenses, which were partially
offset by increases in professional fees. Directors’ compensation decreased by
$286,000 to $141,000 for the nine months ended September 30, 2008, from $427,000
for the nine months ended September 30, 2007. The decrease is primarily
attributed to the one-time accrual of $221,000 for the accelerated vesting of
stock options and restricted stock due to the death of the Company’s
former  CEO and President, Anthony J. Monteverdi, the one-time accrual
of $35,000 for the accelerated vesting of stock options and restricted stock due
to the retirement of director John F. Antoniello during the nine months ended
September 30, 2007, and  the reduction of outside directors to five
during the nine months ended September 30, 2007. Salaries and employee benefits
decreased $251,000 to $1.7 million for the nine months ended September 30, 2008,
from $2.0 million for the nine months ended September 30, 2007, primarily due to
the reduction in staff.  Professional fees increased $27,000 to
$235,000 for the nine months ended September 30, 2008, from $208,000 for the
nine months ended September 30, 2007, primarily due to the additional audit and
accounting fees for the compliance with the Sarbanes-Oxley Act, Section
404.




Income Tax
Expense.  The provision for income taxes increased $78,000, to
$41,000 for the nine months ended September 30, 2008 from a benefit of $37,000
for the same nine months in 2007.




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
averaged 5.16% during the month of September 2008.  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.









13
 Index







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




The
primary sources of investing activity are lending and the purchase of investment
securities and mortgage-backed securities.  Net loans totaled $95.8
million and $101.5 million at September 30, 2008 and December 31, 2007,
respectively.  Mortgage-backed and investment securities held to
maturity totaled $30.7 million and $31.8 million at September 30, 2008 and
December 31, 2007, 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, 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 September 30, 2008, the Company had $27.0 million in
advances from the FHLB, and had a remaining available borrowing limit of $48.3
million.  At December 31, 2007, advances from the FHLB totaled $28.3
million.




The
Association anticipates that it will have sufficient funds available to meet its
current loan commitments and obligations.  At September 30, 2008, the
Association had outstanding commitments to originate or purchase loans of
$10.1 million and outstanding commitments to purchase mortgage-backed
securities of $639,000.  Certificates of deposit scheduled to mature
in one year or less at September 30, 2008, totaled $43.5
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 table sets forth the Association’s capital position at September 30,
2008, as compared to the minimum regulatory capital requirements:




Actual
              
              
              Minimal
      Capital
                Requirements
              
              
              Under
      Prompt
                Corrective
      Actions
                ProvisionsAmount
              
              
              Ratio
              
              
              Amount
              
              
              Ratio
              
              
              Amount
              
              
              Ratio(Dollars
      in Thousands)Total
      Capital
              
              $
              16,096
              
              
              
              20.66
              %
              
              $
              >6,233
              
              
              
              >8.00
              %
              
              $
              >7,792
              
              
              
              >10.00
              %(to
      risk-weighted assets)Tier
      1 Capital
              
              
              15,917
              
              
              
              20.43
              %
              
              
              >-
              
              
              
              >-
              
              
              
              >4,675
              
              
              
              >6.00
              %(to
      risk-weighted assets)Core
      (Tier 1) Capital
              
              
              16,001
              
              
              
              11.25
              %
              
              
              >5,687
              
              
              
              >4.00
              %
              
              
              >7,109
              
              
              
              >5.00
              %(to
      adjusted total assets)Tangible
      Capital
              
              
              16,001
              
              
              
              11.25
              %
              
              
              >2,133
              
              
              
              >1.50
              %
              
              
              >-
              
              
              
              >-(to
      adjusted total assets)





14
 Index


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.




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 June 30, 2008, 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
              
              
              $
              10,218
              
              
              $
              (7,060
              )
              
              
              (41
              %)
              
              
              7.49
              %
              
              
              -429+200
              
              
              
              12,693
              
              
              
              (4,585
              )
              
              
              (27
              %)
              
              
              9.07
              %
              
              
              -271+100
              
              
              
              15,153
              
              
              
              (2,125
              )
              
              
              (12
              %)
              
              
              10.56
              %
              
              
              -122+
      50
              
              
              
              16,212
              
              
              
              (1,066
              )
              
              
              (
      6
              %)
              
              
              11.18
              %
              
              
              -
      600
              
              
              
              17,278
              
              
              
              —
              
              
              
              —
              
              
              
              11.78
              %
              
              
              —-
      50
              
              
              
              17,912
              
              
              
              634
              
              
              
              4
              %
              
              
              12.11
              %
              
              
              +
      33-100
              
              
              
              18,396
              
              
              
              1,118
              
              
              
              6
              %
              
              
              12.35
              %
              
              
              +
      57





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.




ITEM 3.
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.




ITEM 4T.
FLATBUSH FEDERAL BANCORP, INC. AND SUBSIDIARIES CONTROLS AND
PROCEDURES







As of the
end of the period covered by this report, based on an evaluation of the
Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities and Exchange Act of 1934), each of the Chief
Executive Officer and the Chief Financial Officer of the Company has concluded
that the Company’s disclosure controls and procedures are effective to ensure
that information required to be disclosed by the Company in its Exchange Act
reports is recorded, processed, summarized and reported within the applicable
time periods specified by the SEC’s rules and forms.




There
were no significant changes in the Company’s internal controls or in any other
factors which could significantly affect those controls subsequent to the date
of the most recent evaluation of the September 30, 2008 internal controls by the
Company, including any corrective actions with regard to any significant
deficiencies or material weaknesses.




15
 Index


FLATBUSH
FEDERAL BANCORP, INC. AND SUBSIDIARIES





PART
II – OTHER INFORMATION








ITEM 1.
Legal Proceedings





The
Company is not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business, which involve
amounts in the aggregate believed by management to be immaterial to the
financial condition of the Company and the Association.





ITEM
1A.Risk Factors





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





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





On June
30, 2005, the Board of Directors approved a stock repurchase program and
authorized the repurchase of up to 50,000 shares of the Company's outstanding
shares of common stock. On August 30, 2007, the Company approved a second 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 September 30, 2008, 53,720 total shares have
been repurchased by the Company. No shares were repurchased in the quarter ended
September 30, 2008. 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
              programsJuly
      1, 2008 through July 31, 2008
            -
            -
            53,720
            46,280August
      1, 2008 through August 31, 2008
            -
            -
            53,720
            46,280September
      1, 2008 through September 30, 2008
            -
            -
            53,720
            46,280





ITEM 3.
Defaults Upon Senior
Securities





Not
applicable.





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





None




ITEM 5.
Other Information








None


16
 Index








ITEM 6.
Exhibits





The
following Exhibits are filed as part of this report.





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).











17
 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:November14,
      2008
            
            By:  /s/  Jesus
      R.
      AdiaJesus
      R. AdiaPresident
      andChief
      Executive OfficerDate:November14,
      2008
            
            By:  /s/  John S.
      LotardoJohn
      S. LotardoExecutive
      Vice President and ChiefFinancial
      Officer








18