<PAGE>

                                  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 June 30, 2006

                                       OR

              [ ]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. Employer
        incorporation 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 [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act).
Large Accelerated Filer [  ]  Accelerated Filer [  ]  Non-accelerated Filer [x]

Indicate by check mark whether the registrant is a shell company (as defined by
Rule 12b-2 of the Exchange Act). YES [ ]  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 August 11, 2006
Common Stock,  $.01 Par Value                                13,225,000

<PAGE>

                         BROOKLYN FEDERAL BANCORP, INC.

                           FORM 10-Q QUARTERLY REPORT

                                TABLE OF CONTENTS


                                     PART I.

<TABLE>
<CAPTION>
                                                                               Page Number

<S>       <C>                                                                           <C>
Item 1.   Financial Statements ......................................................    1
Item 2.   Management's Discussion and Analysis of Financial Condition
           and Results of Operations.................................................    9
Item 3.   Quantitative and Qualitative Disclosures About Market Risk.................   19
Item 4.   Controls and Procedures....................................................   20

                              PART II.

Item 1.   Legal Proceedings..........................................................   21
Item 1A.  Risk Factors...............................................................   21
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds................   21
Item 3.   Defaults Upon Senior Securities............................................   21
Item 4.   Submission of Matters to a Vote of Security Holders........................   21
Item 5.   Other Information..........................................................   21
Item 6.   Exhibits...................................................................   21

Signature Page.......................................................................   22
</TABLE>

<PAGE>

                                     PART I

ITEM 1.  FINANCIAL STATEMENTS

                  BROOKLYN FEDERAL BANCORP, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                      JUNE 30, 2006 AND SEPTEMBER 30, 2005
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                JUNE 30,       SEPTEMBER 30,
                                         ASSETS                                  2006               2005
                                                                              -------------     -------------
                                                                               (Unaudited)
<S>                                                                             <C>               <C>
Cash and due from banks (including interest-earning balances of $10,613 and
  $5,531, respectively)                                                         $  13,314         $   8,384
Term deposits                                                                       1,300                --
Certificates of deposit                                                             7,759             9,268
Securities available-for-sale                                                       4,310             4,190
Securities held-to-maturity:
  Mortgage-backed securities (estimated fair value of $88,843 and $93,884,
     respectively)                                                                 92,430            95,964
  Other (estimated fair value of $2,002 and $3,569, respectively)                   2,006             3,610
Loans held-for-sale                                                                51,016             8,603
Loans                                                                             192,095           196,585
     Less: Allowance for loan losses                                                1,640             1,321
                                                                                ---------         ---------
             Net loans                                                            190,455           195,264
Federal Home Loan Bank ("FHLB") of New York stock, at cost                          1,707             1,002
Accrued interest receivable                                                         1,833             1,470
Premises and equipment, net                                                         1,329             1,542
Bank owned life insurance                                                           8,520             8,280
Prepaid expenses and other assets                                                   3,248             3,281
                                                                                ---------         ---------
         Total assets                                                           $ 379,227         $ 340,858
                                                                                =========         =========

                    LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Deposits:
      Demand accounts                                                           $ 120,209         $ 128,021
      Certificates of deposit                                                     144,323           123,613
                                                                                ---------         ---------
         Total deposits                                                           264,532           251,634
  Borrowings:
      Short-term FHLB of New York advances                                         18,136             2,250
      Long-term FHLB of New York advances                                           7,471             5,857
  Advance payments by borrowers for taxes and insurance                             1,338             2,118
  Accrued expenses and other liabilities                                            9,115             3,790
                                                                                ---------         ---------
         Total liabilities                                                        300,592           265,649
                                                                                ---------         ---------
Stockholders' 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;
           13,225,000 issued and outstanding                                          132               132
      Additional paid-in capital                                                   37,791            37,773
      Retained earnings - substantially restricted                                 43,680            40,388
      Unallocated common stock held by employee stock
           ownership plan ("ESOP")                                                 (2,910)           (3,038)
      Accumulated other comprehensive loss:
           Net unrealized loss on securities, net of tax                              (58)              (46)
                                                                                ---------         ---------
             Total stockholders' equity                                            78,635            75,209
                                                                                ---------         ---------
             Total liabilities and stockholders' equity                         $ 379,227         $ 340,858
                                                                                =========         =========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       1
<PAGE>

                  BROOKLYN FEDERAL BANCORP, INC. AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                          FOR THE THREE MONTHS ENDED   FOR THE NINE MONTHS ENDED
                                                                    JUNE 30,                    JUNE 30,
                                                          --------------------------   -------------------------
                                                               2006          2005          2006          2005
                                                           -----------   -----------   -----------   -----------
<S>                                                        <C>           <C>           <C>           <C>
Interest income:
   First mortgage and other loans                          $     4,394   $     3,397   $    12,145   $     9,165
   Mortgage-backed securities                                      959           821         2,731         2,665
   Other securities and interest-earning assets                    264           293           894           628
                                                           -----------   -----------   -----------   -----------
     Total interest income                                       5,617         4,511        15,770        12,458
                                                           -----------   -----------   -----------   -----------

Interest expense:
   Deposits                                                      1,701         1,202         4,771         3,315
   Borrowings                                                      171            61           343           197
                                                           -----------   -----------   -----------   -----------
     Total interest expense                                      1,872         1,263         5,114         3,512
                                                           -----------   -----------   -----------   -----------

Net interest income before provision for loan losses             3,745         3,248        10,656         8,946
Provision for loan losses                                          204           128           319           164
                                                           -----------   -----------   -----------   -----------
     Net interest income after provision for loan losses         3,541         3,120        10,337         8,782
                                                           -----------   -----------   -----------   -----------

Non-interest income:
   Banking fees and service charges                                372           284         1,237         1,060
   Net gain on sale of loans held-for-sale                           9            --            48             5
   Other                                                           180           180           531           474
                                                           -----------   -----------   -----------   -----------
     Total non-interest income                                     561           464         1,816         1,539
                                                           -----------   -----------   -----------   -----------

Non-interest expense:
   Compensation and fringe benefits                              1,527         1,278         4,566         3,830
   Occupancy and equipment                                         240           237           780           685
   Other                                                           501           555         1,525         1,377
                                                           -----------   -----------   -----------   -----------
     Total non-interest expense                                  2,268         2,070         6,871         5,892
                                                           -----------   -----------   -----------   -----------

Income before provision for income taxes                         1,834         1,514         5,282         4,429
Provision for income taxes                                         696           418         1,990         1,515
                                                           -----------   -----------   -----------   -----------
     Net income                                            $     1,138   $     1,096   $     3,292   $     2,914
                                                           ===========   ===========   ===========   ===========
     Earnings per share:

          Basic                                                  $0.09         $0.08         $0.25           N/A
          Diluted                                                $0.09         $0.08         $0.25           N/A
     Average common shares outstanding:
          Basic                                             12,931,449    12,909,944    12,927,363           N/A
          Diluted                                           12,931,449    12,909,944    12,927,363           N/A
</TABLE>

          See accompanying notes to consolidated financial statements.


                                        2
<PAGE>

                  BROOKLYN FEDERAL BANCORP, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                    NINE MONTHS ENDED JUNE 30, 2006 AND 2005
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                            RETAINED                      ACCUMULATED
                                                                            EARNINGS-      UNALLOCATED        OTHER
                                                            ADDITIONAL     SUBSTANTIALLY   COMMON STOCK   COMPREHENSIVE
                                         COMMON STOCK    PAID-IN CAPITAL    RESTRICTED     HELD BY ESOP        LOSS        TOTAL
                                         ------------    ---------------   -------------   ------------   -------------  --------
<S>               <C> <C>                   <C>             <C>               <C>            <C>             <C>         <C>
BALANCE SEPTEMBER 30, 2004                  $  --           $     --          $ 36,608       $     --        $  (15)     $ 36,593

Comprehensive income:
    Net income                                 --                 --             2,914             --            --         2,914
    Net unrealized loss on securities          --                 --                --             --           (18)          (18)
                                                                                                                         --------
          Comprehensive income                                                                                              2,896
                                                                                                                         --------
Sale of 3,967,500 shares of
   common stock in the initial
   public offering and issuance
   of 9,257,500 shares to the
   mutual holding company                     132             37,762                --             --            --        37,894
Purchase of common stock by the ESOP           --                 --                --         (3,174)           --        (3,174)
Allocation of ESOP stock                       --                 --                --             68            --            68
                                            -----           --------          --------       --------        ------      --------
BALANCE JUNE 30,2005                        $ 132           $ 37,762          $ 39,522       $ (3,106)       $  (33)     $ 74,277
                                            =====           ========          ========       ========        ======      ========
BALANCE SEPTEMBER 30, 2005                  $ 132           $ 37,773          $ 40,388       $ (3,038)       $  (46)     $ 75,209

Comprehensive income:
    Net income                                 --                 --             3,292             --            --         3,292
    Net unrealized loss on securities          --                 --                --             --           (12)          (12)
                                                                                                                         --------
          Comprehensive income                                                                                              3,280
                                                                                                                         --------
Allocation of ESOP stock                       --                 18                --            128            --           146
                                            -----           --------          --------       --------        ------      --------
Balance June 30, 2006                       $ 132           $ 37,791          $ 43,680       $ (2,910)       $  (58)     $ 78,635
                                            =====           ========          ========       ========        ======      ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                        3
<PAGE>



                  BROOKLYN FEDERAL BANCORP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE NINE MONTHS ENDED JUNE 30,2006 AND 2005
                                 (IN THOUSANDS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                           FOR THE NINE MONTHS ENDED
                                                                                                   JUNE 30,
                                                                                           -------------------------
                                                                                               2006        2005
                                                                                             --------    --------
<S>                                                                                          <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                                                              $  3,292    $  2,914
     Adjustments to reconcile net income to net cash provided by operating activities:
         ESOP expense                                                                             146          68
         Depreciation and amortization                                                            277         235
         Provision for loan losses                                                                319         164
         Income from bank-owned life insurance                                                   (225)       (129)
         Increase in deferred loan fees, net                                                      168          70
         Amortization of premiums, net of accretion of discounts                                   51         278
         Accretion of discount on certificates of deposit                                          (3)         --
         Originations of loans held-for-sale                                                  (58,812)       (394)
         Proceeds from sales of loans held-for-sale                                             6,099         399
         Principal repayments on loans held-for-sale                                              313          --
         Net gain on sales of loans held-for-sale                                                 (48)         (5)
         Proceeds from sale of loan participation interests                                    14,838       7,518
         Increase in accrued interest receivable                                                 (363)        (33)
         Deferred income tax benefit                                                             (252)       (230)
         Decrease in prepaid expenses and other assets                                            295          19
         Increase in accrued expenses and other liabilities                                     5,325         709
                                                                                             --------    --------
              Net cash (used in) provided by operating activities                             (28,580)     11,583
                                                                                             --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Repayments in excess of loan originations (loan originations in excess of repayments)      2,519     (31,170)
     Purchase of loans receivable                                                              (3,000)     (1,889)
     Principal repayments on mortgage-backed securities held-to-maturity                       22,226      22,351
     Purchases of mortgage-backed securities held-to-maturity                                 (18,746)    (11,963)
     Maturities and principal pay downs of other securities held-to-maturity                    1,607         220
     Purchases of securities available-for-sale                                                  (142)       (108)
     Purchases of certificates of deposit                                                      (3,979)     (2,991)
     Maturities of certificates of deposit                                                      5,491         300
     (Purchase) sales of FHLB of New York stock                                                  (705)         94
     Purchases of bank-owned life insurance                                                       (15)     (3,765)
     Purchases of premises and equipment                                                          (64)       (369)
                                                                                             --------    --------
             Net cash provided by (used in) investing activities                                5,192     (29,290)
                                                                                             --------    --------
CASH FROM FINANCING ACTIVITIES:
     Increase (decrease) in deposits                                                           12,898      (3,181)
     Proceeds from FHLB of New York advances                                                   20,000       5,707
     Payments of FHLB of New York advances                                                     (2,500)     (8,831)
     Decrease in advance payments by borrowers for taxes and insurance                           (780)     (1,135)
     Net proceeds from common stock issuance                                                       --      37,894
     Loan to the ESOP for purchase of common stock                                                 --      (3,174)
                                                                                             --------    --------
             Net cash provided by financing activities                                         29,618      27,280
                                                                                             --------    --------
             Net increase in cash and cash equivalents                                          6,230       9,573
Cash and cash equivalents at beginning of year                                                  8,384       7,904
                                                                                             --------    --------
Cash and cash equivalents at end of period                                                   $ 14,614    $ 17,477
                                                                                             ========    ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid during the period for:
         Interest                                                                            $  5,100    $  3,514
         Taxes                                                                                  2,201       2,077
     Other:
         Mortgage loans held-to-maturity transferred to held-for-sale                           3,451          --
         Mortgage loans held-for-sale transferred to held-to-maturity                           1,265          --
</TABLE>

          See accompanying notes to consolidated financial statements.
                                        4

<PAGE>

                  BROOKLYN FEDERAL BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

     Brooklyn Federal Bancorp, Inc. (the "Company") was formed to serve as the
stock holding company for Brooklyn Federal Savings Bank (the "Bank") as part of
the Bank's reorganization into the mutual holding company structure. For a
further discussion of the Company's formation and operations, see the Company's
Registration Statement on Form S-1, as amended, declared effective by the
Securities and Exchange Commission (the "SEC") on February 11, 2005 (File Number
333-121580). The Company completed its initial public offering on April 5, 2005
(see Note 2). Based upon the foregoing, the Unaudited Interim Financial
Statements filed as part of this quarterly report are those of the Bank and its
subsidiaries through March 31, 2005 and for the Company, the Bank and its
subsidiaries (collectively, the "Company") thereafter. All significant
inter-company balances and transactions have been eliminated in consolidation.

     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. Operating results for the three month and
nine month periods ended June 30, 2006 are not necessarily indicative of the
results that may be expected for the year ending September 30, 2006. The
Company's consolidated financial statements, as presented in the Company's Form
10-K for the year ended September 30, 2005, should be read in conjunction with
these statements.

NOTE 2 - COMPLETION OF PLAN OF CONVERSION AND REORGANIZATION

     On November 9, 2004, the Board of Directors adopted a plan of
reorganization pursuant to which the Bank would convert to a stock savings bank
under a two-tier mutual holding company structure. As part of this plan, the
Bank established a federally-chartered mutual holding company known as BFS
Bancorp, MHC. Upon consummation of the plan of reorganization, the Bank became a
federally-chartered stock savings bank, wholly-owned by the Company. BFS
Bancorp, MHC owns approximately 70% of the Company.

     Effective February 11, 2005, the Company received approval from both the
SEC and the Office of Thrift Supervision to proceed with its planned stock
offering equal to the pro forma market value of the Company and its
subsidiaries, after giving effect to the offering. The offering closed April 5,
2005 and the net proceeds from the offering were approximately $37.9 million
(gross proceeds of $39.7 million for the issuance of 3,967,500 shares, less
offering costs of approximately $1.8 million). The Company also issued 9,257,500
shares to BFS Bancorp, MHC, resulting in a total of 13,225,000 shares issued and
outstanding after completion of the reorganization. BFS Bancorp, MHC owns 70% of
the Company's outstanding shares. A portion


                                        5
<PAGE>

of the proceeds were used to fund the ESOP, which purchased 317,400 shares of
the Company's common stock at a cost of $3.2 million on April 5, 2005.

NOTE 3 - 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 4 - IMPACT OF CERTAIN ACCOUNTING PRONOUNCEMENTS

     In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments". SFAS No. 155 amends FASB Statement No. 133 and
FASB Statement No. 140, and improves the financial reporting of certain hybrid
financial instruments by requiring more consistent accounting that eliminates
exemptions and provides a means to simplify the accounting for these
instruments. Specifically, SFAS No. 155 allows financial instruments that have
embedded derivatives to be accounted for as a whole (eliminating the need to
bifurcate the derivative from its host) if the holder elects to account for the
whole instrument on a fair value basis. SFAS No. 155 is effective for all
financial instruments acquired or issued after the beginning of an entity's
first fiscal year that begins after September 15, 2006. The Company is required
to adopt the provisions of SFAS No. 155, as applicable, beginning in fiscal year
2007. Management does not believe the adoption of SFAS No. 155 will have a
material impact on the Company's financial position and results of operations.

     In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets -- An Amendment of FASB Statement No. 140" ("SFAS 156"). SFAS
156 requires that all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable. The statement
permits, but does not require, the subsequent measurement of servicing assets
and servicing liabilities at fair value. SFAS 156 is effective as of the
beginning of an entity's first fiscal year that begins after September 15, 2006,
which for the Company will be as of the beginning of fiscal 2007. The Company
does not believe that the adoption of SFAS 156 will have a significant effect on
its financial statements.

     In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"), which
requires entities to measure the cost of employee services received in exchange
for any award of equity instruments based on the grant-date fair value of the
award (with limited exceptions). The cost is recognized as an expense over the
period during which the employee is required to provide service in exchange for
the award, which is usually the vesting period. The scope of SFAS No. 123R
includes the recognition and retention plan and the stock option plan the
Company expects to adopt. As a public company, the Company has adopted SFAS No.
123R in its first reporting period beginning after June 15, 2005 (i.e., the
quarter beginning October 1, 2005). For shares awarded under the recognition and
retention plan, the Company will generally


                                        6
<PAGE>

recognize the grant-date fair value of the shares as compensation expense on a
straight-line basis over the applicable vesting period. For options granted
under the stock option plan, the Company will generally recognize the grant-date
fair value of the options as compensation expense on a straight-line basis over
the applicable vesting period. This accounting treatment differs significantly
from the previous accounting for fixed stock options under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," which
generally required expense recognition only when the exercise price of the
option was less than the market price of the underlying stock on the grant date.
As required by SFAS No. 123R, the Company will estimate the fair value of its
stock options on each grant date, using an appropriate valuation approach such
as the Black-Scholes option pricing model. SFAS No. 123R did not change existing
accounting principles applicable to employee stock ownership plans. At the
Company's annual meeting, the stockholders approved the Stock Plans, but at this
time there have been no grants made. When the Company implements the Stock
Plans, it is anticipated it will have a material impact on its financial
statements.

     FASB Staff Position No. FAS 115-1 and FAS 124-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments" (the
"FSP"), was issued in November 2005 and addresses the determination of when an
investment is considered impaired; whether the impairment is other than
temporary; and how to measure an impairment loss. The FSP also addresses
accounting considerations subsequent to the recognition of an
other-than-temporary impairment on a debt security, and requires certain
disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. The FSP replaces the impairment guidance in
EITF Issue No. 03-1 with references to existing authoritative literature
concerning other-than-temporary determinations (principally SFAS No. 115 and SEC
Staff Accounting Bulletin 59). Under the FSP, impairment losses must be
recognized in earnings equal to the entire difference between the security's
cost and its fair value at the financial statement date, without considering
partial recoveries subsequent to that date. The FSP also requires that an
investor recognize an other-than-temporary impairment loss when a decision to
sell a security has been made and the investor does not expect the fair value of
the security to fully recover prior to the expected time of sale. The FSP is
effective for reporting periods beginning after December 15, 2005 with earlier
application permitted. For Brooklyn Federal Bancorp, Inc., the effective date
will be the second quarter of fiscal 2006. The Company does not expect that the
application of the FSP will have a material impact on its financial condition,
results of operations or financial statement disclosures.

     In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections," or SFAS No. 154, which replaces APB Opinion No. 20, "Accounting
Changes," or APB No. 20, and SFAS No. 3, "Reporting Account Changes in Interim
Financial Statements," and changes the requirements for the accounting for and
reporting of a change in accounting principle. SFAS No. 154 applies to all
voluntary changes in accounting principle and to changes required by an
accounting pronouncement when the pronouncement does not include specific
transition provisions. SFAS No. 154 requires retrospective application of
changes in accounting principle to prior periods' financial statements unless it
is impracticable to determine either the period-specific effects or the
cumulative effect of the change. APB No. 20 previously required that most
voluntary changes in accounting principles be recognized by including the
cumulative effect of the change in net income for the period of the change in
accounting principle. SFAS No. 154 carries forward without change the guidance
contained in APB No. 20 for reporting the correction of an error in previously
issued financial statements and a change in


                                        7
<PAGE>

accounting estimate. SFAS No. 154 also carries forward the guidance in APB No.
20 requiring justification of a change in accounting principle on the basis of
preferability. SFAS No. 154 is effective for accounting changes and corrections
of errors made in fiscal years beginning after December 15, 2005, with early
adoption permitted. The adoption of this statement is not expected to have an
impact on the Company's financial conditions or results of operations.

     In December 2003, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") 03-3, "ACCOUNTING FOR CERTAIN LOANS OR DEPT
SECURITIES ACQUIRED IN A TRANSFER." The SOP is effective for loans acquired in
fiscal years beginning after December 15, 2004. The SOP addresses accounting for
differences between contractual cash flows and cash flows expected to be
collected from an investor's initial investment in loans or debt securities
(loans) acquired in a transfer if those differences are attributable, at least
in part, to credit quality. The SOP applies to loans acquired in business
combinations but does not apply to loans originated by the Company. Management
does not believe the provisions of this standard will have a material impact on
the Company's results of operations or financial condition.

     On March 9, 2004, the SEC issued Staff Accounting Bulletin ("SAB") No. 105,
APPLICATION OF ACCOUNTING PRINCIPLES TO LOAN COMMITMENTS. SAB No. 105 requires
that when a company is recognizing and valuing a loan commitment at fair value,
only differences between the guaranteed interest rate in the loan commitment and
a market interest rate should be included. Any expected future cash flows
related to the customer relationships or loan servicing should be excluded from
the fair value measurement. The expected future cash flows that are excluded
from the fair-value determination include anticipated fees for servicing the
funded loan, late-payment charges, other ancillary fees, or other cash flows
from servicing rights. The guidance in SAB No. 105 is effective for
mortgage-loan commitments that are accounted for as derivatives and are entered
into after March 31, 2004. The adoption of the provisions of this standard did
not have any impact on the results of operations.

     On September 30, 2004, the FASB issued Staff Position No. EITF Issue
03-1-1, "Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, The Meaning
of Other-Than-Temporary Impairment and its Application to Certain Investments,"
which delayed the effective date of the measurement and recognition guidance
contained in Emerging Issues Task Force ("EITF") Issue No. 03-1. As originally
issued, EITF Issue No. 03-1 provided guidance for evaluating whether an
investment is other-than-temporarily impaired and was to be effective for
other-than-temporary impairment evaluations made in reporting periods beginning
after June 15, 2004 (July 1, 2004 for the Company). On June 29, 2005, the FASB
directed its staff to issue Staff Position No. FAS 115-1, "The Meaning of
Other-Than-Temporary-Impairment and Its Application to Certain Investments,"
which will supersede EITF Issue No. 03-1 and be effective for impairment
analyses conducted in periods beginning after September 15, 2005. Staff Position
No. FAS 115-1 will replace the guidance in EITF Issue No. 03-1 with references
to existing authoritative literature concerning other-than-temporary impairments
and clarify that an investor should recognize an impairment loss no later than
when the impairment is deemed other-than-temporary, even if a decision to sell
the investment has not been made. The Company does not expect that the issuance
of Staff Position No. FAS 115-1 will have a material effect on its financial
condition or results of operations.


                                        8
<PAGE>

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.

     The Company completed its stock offering on April 5, 2005, raising $39.7
million in gross proceeds and approximately $37.9 million in net proceeds. The
Company issued a total of 3,967,500 shares of its common stock to public
stockholders and 9,257,500 shares of its common stock to its parent, BFS
Bancorp, MHC. The offering proceeds were invested on a short-term basis in
liquid investments, namely, certificates of deposits, FHLB of New York term
deposits and FHLB of New York overnight investments. A portion of the proceeds
were used to fund the employee stock ownership plan, which purchased 317,400
shares of the Company's common stock at a cost of $3.2 million during the
quarter ended June 30, 2005.

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.


                                        9
<PAGE>

     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.

CRITICAL ACCOUNTING POLICIES

     The Company considers 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. The Company considers the
following to be its 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 Company. 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 the Company's 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 on appraisals are instrumental in determining the value of
the 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 appraisals 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, 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 rating (if applicable) and
payment history. The Company also analyzes 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


                                       10
<PAGE>

allocations. Actual loan losses may be significantly more than the allowance for
loan losses the Company has established which could have a material negative
effect on its financial results.

     DEFERRED INCOME TAXES. The Company uses 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.
The Company considers 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 the Company
projects lower levels of future taxable income. Such a valuation allowance would
be established through a charge to income tax expense, which would adversely
affect the Company's 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:

     o    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.

     o    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


                                       11
<PAGE>

          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 and commercial
          real estate, construction and land loans as a means of increasing our
          interest and fee income. 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. We
          have invested in a new loan servicing system and additional personnel
          to allow us to service these types of loans more efficiently.

     o    INCREASING OUR REAL ESTATE LENDING CAPACITY. The additional capital
          raised in the stock offering increased our lending capacity by
          enabling us to originate more loans and loans with larger balances.
          This permits us to serve borrowers with larger lending needs and to
          originate larger loans than we have originated in the past.

     o    UTILIZING THE NET PROCEEDS WE RECEIVED IN THE OFFERING TO BETTER
          MANAGE OUR INTEREST RATE RISK AND GROW OUR ASSETS. With long-term
          interest rates at low levels, we have managed our interest rate risk
          by maintaining a significant percentage of our assets in short-term
          liquid assets, such as cash and cash equivalents, 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 rising
          short-term interest rates, we have been able to increase interest
          income on our short-term liquid assets, while still reducing security
          investments and redeploying those funds to loan originations.
          Continuing to maintain a high 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 June 30,
          2006, $14.6 million, or 3.9% of our assets, was invested in cash and
          cash equivalents, and $9.9 million, or 2.6% of our assets, was
          invested in certificates of deposit and securities that mature within
          three years.

          The net proceeds from the stock offering increased our capital and
          provided management with greater flexibility to manage interest rate
          risk and increase our interest-earning assets, including our
          investment in longer-term, higher yielding loans and securities.

     o    FACILITATE GROWTH THROUGH DE NOVO BRANCHING. We have established
          financial, geographic and other criteria to evaluate potential new
          branch offices in our market area. We anticipate being able to use
          part of the net proceeds of the stock offering to finance the
          expansion of our branch network. While we continue to review potential
          branch sites, there can be no assurance as to whether or when we will
          open such offices.


                                       12
<PAGE>

     o    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 JUNE 30, 2006 AND SEPTEMBER 30, 2005

     TOTAL ASSETS. Total assets increased by $38.3 million, or 11.3%, to $379.2
million at June 30, 2006, from $340.9 million at September 30, 2005. This
increase was primarily the result of the funds received from depositors and
proceeds from advances with the FHLB, which were redeployed into loan
originations, purchases of mortgage-backed securities and purchases of term
deposits, offset in part by decreases in investments of certificates of deposit,
repayments on investment securities, proceeds from sale of loan participation
interests and repayments on the loan portfolio.

     CASH AND CASH EQUIVALENTS. Cash and cash equivalents, which is comprised of
cash, due from banks and term deposits, increased $6.2 million or 74.3% to $14.6
million, at June 30, 2006, from $8.4 million at September 30, 2005. This
increase in short-term liquidity was primarily due to loan receipts on June 30,
2006 to the FHLB of New York and the purchases of term deposits from the FHLB of
New York. The Company did not have any investments in term deposits from the
FHLB of New York at September 30, 2005.

     INVESTMENT IN CERTIFICATES OF DEPOSIT. Certificates of deposit decreased
$1.5 million, or 16.3%, to $7.8 million at June 30, 2006, from $9.3 million at
September 30, 2005. The decrease in these short-term investments was primarily
due to maturities of $5.5 million, offset in part by new investment purchases of
$4.0 million.

     SECURITIES. Securities investments, which represent securities
available-for-sale and securities held-to-maturity, decreased $5.0 million, or
4.8%, to $98.8 million at June 30, 2006, from $103.8 million at September 30,
2005. This decrease was primarily due to repayments and maturities of $23.8
million in mortgage-backed and other securities, offset in part by purchases of
$18.8 million in mortgage-backed and other securities.

     NET LOANS. Net loans before allowance for loan losses and including loans
held-for-sale, increased $37.9 million, or 18.5%, to $243.1 million at June 30,
2006, from $205.2 million at September 30, 2005, primarily due to increases of
$20.0 million in multi-family loans, $5.5 million in construction loans, $16.4
million in land loans, $600,000 in one-to-four family mortgage loans and $67,000
in other loans, offset in part by a reduction of $4.4 million in commercial
mortgage loans and an increase in net deferred fees of approximately $200,000.

     The Company had one non-accrual loan with an outstanding balance of
approximately $175,000 and $190,000 at June 30, 2006 and September 30, 2005,
respectively. This non-accrual loan is on a multi-family apartment building for
which the Bank established a specific loss allowance and classified this loan as
doubtful.

     A multi-family loan, located in Brooklyn, New York, with an outstanding
principal of $746,000, was classified as substandard during the quarter ended
June 30, 2005 and remained classified as substandard at June 30, 2006. The
principal outstanding balance on this loan was $681,000 at June 30, 2006. The
property suffered structural damage due to construction at an adjoining lot,
although loan payments have remained current, management has placed the loan


                                       13
<PAGE>

on substandard status due to concerns about the property damage and the
borrower's ability to make future contractual payments.

     PREPAID EXPENSES AND OTHER ASSETS. Prepaid expenses and other assets
including bank-owned life insurance increased $207,000, or 1.8%, to $11.8
million at June 30, 2006, from $11.6 million at September 30, 2005. This
increase was mainly due to increases in bank-owned life insurance of $240,000
and an increase in deferred tax assets of $252,000, offset in part by reductions
in miscellaneous other assets of $285,000.

     DEPOSITS. Deposits increased by $12.9 million, or 5.1%, to $264.5 million
at June 30, 2006, from $251.6 million at September 30, 2005. The increase was
primarily due to the Bank's introduction of new deposit products and an increase
in retail jumbo certificates of deposit.

     BORROWED FUNDS. Total funds borrowed from the FHLB of New York, increased
$17.5, or 215.9%, to $25.6 million at June 30, 2006, from $8.1 million at
September 30, 2005. The additional borrowings were used to fund the loan and
investment portfolios.

     ACCRUED EXPENSES AND OTHER LIABILITIES. Accrued expenses and other
liabilities increased $5.3 million, or 140.5%, to $9.1 million at June 30, 2006,
from $3.8 million at September 30, 2005. This increase was primarily due to the
receipt of funds relating to the loan portfolio participation payables
approximating $4.5 million, additional accruals for the Supplemental Executive
Retirement Plan (the "SERP") of $371,000 and other increases in accounts payable
and accrued expenses of approximately $400,000.

     STOCKHOLDERS' EQUITY. Stockholders' equity increased by $3.4 million, or
4.6%, to $78.6 million at June 30, 2006, from $75.2 million at September 30,
2005. The primary reason for the increase is the result of net income for the
period.

     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.

     A significant portion of the Company's liquidity consists of cash and cash
equivalents, which are a product of its operating, investing and financing
activities. At June 30, 2006, $14.6 million or 3.9% of the Company's assets were
invested in cash and cash equivalents. The Company's primary recurring sources
of cash are principal repayments on loans, proceeds from


                                       14
<PAGE>

the calls and maturities of investment securities, principal repayments of
mortgage-backed securities and increases in deposit accounts. Currently, the
Company sells longer-term mortgage loans, and the Company syndicates and sells
participation interests in portions of its multi-family, commercial real estate
and construction 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. Investments
in certificates of deposit and short-term investment securities (maturing in
less than three years) totaled $9.9 million at June 30, 2006. As of June 30,
2006, the Company had $25.6 million in borrowings outstanding from the FHLB of
New York and access to additional FHLB of New York advances.

     At June 30, 2006, the Company had approximately $101.1 million in loan
commitments outstanding, which included $28.2 million in undisbursed
construction loans, $940,000 in one- to four- family loans, $1.2 million in
unused home equity lines of credit, $12.8 million in commercial real estate
lines of credit and $57.9 million to originate multi-family and nonresidential
mortgage loans. The Company had no commitments to sell mortgage loans at June
30, 2006. Certificates of deposit due within one year of June 30, 2006 totaled
$97.4 million, or 67.5% 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 June 30, 2007. 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.

         The following table sets forth the Bank's capital position at June 30,
2006, as compared to the minimum regulatory capital requirements:

<TABLE>
<CAPTION>
                                                                                              To be well Capitalized
                                                                        Minimal Capital       Under Prompt Corrective
                                                 Actual                  Requirements            Actions Provisions
                                     --------------------------------------------------------------------------------
                                         Amount        Ratio        Amount          Ratio       Amount        Ratio
                                        --------       -----      ---------         -----     ----------      -----
                                                                 (Dollars in thousands)
<S>                                     <C>             <C>       <C>                <C>      <C>              <C>
Total risk-based capital
       (to risk-weighted assets)        $ 63,142        25.2%     $  20,028          8.0%     $   25,035        10.0%
Tier 1 risk-based capital
       (to risk-weighted assets)          61,560        24.6         10,014          4.0          15,021         6.0
Tangible capital
       (to tangible assets)               61,560        16.3          5,688          1.5             N/A         N/A
Tier 1 leverage (core) capital
       (to adjusted tangible assets)      61,560        16.3         11,376          3.0          18,959         5.0
</TABLE>


                                       15
<PAGE>

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

     The following tables set forth the Bank's contractual obligations and
commercial commitments at June 30, 2006:

                                               Payment Due by Period

<TABLE>
<CAPTION>
                                                                      More than One    More Than Three
                                                        One Year or    Year Through     Years through      More Than
CONTRACTUAL OBLIGATIONS                      Total         less        Three Years        Five Years       Five Years
-----------------------                ------------------------------------------------------------------------------
                                                                      (In thousands)
<S>                                       <C>           <C>            <C>               <C>               <C>
FHLB of New York Advances                 $  25,607     $  18,136      $     5,971       $      1,000      $     500
Certificates of Deposit                     144,323        97,352           31,630             15,341             --
Lease obligations                             4,691           350              894              1,010          2,437
                                          ---------     ---------      -----------       ------------     ----------
           Total                          $ 174,621     $ 115,838      $    38,495       $     17,351     $    2,937
                                          =========     =========      ===========       ============     ==========
</TABLE>

                                          Commitment Expiration by Period

<TABLE>
<CAPTION>
                                                                      More than One     More Than Three
                                                        One Year or    Year Through      Years through      More Than
OFF-BALANCE SHEET ARRANGEMENTS               Total         less        Three Years         Five Years       Five Years
------------------------------         ------------------------------------------------------------------------------
                                                                      (In thousands)
<S>                                       <C>           <C>             <C>                <C>              <C>
To originate loans                        $  66,808     $  66,808       $       --         $       --       $     --
Unused lines of credit                       34,277        34,277               --                 --             --
                                          ---------     ---------       ----------         ----------       --------
           Total                          $ 101,085     $ 101,085       $       --         $       --       $     --
                                          =========     =========       ==========         ==========       ========
</TABLE>

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30,2006 AND 2005

     NET INCOME. Net income increased $42,000, or 3.8%, to $1.1 million for the
three months ended June 30, 2006 and 2005, respectively. The primary reasons for
the increase were a $1.1 million increase in interest income and a $97,000
increase in non-interest income, offset in part by a $609,000 increase in
interest expense, a $198,000 increase in non-interest expense, a $76,000
increase in the provision for loan losses and an increase of $278,000 in the
provision for income taxes.

     NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income
before provision for loan losses increased by $497,000, or 15.3%, to $3.7
million for the three months ended June 30, 2006, from $3.2 million for the
three months ended June 30, 2005. The increase in net interest income resulted
primarily from an increase in the average balance of interest-earning assets of
$26.2 million and a 14 basis points increase in the Bank's net interest rate
spread to 3.55% for the three months ended June 30, 2006, from 3.41% for the
three months ended June 30, 2005. The Bank's net interest margin increased 27
basis points to 4.25% in the three months ended June 30, 2006 compared to 3.98%
for the three months ended June 30, 2005.

     INTEREST INCOME. Interest income increased $1.1 million, or 24.5%, to $5.6
million for the three months ended June 30, 2006, from $4.5 million for the
three months ended June 30, 2005. Interest income on loans increased by
$997,000, or 29.3%, to $4.4 million for the three months ended June 30, 2006,
from $3.4 million for the three months ended June 30, 2005. The primary


                                       16
<PAGE>

reasons for the increase in interest income on loans were a $755,000 increase in
multi-family and commercial real estate loan income, $167,000 in construction
loan income and $73,000 in one- to four-family and other loan income. The
average balance of the loan portfolio increased by $49.7 million to $232.2
million for the three months ended June 30, 2006, from $182.5 million for the
three months ended June 30, 2005. The average yield on loans increased 13 basis
points to 7.57% for the three months ended June 30, 2006, from 7.44% for the
three months ended June 30, 2005. Interest income on investment securities and
other interest-earning assets increased by $109,000, or 9.8%, to $1.2 million
for the three months ended June 30, 2006, from $1.1 million for the three months
ended June 30, 2005. The increase in interest income on investment securities
and other interest-earning assets was primarily due to an increase of 97 basis
points in the average yield to 4.07% for the quarter ended June 30, 2006,
compared to the average yield of 3.10% for the quarter ended June 30, 2005,
offset in part by a decrease in the average balance of $23.4 million, or 16.3%,
to $120.1 million for the quarter ended June 30, 2006, from $143.5 million for
the quarter ended June 30, 2005.

     INTEREST EXPENSE. Interest expense increased $609,000, or 48.2%, to $1.9
million for the three months ended June 30, 2006, from $1.3 million for the
three months ended June 30, 2005. The increase was primarily the result of a
$499,000 increase in interest expense on deposits and a $110,000 increase in
interest expense on borrowed funds, reflecting an increase in the average cost
of 71 basis points to 2.83% for the three months ended June 30, 2006, from 2.12%
for the three months ended June 30, 2005.

     PROVISION FOR LOAN LOSSES. The Bank's provision for loan losses increased
$76,000, or 59.4%, to $204,000 for the three months ended June 30, 2006, from
$128,000 for the three months ended June 30, 2005. The primary reason for this
increase was due to the growth in the loan portfolio. The allowance for loan
losses as of June 30, 2006 represented 0.67% of total loans, compared to 0.57%
of total loans as of June 30, 2005.

     NON-INTEREST INCOME. Non-interest income increased by $97,000, or 20.9%, to
$561,000 for the three months ended June 30, 2006, from $464,000 for the three
months ended June 30, 2005. The increase was primarily due to increases in loan
fees and service charges of $92,000, bank owned life insurance of $11,000, and
net gain on sale of loans held for sale of $9,000, offset in part by a decrease
of approximately $14,000 in miscellaneous income and fees for other banking
products.

     NON-INTEREST EXPENSE. Non-interest expense increased by $198,000, or 9.6%,
to $2.3 million for the three months ended June 30, 2006, from $2.1 million for
the three months ended June 30, 2005. The increase resulted primarily from a
$249,000 increase in compensation and fringe benefits, which included increases
of $200,000 in salary costs, $43,000 for the Supplemental Executive Retirement
Plan, $15,000 for the employee pension plans and $12,000 in other officer and
employee expenses, offset in part by a reduction of the ESOP expense of $21,000.
The increase in non-interest expense also includes increases of $3,000 for
occupancy and equipment, $13,000 in data processing service bureau expense,
offset in part by reductions in professional fees of $8,000 and other expenses
of $59,000 including advertising, office supplies and printing, insurance and
other operating expenses.

         INCOME TAXES. Income tax expense increased $278,000, or 66.5%, to
$696,000 for the three months ended June 30, 2006, from $418,000 for the three
months ended June 30, 2005. The


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<PAGE>

primary reason for the increase in 2006 was an increase in income before taxes.
The effective tax rate for the three months ending June 30, 2006 was 37.9%. The
effective tax rate for the three months ending June 30, 2005 was 27.6% due to
lower income for the period and the reversal of approximately $80,000 in certain
prior period tax accruals, which were no longer required.

COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30,2006 AND 2005

     NET INCOME. Net income increased $378,000, or 13.0%, to $3.3 million for
the nine months ended June 30, 2006, from $2.9 million for the same period in
2005. The increase was primarily the result of a $1.7 million increase in the
Bank's net interest income and a $277,000 increase in non-interest income,
offset in part by increases of $155,000 in provision for loan losses, $979,000
in non-interest expense and $475,000 in provision for income taxes.

     NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income
before provision for loan losses increased by $1.7 million, or 19.1%, to $10.6
million for the nine months ended June 30, 2006, from $8.9 million for the nine
months ended June 30, 2005. The increase in net interest income resulted
primarily from an increase in the average balance of interest-earning assets of
$33.9 million, or 10.9% to $343.6 million for the nine months ended June 30,
2006, from $309.7 million in 2005 and a 3 basis point increase in the net
interest rate spread to 3.48% for the nine month period ended June 30, 2006 from
3.45% for the nine months ended June 30, 2005. The Bank's net interest margin
increased 29 basis points to 4.14% in the nine months ended June 30, 2006, from
3.85% for the nine months ended June 30, 2005.

     INTEREST INCOME. Interest income increased $3.3 million, or 26.6%, to $15.8
million for the nine months ended June 30, 2006, from $12.5 million for the nine
months ended June 30, 2005. Interest income on mortgage and other loans
increased $3.0 million, or 32.5%, to $12.1 million for the nine months ended
June 30, 2006, from $9.1 million for the nine months ended June 30, 2005. The
primary reasons for the increase in interest income on loans were a $2.6 million
increase in commercial real estate and multi-family loan income, a $307,000
increase in construction loan income and an increase of $51,000 in the one- to
four-family mortgage loan and other loan income. The average balance of the loan
portfolio increased $45.9 million, or 26.7%, to $217.6 million for the nine
months ended June 30, 2006, from $171.7 million for the same period in 2005. The
average yield of loans increased 33 basis points to 7.44% for the nine month
period ended June 30, 2006, from 7.11% for the same period in 2005. Interest
income on investment securities and other interest-earning assets increased by
$332,000, or 10.1%, to $3.6 million for the nine months ended June 30, 2006,
from $3.3 million for the nine months ended June 30, 2005. The increase in
interest income on investment securities and other interest-earning assets was
primarily due to a 66 basis point increase in yield to 3.84% for the period
ending June 30, 2006 compared to a 3.18% yield for the same period in 2005,
offset in part by a decrease in average balance of $11.9 million, or 8.7%, to
$126.0 million for the nine months ended June 30, 2006, from $137.9 million for
the nine months ended June 30, 2005.

     INTEREST EXPENSE. Interest expense increased $1.6 million, or 45.6%, to
$5.1 million for the nine months ended June 30, 2006, from $3.5 million for the
nine months ended June 30, 2005. The increase was primarily the result of a $1.5
million increase in interest expense on deposits and a $146,000 increase in
interest expense on borrowed funds, reflecting a 73 basis point increase in the
average cost to 2.64% for the nine months ended June 30, 2006, from 1.91% for
the same period in 2005.


                                       18
<PAGE>

     PROVISION FOR LOAN LOSSES. The provision for loan losses increased
$155,000, or 94.5%, to $319,000 for the nine months ended June 30, 2006, from
$164,000 for the nine months ended June 30, 2005. The allowance for loan losses
as of June 30, 2006 represented 0.67% of total loans, compared to 0.57% of total
loans as of June 30, 2005.

     NON-INTEREST INCOME. Non-interest income increased by $277,000, or 18.0%,
to $1.8 million for the nine months ended June 30, 2006, from $1.5 million for
the nine months ended June 30, 2005. The reasons for the increase are increases
in mortgage and other loan fees of $199,000, bank owned life insurance income of
$96,000 and net gains on sale of mortgage loans of $43,000, partially offset by
decreases in deposit related fees of $22,000 and other miscellaneous income of
$39,000.

     NON-INTEREST EXPENSE. Non-interest expense increased by $979,000, or 16.6%,
to $6.9 million for the nine months ended June 30, 2006, from $5.9 million for
the nine months ended June 30, 2005. The increase resulted primarily from a
$736,000 increase in compensation and fringe benefits, which included increases
of $229,000 for the Supplemental Executive Retirement Plan, $118,000 for the
employee pension and ESOP plans, $298,000 in salary costs for new employees and
increases in base salaries for certain officers and employees and $91,000 in
other officer and employee expenses which include health insurance and other
miscellaneous employee expenses. The increase in non-interest expenses also
reflects increases in occupancy and equipment expenses of $95,000, data
processing service bureau expense of $35,000, professional fees of $100,000 and
other operating expenses of $13,000.

     INCOME TAXES. Income tax expense increased $475,000, or 31.40%, to $2.0
million for the nine months ended June 30, 2006, from $1.5 million for the nine
months ended June 30, 2005. The increase resulted primarily from increased
income before taxes. The effective tax rate for the nine months ended June 30,
2006 was 37.7%. The effective tax rate for the nine months ended June 30, 2005
was 34.2% due to lower income before taxes and the reversal of $80,000 in
certain prior period tax accruals, which were no longer required.

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.

     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


                                       19
<PAGE>

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 sustained period of low interest rates, 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. The net proceeds from the stock offering increased the
Company's capital and provided management with greater flexibility to manage its
interest rate risk. In particular, management intends to leverage the capital
the Company received to increase interest-earning assets. 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, 2005.

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 June 30, 2006. 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.

                                       20
<PAGE>


                           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.


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, 2005 as filed with
the SEC on December 29, 2005.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     The Company completed its stock offering on April 5, 2005, raising $39.7
million in gross proceeds and approximately $37.9 million in net proceeds. The
Company issued a total of 3,967,500 shares of its common stock to public
stockholders and 9,257,500 shares of its common stock to its parent, BFS
Bancorp, MHC.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

ITEM 5. OTHER INFORMATION

     None.

ITEM 6. EXHIBITS

     11   Computation of Earnings Per Share

     31.1 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
<PAGE>

                                   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:  August 14, 2006                     /s/ Angelo J. Di Lorenzo
                                           -------------------------------------
                                           Angelo J. Di Lorenzo
                                           President and Chief Executive Officer


Date:  August 14, 2006                     /s/ Richard A. Kielty
                                           -------------------------------------
                                           Richard A. Kielty
                                           Executive Vice President and
                                           Chief Financial Officer


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