UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
  FORM
10-Q
  x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF
THE SECURITIES EXCHANGE ACT OF 1934
  For
the quarterly period ended December 31, 2007
  OR
  o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF
THE SECURITIES EXCHANGE ACT OF 1934
  Commission
File Number 000-51208
  BROOKLYN
FEDERAL BANCORP, INC.
 (Exact
name of registrant as specified in its charter)
 
 Federal
                20-2659598(State
      or other jurisdiction of
                (I.R.S.
      Employerincorporation
      or organization)
                Identification
      Number)81 Court Street
      Brooklyn, New York
                11201(Address
      of principal executive offices)
                (Zip
      Code)
 
 Registrant’s
telephone number, including area code (718) 855-8500.
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES  x          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
                o
                Smaller
      Reporting Company
                x
 
 Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act).  YES o     NO x
  Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the last practicable date.
 
 Class
                Outstanding
      at February 12, 2008Common
      Stock,  $.01 Par Value
                13,252,738
  
  BROOKLYN
FEDERAL BANCORP, INC.
 
 Form
10-Q Quarterly Report
 
 Table
of Contents
 
 
 PART
I.
 
 Page
      NumberItem
      1.
                Financial
      Statements
                1Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition  and Results of
      Operations
                9Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                18Item
      4.
                Controls
      and Procedures
                19PART
      II.Item
      1.
                Legal
      Proceedings
                19Item
      1A.
                Risk
      Factors
                20Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                20Item
      3.
                Defaults
      Upon Senior Securities
                20Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                20Item
      5.
                Other
      Information
                20Item
      6.
                Exhibits
                21Signature
      Page
                22
 
 
 
 PART
I
 
 ITEM
1.                      FINANCIAL
STATEMENTS
 
 BROOKLYN
FEDERAL BANCORP, INC. AND SUBSIDIARY
 CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
 (In
thousands, except share amounts)
 (Unaudited)
 
 December
      31,
                
                
                September
      30,Assets
                
                2007
                
                
                2007Cash
      and due from banks (including interest-earning balances of $4,685 and
      $2,442, respectively)
                
                $
                9,851
                
                
                $
                5,398Certificates
      of deposit
                
                
                3,493
                
                
                
                3,890Securities
      available-for-sale
                
                
                4,643
                
                
                
                4,601Securities
      held-to-maturity:Mortgage-backed
      securities (estimated fair value of $73,714 and $72,030,
      respectively)
                
                
                74,872
                
                
                
                73,352Other
      (estimated fair value of $2 and $2, respectively)
                
                
                2
                
                
                
                2Loans
      held-for-sale
                
                
                60,597
                
                
                
                59,153Loans
      receivable
                
                
                230,945
                
                
                
                227,273Less:
      Allowance for loan losses
                
                
                1,874
                
                
                
                1,806Loans
      receivable, net
                
                
                229,071
                
                
                
                225,467Federal
      Home Loan Bank (“FHLB”) of New York stock, at cost
                
                
                999
                
                
                
                1,032Accrued
      interest receivable
                
                
                2,454
                
                
                
                2,305Premises
      and equipment, net
                
                
                1,128
                
                
                
                1,019Bank
      owned life insurance
                
                
                9,065
                
                
                
                8,961Prepaid
      expenses and other assets
                
                
                4,283
                
                
                
                5,254Total
      assets
                
                $
                400,458
                
                
                $
                390,434Liabilities
      and Stockholders’ EquityLiabilities:Deposits:Non-interest-bearing
      deposits
                
                $
                16,318
                
                
                $
                16,000Interest-bearing
      deposits
                
                
                117,347
                
                
                
                108,307Certificates
      of deposit
                
                
                165,940
                
                
                
                162,848Total
      deposits
                
                
                299,605
                
                
                
                287,155Borrowings:Short-term
      FHLB of New York advances
                
                
                5,232
                
                
                
                7,332Long-term
      FHLB of New York advances
                
                
                1,939
                
                
                
                1,939Advance
      payments by borrowers for taxes and insurance
                
                
                1,687
                
                
                
                2,441Accrued
      expenses and other liabilities
                
                
                6,239
                
                
                
                6,308Total
      liabilities
                
                
                314,702
                
                
                
                305,175Stockholders’
      equity:Preferred
      stock, $0.01 par value, 1,000,000 shares authorized;none
      issued
                
                
                —
                
                
                
                —Common
      stock, $0.01 par value, 20,000,000 shares authorized; 13,484,210
      and13,484,210
      issued and 13,268,058 and 13,311,483 outstanding,
      respectively
                
                
                135
                
                
                
                135Additional
      paid-in capital
                
                
                42,804
                
                
                
                42,758Retained
      earnings - substantially restricted
                
                
                49,351
                
                
                
                48,379Treasury
      shares - at cost, 216,152 shares and 172,727 shares,
      respectively
                
                
                (3,062
                )
                
                
                (2,468
                )Unallocated
      common stock held by employee stock ownership plan
(“ESOP”)
                
                
                (2,672
                )
                
                
                (2,711
                )Unallocated
      shares of the stock-based incentive plan
                
                
                (729
                )
                
                
                (774
                )Accumulated
      other comprehensive loss:Net
      unrealized loss on securities, net of tax
                
                
                (71
                )
                
                
                (60
                )Total
      stockholders’ equity
                
                
                85,756
                
                
                
                85,259Total
      liabilities and stockholders’ equity
                
                $
                400,458
                
                
                $
                390,434
    See
accompanying notes to consolidated financial statements.
 1
 
 BROOKLYN
FEDERAL BANCORP, INC. AND SUBSIDIARY
 CONSOLIDATED
STATEMENTS OF INCOME
 (In
thousands, except share and per share amounts)
 (Unaudited)
 
 For
      the Three Months Ended
                    December
      31,2007
                
                
                2006Interest
      income:First
      mortgage and other loans
                
                $
                5,726
                
                
                $
                6,066Mortgage-backed
      securities
                
                
                803
                
                
                
                876Other
      securities and interest-earning assets
                
                
                171
                
                
                
                205Total
      interest income
                
                
                6,700
                
                
                
                7,147Interest
      expense:Deposits
                
                
                2,523
                
                
                
                2,166Borrowings
                
                
                117
                
                
                
                617Total
      interest expense
                
                
                2,640
                
                
                
                2,783Net
      interest income before provision for loan losses
                
                
                4,060
                
                
                
                4,364Provision
      for loan losses
                
                
                68
                
                
                
                17Net
      interest income after provision for loan losses
                
                
                3,992
                
                
                
                4,347Non-interest
      income:Banking
      fees and service charges
                
                
                470
                
                
                
                613Net
      gain on sale of loans held-for-sale
                
                
                52
                
                
                
                12Other
                
                
                160
                
                
                
                160Total
      non-interest income
                
                
                682
                
                
                
                785Non-interest
      expense:Compensation
      and fringe benefits
                
                
                1,886
                
                
                
                1,544Occupancy
      and equipment
                
                
                335
                
                
                
                274Professional
      fees
                
                
                139
                
                
                
                109Data
      processing fees
                
                
                147
                
                
                
                164Other
                
                
                305
                
                
                
                307Total
      non-interest expense
                
                
                2,812
                
                
                
                2,398Income
      before income tax expense
                
                
                1,862
                
                
                
                2,734Income
      tax expense
                
                
                689
                
                
                
                1,046Net
      income
                
                $
                1,173
                
                
                $
                1,688Earnings
      per common share:Basic
                
                $
                0.09
                
                
                $
                0.13Diluted
                
                $
                0.09
                
                
                $
                0.13Average
      common shares outstanding:Basic
                
                
                12,953,525
                
                
                
                12,939,383Diluted
                
                
                13,007,469
                
                
                
                12,939,383
 
 See
accompanying notes to consolidated financial statements.
 2
 
 BROOKLYN
FEDERAL BANCORP, INC. AND SUBSIDIARY
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 (In
thousands, except for per share amounts)
 (Unaudited)
  Common
      Stock
                
                
                Additional
                    Paid-in
      Capital
                
                
                Retained
      Earnings-Substantially Restricted
                
                
                Treasury
      Stock
                
                
                Unallocated
      Common Stock Held by ESOP
                
                
                Unallocated
      Shares of the Stock-based Incentive Plan
                
                
                Accumulated
      Other Comprehensive Loss
                
                
                TotalBalance
      September 30, 2006
                
                $
                132
                
                
                $
                37,799
                
                
                $
                44,946
                
                
                $
                —
                
                
                $
                (2,870
                )
                
                $
                —
                
                
                $
                (44
                )
                
                $
                79,963Comprehensive
      income:Net
      income
                
                
                —
                
                
                
                —
                
                
                
                1,688
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                1,688Net
      unrealized loss on securities available-for-sale
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (5
                )
                
                
                (5
                )Comprehensive
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,683Allocation
      of ESOP stock
                
                
                —
                
                
                
                12
                
                
                
                —
                
                
                
                —
                
                
                
                40
                
                
                
                —
                
                
                
                —
                
                
                
                52Balance
      December 31, 2006
                
                $
                132
                
                
                $
                37,811
                
                
                $
                46,634
                
                
                $
                —
                
                
                $
                (2,830
                )
                
                $
                —
                
                
                $
                (49
                )
                
                $
                81,698Balance
      September 30, 2007
                
                $
                135
                
                
                $
                42,758
                
                
                $
                48,379
                
                
                $
                (2,468
                )
                
                $
                (2,711
                )
                
                $
                (774
                )
                
                $
                (60
                )
                
                $
                85,259Comprehensive
      income:Net
      income
                
                
                —
                
                
                
                —
                
                
                
                1,173
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                1,173Net
      unrealized loss on securities available-for-sale
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (11
                )
                
                
                (11
                )Comprehensive
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,162Treasury
      stock purchased (43,425 shares)
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (594
                )
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (594
                )Allocation
      of ESOP stock
                
                
                —
                
                
                
                13
                
                
                
                —
                
                
                
                —
                
                
                
                39
                
                
                
                —
                
                
                
                —
                
                
                
                52Stock-based
      incentive plan expense
                
                
                —
                
                
                
                33
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                45
                
                
                
                —
                
                
                
                78Dividends
      paid on common stock, $0.05 per share
                
                
                —
                
                
                
                —
                
                
                
                (201
                )
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (201
                )Balance
      December 31, 2007
                
                $
                135
                
                
                $
                42,804
                
                
                $
                49,351
                
                
                $
                (3,062
                )
                
                $
                (2,672
                )
                
                $
                (729
                )
                
                $
                (71
                )
                
                $
                85,756
  
 See
accompanying notes to consolidated financial statements.
 3
  BROOKLYN
FEDERAL BANCORP, INC. AND SUBSIDIARY
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (In
thousands)
 (Unaudited)
  For
      the Three Months Ended
                    December
      31,2007
                
                
                2006Cash
      flows from operating activities:Net income
                
                $
                1,173
                
                
                $
                1,688Adjustments
      to reconcile net income to net cash provided by operating
      activities:ESOP expense
                
                
                52
                
                
                
                52Stock-based
      incentive plan
                
                
                78
                
                
                
                —Depreciation and
      amortization
                
                
                65
                
                
                
                84Provision for loan
      losses
                
                
                68
                
                
                
                17Income from bank-owned life
      insurance
                
                
                (90
                )
                
                
                (84
                )Increase in deferred loan fees,
      net
                
                
                (80
                )
                
                
                (233
                )Amortization of premiums, net of
      accretion of discounts
                
                
                1
                
                
                
                3Accretion of discount on
      certificates of deposit
                
                
                —
                
                
                
                (1
                )Originations of loans
      held-for-sale
                
                
                (28,486
                )
                
                
                (4,734
                )Purchase of loans
      held-for-sale
                
                
                (1,495
                )
                
                
                —Proceeds from sales of loans
      held-for-sale
                
                
                23,836
                
                
                
                207Principal repayments on loans
      held-for-sale
                
                
                936
                
                
                
                1,731Net gain on sales of loans
      held-for-sale
                
                
                (52
                )
                
                
                (12
                )Increase in accrued interest
      receivable
                
                
                (149
                )
                
                
                (135
                )Deferred income tax
      benefit
                
                
                (136
                )
                
                
                (144
                )Decrease in prepaid expenses and
      other assets
                
                
                1,116
                
                
                
                371(Decrease) increase in accrued
      expenses and other liabilities
                
                
                (69
                )
                
                
                411Net cash used in operating
      activities
                
                
                (3,232
                )
                
                
                (779
                )Cash
      flows from investing activities:Repayments
      in excess of loan originations
                
                
                703
                
                
                
                5,915Purchase
      of loans receivable
                
                
                (478
                )
                
                
                —Principal
      repayments on mortgage-backed securities held-to-maturity
                
                
                3,500
                
                
                
                4,882Purchases
      of mortgage-backed securities held-to-maturity
                
                
                (5,021
                )
                
                
                —Maturities
      and principal pay downs of other securities
    held-to-maturity
                
                
                —
                
                
                
                1Purchases
      of securities available-for-sale
                
                
                (62
                )
                
                
                (59
                )Maturities
      of certificates of deposit
                
                
                397
                
                
                
                595Redemptions
      of FHLB of New York stock
                
                
                33
                
                
                
                545Purchases
      of bank-owned life insurance
                
                
                (14
                )
                
                
                (15
                )Purchases
      of premises and equipment
                
                
                (174
                )
                
                
                (18
                )Net
      cash (used in) provided by investing activities
                
                
                (1,116
                )
                
                
                11,846Cash
      flows from financing activities:Increase
      in deposits
                
                
                12,450
                
                
                
                7,769Net
      decrease in overnight FHLB advances
                
                
                (1,800
                )
                
                
                (16,800
                )Proceeds
      from FHLB of New York term advances
                
                
                —
                
                
                
                15,000Repayments
      of FHLB of New York term advances
                
                
                (300
                )
                
                
                (10,300
                )Decrease
      in advance payments by borrowers for taxes and insurance
                
                
                (754
                )
                
                
                (756
                )Purchase
      of treasury stock
                
                
                (594
                )
                
                
                —Payment
      of cash dividend
                
                
                (201
                )
                
                
                —Net
      cash provided by (used in) financing activities
                
                
                8,801
                
                
                
                (5,087
                )Net
      increase in cash and cash equivalents
                
                
                4,453
                
                
                
                5,980Cash
      and cash equivalents at beginning of year
                
                
                5,398
                
                
                
                4,078Cash
      and cash equivalents at end of period
                
                $
                9,851
                
                
                $
                10,058Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Interest
                
                $
                2,649
                
                
                $
                2,774Taxes
                
                
                —
                
                
                
                450Other:Mortgage
      loans held-to-maturity transferred to held-for-sale
                
                $
                611
                
                
                $
                —Mortgage
      loans held-for-sale transferred to held-to-maturity
                
                
                4,428
                
                
                
                3,951
   See
accompanying notes to consolidated financial statements.
 4
  BROOKLYN
FEDERAL BANCORP, INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2007
 (Unaudited)
 
 Note
1 - Basis of Presentation
  The
Unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with instructions for Form
10-Q.  Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements.  In the opinion
of management, all adjustments (all of which are normal and recurring in nature)
considered necessary for a fair presentation have been included and all
significant inter-company  balances and transactions have been
eliminated in consolidation.  Operating results for the three-month
period ended December 31, 2007 are not necessarily indicative of the results
that may be expected for the year ending September 30, 2008.  The
Company’s consolidated financial statements, as presented in the Company’s Form
10-K for the year ended September 30, 2007, should be read in conjunction with
these statements.
  Note
2 - Use of Estimates
  The
preparation of consolidated financial statements, in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from current estimates. Estimates associated with the allowance for loan losses
and the fair values of securities are particularly susceptible to material
change in the near term.
  Note
3 - Impact of Certain Accounting Pronouncements
  In July
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”), which
clarifies the accounting for uncertainty in tax positions.  This
Interpretation requires that companies recognize in their financial statements
the impact of a tax position, if that position is more likely than not of being
sustained on audit, based on the technical merits of the
position.  The provisions of FIN 48 are effective for fiscal years
beginning after December 15, 2006, with the cumulative effect of the change in
accounting principle recorded as an adjustment to opening retained
earnings.  The Company adopted FASB Interpretation 48 (“FIN 48”),
“Accounting for Uncertainty in Income Taxes” effective October 1,
2007.  The adoption of FIN 48 had no impact on the Company’s financial
condition or results of operations.
 
 In
September 2006, the FASB issued SAFS No. 157, Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value under
Generally Accepted Accounting Principles, and expands disclosures about fair
value measurements. SAFS No. 157 applies to other accounting pronouncements
that require or permit fair value measurements. The new guidance is effective
for financial statements issued for fiscal years beginning after
November 15, 2007, and for interim periods within those fiscal years. We
are currently evaluating the potential impact, if any, of the adoption of SAFS
No. 157 on our consolidated financial position, results of operations and
cash flows.
  5
  In
December 2007, the FASB issued proposed FASB Staff Position (FSP) 157-b,
“Effective Date of FASB Statement No. 157,” that would permit a one-year
deferral in applying the measurement provisions of Statement No. 157 to
non-financial assets and non-financial liabilities (non-financial items) that
are not recognized or disclosed at fair value in an entity’s financial
statements on a recurring basis (at least annually). Therefore, if the change in
fair value of a non-financial item is not required to be recognized or disclosed
in the financial statements on an annual basis or more frequently, the effective
date of application of Statement 157 to that item is deferred until fiscal years
beginning after November 15, 2008 and interim periods within those fiscal
years. This deferral does not apply, however, to an entity that applies
Statement 157 in interim or annual financial statements before proposed FSP
157-b is finalized. The Company is currently evaluating the impact, if any, that
the adoption of FSP 157-b will have on the Company’s operating income or net
earnings.
 
 In
September 2006, the FASB's Emerging Issues Task Force (EITF) issued EITF Issue
No. 06-4, "Accounting for Deferred Compensation and Postretirement Benefit
Aspects of Endorsement Split Dollar Life Insurance Arrangements" ("EITF
06-4").  EITF 06-4 requires the recognition of a liability related to
the postretirement benefits covered by an endorsement split-dollar life
insurance arrangement.  The consensus highlights that the employer
(who is also the policyholder) has a liability for the benefit it is providing
to its employee.  As such, if the policyholder has agreed to maintain
the insurance policy in force for the employee's benefit during his or her
retirement, then the liability recognized during the employee's active service
period should be based on the future cost of insurance to be incurred during the
employee's retirement.  Alternatively, if the policyholder has agreed
to provide the employee with a death benefit, then the liability for the future
death benefit should be recognized by following the guidance in SFAS No. 106 or
Accounting Principals Board (APB) Opinion No. 12, as appropriate.  For
transition, an entity can choose to apply the guidance using either of the
following approaches: (a) a change in accounting principle through retrospective
application to all periods presented or (b) a change in accounting principle
through a cumulative-effect adjustment to the balance in retained earnings at
the beginning of the year of adoption.  EITF 06-4 is effective for
fiscal years beginning after December 15, 2007, with early adoption permitted.
The Company does not believe that the implementation of this guidance will have
a material impact on the Company's consolidated financial
statements.
 
 In
September 2006, the Emerging Issues Task Force reached a conclusion on EITF
Issue No. 06-5, “Accounting for Purchases of Life Insurance – Determining
the Amount That Could Be Realized in Accordance with FASB Technical Bulletin
No. 85-4, Accounting for Purchases of Life Insurance” (“EITF 06-5”). The
scope of EITF 06-5 consists of six separate issues relating to accounting for
life insurance policies purchased by entities protecting against the loss of
“key persons.” The six issues are clarifications of previously issued guidance
on FASB Technical Bulletin No. 85-4. EITF 06-5 is effective for fiscal
years beginning after December 15, 2006. The Company adopted EITF Issue No.
06-5,”Accounting for Purchases of Life Insurance – Determining the Amount That
Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4,
Accounting for Purchases of Life Insurance”.  The adoption of EITF
06-5  had  no impact on the Company’s consolidated financial
statements.
  6
 
 In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115." SFAS No. 159 permits entities to choose to measure
many financial instruments and certain other items at fair value. Unrealized
gains and losses on items for which the fair value option has been elected will
be recognized in earnings at each subsequent reporting date. SFAS No. 159
is effective for our Company October 1, 2008. The Company is evaluating the
impact that the adoption of SFAS No. 159 will have on our consolidated
financial statements.
 
 In March
2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10 “Accounting
for Collateral Assignment Split-Dollar Life Insurance Agreements” (EITF 06-10).
EITF 06-10 provides guidance for determining a liability for the postretirement
benefit obligation as well as recognition and measurement of the associated
asset on the basis of the terms of the collateral assignment agreement. EITF
06-10 is effective for fiscal years beginning after December 15, 2007. The
Company is currently assessing the impact of EITF 06-10 on its consolidated
financial position and results of operations.
 
 In
March 2007, the FASB ratified EITF Issue No. 06-11, “Accounting for
Income Tax Benefits of Dividends on Share-Based Payment Awards.” EITF 06-11
requires companies to recognize the income tax benefit realized from dividends
or dividend equivalents that are charged to retained earnings and paid to
employees for non-vested equity-classified employee share-based payment awards
as an increase to additional paid-in capital. EITF 06-11 is effective for fiscal
years beginning after September 15, 2007. The Company does not expect EITF
06-11 will have a material impact on its financial position, results of
operations or cash flows.
 
 In May
2007, the FASB issued FASB Staff Position (“FSP”) FIN 48-1 “Definition of
Settlement in FASB Interpretation No. 48” (FSP FIN 48-1). FSP FIN 48-1 provides
guidance on how to determine whether a tax position is effectively settled for
the purpose of recognizing previously unrecognized tax benefits. FSP FIN 48-1 is
effective retroactively to January 1, 2007. We are currently evaluating the
impact of adopting FIN 48-1 on our financial statements. The Company adopted
FASB Staff Position (‘FSP”) FIN 48-1, “Definition of Settlement in FASB
Interpretation No. 48” effective October 1, 2007.  The adoption of FSP
FIN 48-1 had no impact on the Company’s financial condition or results of
operations.
 
 In June
2007, the Emerging Issues Task Force (EITF) reached a consensus on Issue
No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based
Payment Awards” (“EITF 06-11”). EITF 06-11 states that an entity should
recognize a realized tax benefit associated with dividends on non-vested equity
shares, non-vested equity share units and outstanding equity share options
charged to retained earnings as an increase in additional paid in
capital. The amount recognized in additional paid in capital should be
included in the pool of excess tax benefits available to absorb potential future
tax deficiencies on share-based payment awards. EITF 06-11 should be
applied prospectively to income tax benefits of dividends on equity-classified
share-based payment awards that are declared in fiscal years beginning after
December 15, 2007. The Company expects that EITF 06-11 will not have
an impact on its consolidated financial statements.
  7
 
 FASB
statement No. 141 (R) “Business Combinations” was issued in December of 2007.
This Statement establishes principles and requirements for how the acquirer of a
business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest in
the acquiree. The Statement also provides guidance for recognizing and measuring
the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. The guidance will
become effective as of the beginning of a company’s fiscal year beginning after
December 15, 2008.  This pronouncement may have a material impact on
the Company’s financial statements in future periods.
 
 FASB
statement No. 160 “Non-controlling Interests in Consolidated Financial
Statements—an amendment of ARB No. 51” was issued in December of 2007. This
Statement establishes accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a subsidiary. The
guidance will become effective as of the beginning of a company’s fiscal year
beginning after December 15, 2008. The Company believes that this new
pronouncement will have an immaterial impact on the Company’s financial
statements in future periods.
 
 Staff
Accounting Bulletin No. 109 (SAB 109), "Written Loan Commitments Recorded at
Fair Value Through Earnings" expresses the views of the staff regarding written
loan commitments that are accounted for at fair value through earnings under
generally accepted accounting principles. To make the staff's views consistent
with current authoritative accounting guidance, the SAB revises and rescinds
portions of SAB No. 105, "Application of Accounting Principles to Loan
Commitments."  Specifically, the SAB revises the SEC staff's views on
incorporating expected net future cash flows related to loan servicing
activities in the fair value measurement of a written loan commitment. The SAB
retains the staff's views on incorporating expected net future cash flows
related to internally developed intangible assets in the fair value measurement
of a written loan commitment. The staff expects registrants to apply the views
in Question 1 of SAB 109 on a prospective basis to derivative loan commitments
issued or modified in fiscal quarters beginning after December 15, 2007. The
Company does not expect SAB 109 to have a material impact on its financial
statements.
 
 Staff
Accounting Bulletin No. 110 (SAB 110) amends and replaces Question 6 of
Section D.2 of Topic 14, “Share-Based Payment,” of the Staff Accounting Bulletin
series. Question 6 of Section D.2 of Topic 14 expresses the views of the staff
regarding the use of the “simplified” method in developing an estimate of
expected term of “plain vanilla” share options and allows usage of the
“simplified” method for share option grants prior to December 31, 2007. SAB
110 allows public companies which do not have historically sufficient experience
to provide a reasonable estimate to continue use of the “simplified” method for
estimating the expected term of “plain vanilla” share option grants after
December 31, 2007.  SAB 110 is effective January 1,
2008.  The Company does not expect SAB 110 to have a material impact
on its financial statements.
 
 8
  ITEM
      2.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
 
 Forward-Looking
Statements
  When used
in this quarterly report and in future filings by the Company with the
Securities and Exchange Commission, in the Company’s press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases, “anticipate,”
“would be,” “will allow,” “intends to,” “will likely result,” “are expected to,”
will continue,” “is anticipated,” “estimated,” “projected,” or similar
expressions are intended to identify “forward looking
statements.”  Such statements are subject to risks and uncertainties,
including but not limited to changes in economic conditions in the Company’s
market area, changes in policies by regulatory agencies, fluctuations in
interest rates, demand for loans in the Company’s market area, changes in the
position of banking regulators on the adequacy of the Company’s allowance for
loan losses, and competition, all or some of which could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected.
  The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and advise
readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investing activities, and competitive and regulatory
factors, could affect the Company’s financial performance and could cause the
Company’s actual results for future periods to differ materially from those
anticipated or projected.
  The
Company does not undertake, and specifically disclaims any obligation, to update
any forward-looking statements to reflect occurrences or unanticipated events or
circumstances after the date of such statements.
  General
  The
Company’s results of operations depend mainly on its net interest income, which
is the difference between the interest income earned on its loan and investment
portfolios and interest expense paid on its deposits and borrowed
funds.  Results of operations are also affected by fee income from
banking operations, provisions for loan losses, gains (losses) on sales of loans
and securities available-for-sale and other miscellaneous income.  The
Company’s non-interest expenses consist primarily of compensation and employee
benefits, office occupancy, technology, marketing, general administrative
expenses and income tax expense.
  The
Company’s results of operations are also significantly affected by general
economic and competitive conditions, particularly with respect to changes in
interest rates, government policies and actions of regulatory authorities.
Future changes in applicable laws, regulations or government policies may
materially affect the Company’s financial condition and results of
operations.
  9
  Critical
Accounting Policies
  We
consider accounting policies that require management to exercise significant
judgment or discretion or make significant assumptions that have, or could have,
a material impact on the carrying value of certain assets or on income, to be
critical accounting policies.  We consider the following to be our
critical accounting policies:
 
 Allowance for
Loan Losses.The
allowance for loan losses is the estimated amount considered necessary to cover
credit losses inherent in the loan portfolio at the balance sheet
date.  The allowance is established through the provision for loan
losses, which is charged against income.  In determining the allowance
for loan losses, management makes significant estimates and has identified this
policy as one of the most critical for the Bank.  The methodology for
determining the allowance for loan losses is considered a critical accounting
policy by management due to the high degree of judgment involved, the
subjectivity of the assumptions utilized and the potential for changes in the
economic environment that could result in changes to the amount of the recorded
allowance for loan losses.
 
 As a
substantial amount of our loan portfolio is collateralized by real estate,
appraisals of the underlying value of property securing loans are critical in
determining the amount of the allowance required for specific
loans.  Assumptions for appraisals are instrumental in determining the
value of properties.  Overly optimistic assumptions or negative
changes to assumptions could significantly impact the valuation of a property
securing a loan and the related allowance determined.  The assumptions
supporting such appraisal valuations are carefully reviewed by management to
determine that the resulting values reasonably reflect amounts realizable on the
related loans.
 
 Management
performs a quarterly evaluation of the adequacy of the allowance for loan
losses.  Consideration is given to a variety of factors in
establishing this estimate including, but not limited to, current economic
conditions, delinquency statistics, geographic and industry concentrations, the
adequacy of the underlying collateral, the financial strength of the borrower,
results of internal and external loan reviews and other relevant
factors.  This evaluation is inherently subjective, as it requires
material estimates that may be susceptible to significant revision based on
changes in economic and real estate market conditions.
 
 The
analysis of the allowance for loan losses has two
components:  specific and general allocations.  Specific
allocations are made for loans that are determined to be
impaired.  Impairment is measured by determining the present value of
expected future cash flows or, for collateral-dependent loans, the fair value of
the collateral adjusted for market conditions and selling
expenses.  The general allocation is determined by segregating the
remaining loans by type of loan, risk weighting (if applicable) and payment
history.  We also analyze historical loss experience, delinquency
trends, general economic conditions and geographic and industry
concentrations.  This analysis establishes factors that are applied to
the loan groups to determine the amount of the general
allocations.  Actual loan losses may be significantly more than the
allowance for loan losses we have established which could have a material
negative effect on our financial results.
  10
  Deferred Income
Taxes.We
use the asset and liability method of accounting for income
taxes.  Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.  Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.  If current available information raises doubt as to the
realization of the deferred tax assets, a valuation allowance is
established.  We consider the determination of this valuation
allowance to be a critical accounting policy because of the need to exercise
significant judgment in evaluating the amount and timing of recognition of
deferred tax liabilities and assets, including projections of future taxable
income.  These judgments and estimates are reviewed on a continual
basis as regulatory and business factors change.  A valuation
allowance for deferred tax assets may be required if the amount of taxes
recoverable through loss carry-back declines, or if we project lower levels of
future taxable income.  Such a valuation allowance would be
established through a charge to income tax expense, which would adversely affect
our operating results.
 
 Business
Strategy
  Our
business strategy is to operate as a well-capitalized and profitable community
bank dedicated to providing quality customer service.  Our business
strategy historically has been to emphasize one- to four-family residential
mortgage lending.  While we will continue to engage in this type of
lending, management has determined to broaden the range of our products and
services to enhance profitability, consistent with safety and
soundness.  In recent years, we have significantly expanded our
multi-family, commercial real estate, construction and land
lending.  We have also introduced additional products and services,
such as debit cards and internet banking.  We cannot assure you that
we will successfully implement our business strategy.
 
 Highlights of our business strategy are
as follows:
  ·
              Remaining a Community Oriented
      Institution.  We were established in Brooklyn, New York
      in 1887, and we have been operating continuously since that
      time.  We have been, and continue to be, committed to meeting
      the financial needs of the communities in which we operate, and we are
      dedicated to providing quality personal service to our
      customers.  Although historically our principal business
      activity has been accepting deposits from the public and using those funds
      to originate one- to four-family mortgage loans, in recent years we have
      been originating a wider variety of residential and commercial real estate
      loan products to meet the needs of our customers.  If such loans
      do not satisfy our criteria for retention in our loan portfolio, they
      generally can be sold in the secondary market.·
              Continuing to Increase Our
      Multi-Family, Commercial Real Estate, Construction and Land
      Lending.  Historically, we have emphasized one- to
      four-family residential lending within our market area.  While
      one- to four-family loan originations remain an important form of loans
      because of our expertise with this type of lending, in the past five years
      we have emphasized the origination of loans secured by multi-family
      properties, commercial real estate, construction and land loans as a means
      of increasing our interest and fee income and meeting the lending needs of
      our customers.  Multi-family, commercial real estate,
      construction and land lending generally expose a lender to greater credit
      risk than loans secured by one- to four-family real estate.  The
      repayment of multi-family, commercial real estate, construction and land
      loans depends upon the business and financial condition of the borrower
      and, in the case of construction loans, on the economic viability of
      projects financed.  Consequently we, like other financial
      institutions, generally charge higher rates of interest for these types of
      loans compared to one- to four-family residential
  loans.
  11
  ·
              Managing Our Interest Rate
      Risk.  With long-term interest rates at low levels, we
      have managed our interest rate risk by maintaining a portion of our assets
      in short-term liquid assets, such as cash and due from banks, short-term
      investment securities and mortgage-related securities that provide
      significant cash flows.  This strategy positioned us to reinvest
      our short-term liquid assets in higher yielding loans and investments once
      interest rates began to rise.  During the recent period of
      leveling or declining short-term interest rates, we have been able to
      maintain a market level of interest income on our short-term liquid
      assets, while still maintaining a portion of our liquidity to purchase
      security investments and redeploying the excess repayments of those
      investments to loan originations.  Continuing to maintain our
      current level of short-term liquid assets, however, generates less
      interest income than would have been generated if we had invested in
      longer-term loans and investments.  At December 31, 2007, $9.9
      million, or 2.5% of our assets, was invested in cash and due from banks,
      and $3.6 million, or 0.9% of our assets, was invested in certificates of
      deposit and securities that mature within three years.·
              Facilitate Growth Through De
      Novo Branching.  We have established financial,
      geographic and other criteria to evaluate potential new branch offices in
      our market area.  While we continue to review potential branch
      sites, there can be no assurance as to whether or when we will open such
      offices, however the Bank is anticipating opening its fifth branch office,
      located in Commack, New York, in the second fiscal quarter
      2008.·
              Maintaining High Asset
      Quality.  We have focused on improving and maintaining
      strong asset quality by following conservative underwriting criteria, and
      primarily originating loans secured by real
  estate.
 
  Comparison
of Financial Condition at December 31, 2007 and September 30, 2007
  Total
Assets.  Total assets increased by $10.0 million, or 2.6%, to
$400.4 million at December 31, 2007, from $390.4 million at September 30,
2007.  This increase was primarily due to increases in cash and due
from banks, securities held-to-maturity, loans held-for-sale and loans
receivable, net, offset in part by decreases in certificate of deposit
investments and other assets.
  Cash and Due from
Banks.Cash and due from banks increased $4.5 million, or
82.5%, to $9.9 million at December 31, 2007, from $5.4 million at September 30,
2007.
  12
  Investment in
Certificates of Deposit.  Certificates of deposit decreased
$397,000, or 10.2%, to $3.5 million at December 31, 2007, from $3.9 million at
September 30, 2007.  The decrease in these short-term investments was
due to certificate maturities.
  Securities.Security
investments, which represent securities available-for-sale and securities
held-to-maturity, increased $1.5 million, or 2.0%, to $79.5 million at
December 31, 2007, from $78.0 million at September 30, 2007.  This
increase was primarily due to purchases of mortgage-backed securities of $5.0
million and an increase in securities available-for-sale of approximately
$42,000, offset by repayments in mortgage-backed securities of approximately
$3.5 million.
  Net
Loans.  Net loans before allowance for loan losses, which
includes loans held-for-sale, increased $5.1 million, or 1.8%, to
$291.5 million at December 31, 2007, from $286.4 million at September 30,
2007, primarily due to increases in multi-family loans of $7.0 million and
one-to four-family loans of $4.9 million, offset by decreases of $2.6 million in
commercial real estate loans, $2.5 million in land loans, $1.7 million in
construction loans and $5,000 in consumer and other loans.  Net
deferred fees and costs decreased approximately $45,000.
  At
December 31, 2007, loans receivable in non-accrual status were approximately
$26,000.  The non-accrual loan at December 31, 2007 is secured by a
multi-family apartment building and the Bank has established a specific loss
allowance for this loan totaling $26,000 and classified this loan as
doubtful.
  The
Company had one multi-family loan, located in Brooklyn, New York, with an
outstanding principal of $726,000 classified as substandard at March 31,
2007.  The property suffered structural damage due to construction at
an adjoining lot.  Management has placed the loan on substandard
status due to concerns about the property damage and the borrower’s ability to
make future contractual payments.  The structural damage was corrected
and during the quarter ended June 30, 2007: the borrower completed renting the
remaining apartments, the Bank procured an appraisal indicating a value of
approximately $1.9 million and refinanced the property to a total of
$926,000.  The outstanding balance of the loan at December 31, 2007 is
approximately $920,000 and the Bank continues to classify this loan as
substandard due to concerns regarding the borrower’s ability to maintain, on a
consistent basis, timely loan payments.
 
 On the
basis of management’s review of classified assets, at December 31, 2007, we
classified $11.8 million of our assets as special mention representing three
commercial real estate loans.  The first commercial real estate loan
of $6.9 million has an appraised value of $13.2 million.  The second
commercial real estate loan of $3.3 million has an appraised value of $6.6
million.  The maturity date on this loan is February 1, 2008 and at
this time is past maturity.  The third commercial real estate loan of
$1.6 million is on waterfront property located in Whitestone, New York, has an
appraised value of $18.9 million and is over 90 days past due and still
accruing.  The foreclosure process is continuing on this special
mention loan.  The Bank does not expect a loss on any these classified
loans.
 
 Federal Home Loan
Bank of New York Stock.FHLB of New York stock decreased
$33,000, or 3.2%, to $1.0 million at December 31, 2007.  At September
30, 2007 our FHLB stock investment balance was $1.0 million.  This
decrease was primarily due to a decreased balance in FHLB borrowings, which
triggered redemptions of FHLB stock.
  13
  Bank Owned Life
Insurance, Prepaid Expenses and Other Assets.Prepaid expenses
and other assets, bank-owned life insurance, premises and equipment, net and
accrued interest receivable decreased $609,000, or 3.5%, to $16.9 million at
December 31, 2007, from $17.5 million at September 30, 2007. This decrease was
mainly due to decreases in miscellaneous other assets of approximately $1.1
million, which include the processing of branch and department operations work
of approximately $772,000 and approximately $343,000 in other miscellaneous
assets, offset in part by increases in deferred tax assets of approximately
$144,000. Accrued interest receivable of $149,000, premises and equipment, net
of $109,000 and bank-owned life insurance of $104,000.
  Deposits.  Deposits
increased by $12.4 million, or 4.3%, to $299.6 million at December 31, 2007,
from $287.2 million at September 30, 2007.  The increase was primarily
due to the Bank’s competitive rates offered on its deposit
products.
  Borrowed
Funds.  Total funds borrowed from the FHLB of New York,
decreased $2.1 million, or 22.7%, to $7.2 million at December 31, 2007, from
$9.3 million at September 30, 2007. The primary reason for the decrease was the
utilization of other sources of funds during the period, such as deposit inflow,
repayments on securities held-to-maturity and repayments on the mortgage
portfolios.
  Accrued Expenses
and Other Liabilities.  Accrued expenses and other liabilities
decreased $69,000, or 1.1%, to $6.2 million at December 31, 2007, from $6.3
million at September 30, 2007.  This decrease was primarily due to
decreases in miscellaneous payables of approximately $814,000, unprocessed
banking liabilities of $134,000, loan payables of $57,000, offset in part by
increases in taxes payable of $586,000, accrued expenses of $300,000 and
Supplemental Executive Retirement Plan (“SERP”) accruals of
$50,000.
  Stockholders’
Equity.Stockholders’ equity increased by $497,000, or
0.6%, to $85.8 million at December 31, 2007, from $85.3 million at
September 30, 2007.  The primary reason for the increase is the result
of net income for the period, offset in part by purchases of treasury stock of
approximately $594,000 pursuant to the Company’s stock repurchase
plan.
  Liquidity and
Capital Resources.The Company maintains liquid assets at
levels it considers adequate to meet its liquidity needs.  The Company
adjusts its liquidity levels to fund deposit outflows, pay real estate taxes on
mortgage loans, repay its borrowings and to fund loan
commitments.  The Company also adjusts liquidity as appropriate to
meet asset and liability management objectives.
 
 The Company’s primary sources of
liquidity are deposits, amortization and prepayment of loans and mortgage-backed
securities, maturities of investment securities and other short-term
investments, and earnings and funds provided from operations, as well as access
to FHLB of New York advances.  While scheduled principal repayments on
loans and mortgage-backed securities are a relatively predictable source of
funds, deposit flows and loan prepayments are greatly influenced by market
interest rates, economic conditions, and rates offered by the Company’s
competition.  The Company sets the interest rates on its deposits to
maintain a desired level of total deposits.  In addition, the Company
invests excess funds in short-term interest-earning assets, which provide
liquidity to meet lending requirements.
  14
  A portion of the Company’s liquidity
consists of cash and due from banks, which are a product of its operating,
investing and financing activities.  At December 31, 2007,
$9.9 million, or 2.5%, of the Company’s assets are invested in cash and due
from banks.  The Company’s primary recurring sources of cash are
principal repayments on loans, proceeds from the calls and maturities of
investment securities, principal repayments of mortgage-backed securities and
increases in deposit accounts.  Currently, the Company sells a portion
of the longer-term mortgage loans, and the Company syndicates and sells
participation interests in portions of its multi-family, commercial real estate,
construction and land loans.  Such activity is expected to continue so
long as it meets the Company’s operational and financial needs.  In
addition, the Company invests excess funds in short-term interest-earning assets
and other assets, which provide liquidity to meet the Company’s lending
requirements.  At December 31, 2007 investments in certificates of
deposit and short-term investment securities (maturing in less than three years)
totaled $3.6 million, or 0.9%, of the Company’s assets.  As of
December 31, 2007, the Company had $7.2 million in borrowings outstanding from
the FHLB of New York and access to additional FHLB of New York
advances.




At December 31, 2007, the Company had
approximately $88.2 million in commitments to originate loans and unused lines
of credit outstanding, which included $11.5 million in undisbursed construction
loans, $5.4 million in one- to four-family loans, $1.0 million in unused home
equity lines of credit, $11.8 million in commercial real estate lines of
credit and $58.5 million to originate multi-family and nonresidential mortgage
loans.  The Bank had two one- to four-family loan committed to sell of
approximately $464,000 at December 31, 2007.  Certificates of deposit
due within one year of December 31, 2007 totaled $112.4 million, or 67.8% of
certificates of deposit.  If these maturing deposits do not remain
with the Company, the Company will be required to seek other sources of funds,
including other certificates of deposit and borrowings.  Depending on
market conditions, the Company may be required to pay higher rates on such
deposits or other borrowings than the Company currently pays on the certificates
of deposit due on or before December 31, 2008.  Management believes,
however, based on past experience that a significant portion of its certificates
of deposit will remain with the Company.  The Company has the ability
to attract and retain deposits by adjusting the interest rates
offered.
  15
 
 The following table sets forth the
Bank’s capital position at December 31, 2007, as compared to the minimum
regulatory capital requirements:
 
 
 Actual
              
              
              Minimal
      Capital
                Requirements
              
              
              To
      be well Capitalized
                Under
      Prompt
                Corrective
      Actions
                ProvisionsAmount
              
              
              Ratio
              
              
              Amount
              
              
              Ratio
              
              
              Amount
              
              
              Ratio(Dollars
      in thousands)Total
      risk-based capital(To
      risk-weighted assets)
              
              $
              72,853
              
              
              
              25.7
              %
              
              $
              22,721
              
              
              
              8.0
              %
              
              $
              28,402
              
              
              
              10.0
              %Tier
      1 risk-based capital(To
      risk-weighted assets)
              
              
              71,004
              
              
              
              25.0
              
              
              
              11,361
              
              
              
              4.0
              
              
              
              17,041
              
              
              
              6.0Tangible
      capital(To
      tangible assets)
              
              
              71,004
              
              
              
              17.9
              
              
              
              5,938
              
              
              
              1.5
              
              
              
              N/A
              
              
              
              N/ATier
      1 leverage (core) capital(To
      adjusted tangible assets)
              
              
              71,004
              
              
              
              17.9
              
              
              
              11,876
              
              
              
              3.0
              
              
              
              19,793
              
              
              
              5.0
 
 Contractual
Obligations and Off-Balance Sheet Arrangements
 
 The following tables set forth the
Bank’s contractual obligations and commercial commitments at December 31,
2007:
 
 Payment
      Due by PeriodContractual
      Obligations
              
              Total
              
              
              One
      Year
                or
      less
              
              
              More
      than One
                Year
      Through
                Three
      Years
              
              
              More
      Than
                Three
      Years
                through
      Five
                Years
              
              
              More
      Than
                Five
      Years(In
      thousands)FHLB
      of New York advances
              
              $
              7,171
              
              
              $
              5,232
              
              
              $
              1,439
              
              
              $
              500
              
              
              $
              —Certificates
      of deposit
              
              
              165,940
              
              
              
              112,427
              
              
              
              42,618
              
              
              
              10,895
              
              
              
              —Lease
      obligations
              
              
              3,976
              
              
              
              516
              
              
              
              1,065
              
              
              
              1,012
              
              
              
              1,383Total
              
              $
              177,087
              
              
              $
              118,175
              
              
              $
              45,122
              
              
              $
              12,407
              
              
              $
              1,383
 
 
 Commitment
      Expiration by PeriodOff-Balance Sheet
      Arrangements
              
              Total
              
              
              One
      Year
                or
      less
              
              
              More
      than One
                Year
      Through
                Three
      Years
              
              
              More
      Than
                Three
      Years
                through
      Five
                Years
              
              
              More
      Than
                Five
      Years(In
      thousands)To
      originate loans
              
              $
              63,964
              
              
              $
              63,964
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —Stand
      by letter of credit
              
              
              2,140
              
              
              
              2,140
              
              
              
              —
              
              
              
              —
              
              
              
              —Unused
      lines of credit
              
              
              22,145
              
              
              
              22,145
              
              
              
              —
              
              
              
              —
              
              
              
              —Total
              
              $
              88,249
              
              
              $
              88,249
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —
 
 16
 
 
 Comparison
of Operating Results for the Three Months Ended December 31, 2007 and
2006
  Net
Income.  Net income decreased $515,000, or 30.5%, to $1.2
million for the three months ended December 31, 2007, from net income of $1.7
million for the three months ended December 31, 2006.  The primary
reasons for the decrease were a decrease in interest income of $447,000, a
$103,000 decrease in non-interest income, increases in loan loss provisions of
$51,000 and non-interest expense of $414,000, offset in part by decreases in
interest expense of $143,000 and provision for income taxes of
$357,000.
  Net Interest
Income Before Provision for Loan Losses.Net interest income
before provision for loan losses decreased by $304,000, or 7.0%, to
$4.1 million for the three months ended December 31, 2007, from
$4.4 million for the three months ended December 31, 2006.  The
decrease in net interest income resulted primarily from a decrease in the
average balance of interest-earning assets of $14.2 million and a 19 basis point
decrease in the Bank’s net interest rate spread to 3.38% for the three months
ended December 31, 2007, from 3.57% for the three months ended December 31,
2006.  The Bank’s net interest margin decreased 15 basis points to
4.28% for the three months ended December 31, 2007 compared to 4.43% for the
three months ended December 31, 2006.
  Interest
Income.Interest income decreased $447,000, or 6.3%, to $6.7
million for the three months ended December 31, 2007, from $7.1 million for
the three months ended December 31, 2006.  Interest income on loans
decreased by $340,000, or 5.6%, to $5.7 million for the three months ended
December 31, 2007, from $6.1 million for the three months ended December
31, 2006.  The primary reasons for the decrease in interest income on
loans were a $345,000 decrease in multi-family and commercial real estate loan
income, $304,000 in construction loan income, offset it part by increases in
interest income in one- to four-family loan income of $303,000 and other loan
income of $6,000.  The average balance of the loan portfolio increased
by $1.3 million, or 0.5%, to $293.6 million for the three months ended December
31, 2007, from $292.3 million for the three months ended December 31, 2006. The
average yield on loans decreased 50 basis points to 7.80% for the three months
ended December 31, 2007, from 8.30% for the three months ended December 31,
2006. Interest income on security investments and other interest-earning assets
decreased by $107,000, or 9.9%, to $974,000 for the three months ended December
31, 2007, from $1.1 million for the three months ended December 31,
2006.  The decrease in interest income on security
investments  and other interest-earning assets was primarily due to a
reduction in the average balance of $15.5 million, or 15.3%, to $86.1 million at
December 31, 2007 from $101.6 million at December 31, 2006, offset by an
increase of 28 basis points in the average yield to 4.53% for the quarter ended
December 31, 2007, compared to the average yield of 4.25% for the quarter ended
December 31, 2006.
  Interest
Expense.  Interest expense decreased $143,000, or 5.1%, to $2.6
million for the three months ended December 31, 2007, from $2.8 million for
the three months ended December 31, 2006.  Interest expense on
deposits increased $357,000, or 16.5%, to $2.5 million at December 31, 2007,
from $2.2 million at December 31, 2006.  Interest expense on FHLB of
New York borrowings decreased $500,000, or 81.0%, to $117,000 at December 31,
2007, from $617,000 at December 31, 2006.  The decrease was primarily
the result of a decrease in the average balance in FHLB of New York borrowings
of $35.5 million and its decrease in cost of 62 basis points, offset in part by
an increase in average balance of interest-bearing deposits of $20.4 million and
its increased cost of 27 basis points.  In addition, the average cost
of total interest-bearing liabilities decreased one basis point to 3.68% for the
three months ended December 31, 2007, from 3.69% for the three months ended
December 31, 2006.
  17
  Provision for
Loan Losses.The Bank’s provision for loan losses increased
$51,000, or 300.0%, to $68,000 for the three months ended December 31, 2007,
from a provision of $17,000 for the three months ended December 31,
2006.  Management believes the established loan loss reserves are
sufficient.  The allowance for loan losses as of December 31, 2007
represented 0.64% of total loans, compared to 0.62% of total loans as of
December 31, 2006.
  Non-interest
Income.  Non-interest income decreased by $103,000, or 13.1%,
to $682,000 for the three months ended December 31, 2007, from $785,000 for the
three months ended December 31, 2006.  The decrease was primarily due
to decreases in loan fees of $138,000, deposit related fees of $4,000 and $7,000
of miscellaneous fees, offset by increases in bank owned life insurance income
of $6,000 and net gain on sale of loans held-for-sale of $40,000.
  Non-interest
Expense.  Non-interest expense increased by $414,000, or 17.3%,
to $2.8 million for the three months ended December 31, 2007, from $2.4
million for the three months ended December 31, 2006.  The increase
resulted from increases of  $342,000 in compensation and fringe
benefits, which included $78,000 for the partial vesting of the Company’s
stock-based incentive plan and increased expenses of $356,000 for other
compensation and fringe benefits, other miscellaneous employee costs and ESOP
expense, offset in part by an expense reduction of $92,000 for the supplemental
executive retirement plan.  The Company also experienced increased
costs in occupancy and equipment of $61,000, professional fees of $30,000,
offset in part by decreases in data processing fees of $ 17,000 and other
expenses of $2,000, which include advertising, office supplies, printing, and
insurance.
  Income Taxes.Income tax expense decreased $357,000, or 34.1%, to $689,000 for the
three months ended December 31, 2007, from $1.0 million for the three months
ended December 31, 2006.  The primary reason for this decrease is
decreased income before provision for income taxes.  The effective
income tax rate, of the Company, for the three months ended December 31, 2007
was 37.0% compared to the effective income tax rate for the three months ended
December 31, 2006 of 38.3%.
  ITEM
      3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 
 The
majority of the Company’s assets and liabilities are monetary in
nature.  Consequently, the Company’s most significant form of market
risk is interest rate risk.  The Company’s assets, consisting
primarily of mortgage loans, have longer maturities than the Company’s
liabilities, consisting primarily of deposits.  As a result, a
principal part of the Company’s business strategy is to manage interest rate
risk and reduce the exposure of its net interest income to changes in market
interest rates.  Accordingly, the Company’s board of directors has
approved guidelines for managing the interest rate risk inherent in its assets
and liabilities, given the Company’s business strategy, operating environment,
capital, liquidity and performance objectives.  Senior management
monitors the level of interest rate risk on a regular basis and the audit
committee of the board of directors meets as needed to review the Company’s
asset/liability policies and interest rate risk position.
  18
  The
Company seeks to manage its interest rate risk in order to minimize the exposure
of its earnings and capital to changes in interest rates.  During the
low interest rate environment that has existed in recent years, the Company has
implemented the following strategies to manage its interest rate risk: (i)
maintaining a high level of short-term liquid assets invested in cash and cash
equivalents, short-term securities and mortgage-related securities that provide
significant cash flows; (ii) generally selling longer-term mortgage loans;
and (iii) lengthening the average term of the Bank’s certificates of
deposit.  By investing in short-term, liquid instruments, the Company
believes it is better positioned to react to increases in market interest
rates.  However, investments in shorter-term securities and cash and
cash equivalents generally bear lower yields than longer-term
investments.  Thus, during the recent decreasing interest rate
environment, the Bank’s strategy of investing in liquid instruments has resulted
in lower levels of interest income than would have resulted from investing in
longer-term loans and investments.  Management intends to lengthen the
maturity of the Company’s earning-assets as interest rates increase, which in
turn should result in a higher yielding portfolio of interest-earning
assets.  There have been no material changes in the Company’s interest
rate risk since September 30, 2007.
 
 ITEM
      4.
              CONTROLS
      AND PROCEDURES
  An
evaluation was performed under the supervision and with the participation of the
Company’s management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures (as defined in Rule 13a-15(e) or
15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as
of December 31, 2007.  Based on such evaluation, the Company’s Chief
Executive Officer and Chief Financial Officer have concluded that the Company’s
disclosure controls and procedures are designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and regulations
and are operating in an effective manner.
  No change
in the Company’s internal controls over financial reporting (as defined in
Rules 13a-15(f) or 15(d)-15(f) under the Securities Exchange Act of 1934)
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the Company’s internal control over
financial reporting.
  PART
II - OTHER INFORMATION
 
 ITEM
      1.
              LEGAL
      PROCEEDINGS
  There is
no material pending legal proceedings to which the Company or its subsidiaries
is a party other than ordinary routine litigation incidental to their respective
businesses.
  19
  ITEM
      1A.
              RISK
      FACTORS
 
 There are
no material changes to the risk factors as previously disclosed in the Company’s
Form 10-K for the year ended September 30, 2007 as filed with the SEC on
December 31, 2007.
  ITEM
      2.
              UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
  (c)The Company
repurchased Common Stock in the quarter ending December 31, 2007.  On
January 16, 2007, the Board of Directors approved a stock repurchase program and
authorized the repurchase of up to $1.5 million of the Company's outstanding
shares of common stock, which was completed in August 2007. On August 14, 2007,
the Board of Directors approved an additional stock repurchase program and
authorized the repurchase of up to $2.0 million 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 December 31,
2007, 216,152 shares have been repurchased with repurchases in the quarter
described in the following table:
 
 
 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
              
              
              Approximate
                  dollar
      value of
                  shares
      that
                  may
      yet be
                  purchased
                  under
      the plans
                  or
      programsOctober
      1, 2007 through October 31, 2007
              
              33,025
              
              
              $
              13.76
              
              
              205,752
              
              
              $
              577,000November
      1, 2007 through November 30, 2007
              
              –
              
              
              
              N/A
              
              
              205,752
              
              
              $
              577,000December
      1, 2007 through December 31, 2007
              
              10,400
              
              
              $
              13.41
              
              
              216,152
              
              
              $
              438,000
 
  ITEM
      3.
              DEFAULTS
      UPON SENIOR SECURITIES
  None.
  ITEM
      4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS
  None.
  ITEM
      5.
              OTHER
      INFORMATION
  None.
  20
  ITEM
      6.
              
              EXHIBITS11
              
              Computation
      of Earnings Per Share31.1
              
              Certification
      of Chief Executive Officer Pursuant to Rule
      13a-14(a)/15d-14(a)31.2
              
              Certification
      of Chief Financial Officer Pursuant to Rule
      13a-14(a)/15d-14(a)32.1
              
              Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.2
              
              Certification
      of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.
   21
    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.
 
 
 BROOKLYN
      FEDERAL BANCORP, INC.(Registrant)Date:  February
      13, 2008
              
              /s/ Angelo J. Di LorenzoAngelo
      J. Di LorenzoVice
      Chairman and Chief Executive OfficerDate:  February
      13, 2008
              
              /s/ Ralph WaltherRalph
      WaltherVice
      President andChief
      Financial Officer