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 March 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 StreetBrooklyn,
                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 or a non-accelerated filer (as defined in Rule 12b-2 of
        the
        Exchange Act).
  Large
                  Accelerated Filer o
              Accelerated
                  Filer o
              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 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 May 11, 2007Common
                  Stock, $.01 Par Value
              
              13,395,000
 
 
  **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
              7Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              18Item
                  4.
              Controls
                  and Procedures
              19PART
                  II.Item
                  1.
              Legal
                  Proceedings
              19Item
                  1A.
              Risk
                  Factors
              19Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              19Item
                  3.
              Defaults
                  Upon Senior Securities
              20Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              20Item
                  5.
              Other
                  Information
              21Item
                  6.
              Exhibits
              21Signature
                  Page
              
              22
  
 
 **PART
        I**
 **ITEM
                  1.**
              **FINANCIAL
                STATEMENTS**
 
 **BROOKLYN
        FEDERAL BANCORP, INC. AND SUBSIDIARY**
 **CONSOLIDATED
        STATEMENTS OF FINANCIAL CONDITION**
 **March
        31, 2007 and September 30, 2006**
 **(In
        thousands, except share amounts)**
 **(Unaudited)**
 
 **Assets**
              
              **March
                  31,**
                **2007**
              
              **September
                  30,**
                **2006**Cash
                  and due from banks (including interest-earning balances of $5,408
                  and
                  $2,254, respectively)
              
              $
              7,726
              
              $
              4,078Certificates
                  of deposit
              
              
              5,378
              
              
              7,160Securities
                  available-for-sale
              
              
              4,498
              
              
              4,389Securities
                  held-to-maturity:Mortgage-backed
                  securities (estimated fair value of $82,049 and $84,792,
                  respectively)
              
              
              83,617
              
              
              86,967Other
                  (estimated fair value of $4 and $5, respectively)
              
              
              4
              
              
              5Loans
                  held-for-sale
              
              
              82,643
              
              
              92,243Loans
                  receivable
              
              
              197,816
              
              
              196,112Less:
                  Allowance for loan losses
              
              
              1,761
              
              
              1,757Loans
                  receivable, net
              
              
              196,055
              
              
              194,355Federal
                  Home Loan Bank (“FHLB”) of New York stock, at cost
              
              
              1,352
              
              
              2,778Accrued
                  interest receivable
              
              
              2,199
              
              
              1,992Premises
                  and equipment, net
              
              
              1,126
              
              
              1,245Bank
                  owned life insurance
              
              
              8,789
              
              
              8,604Prepaid
                  expenses and other assets
              
              
              5,429
              
              
              4,229Total
                  assets
              
              $
              398,816
              
              $
              408,045**Liabilities
                  and Stockholders’ Equity**Liabilities:Deposits:Non-interest-bearing
                  deposits
              
              $
              16,223
              
              $
              18,908Interest-bearing
                  deposits
              
              
              108,213
              
              
              99,734Certificates
                  of deposit
              
              
              165,197
              
              
              152,361Total
                  deposits
              
              
              289,633
              
              
              271,003Borrowings:Short-term
                  FHLB of New York advances
              
              
              12,532
              
              
              41,936Long-term
                  FHLB of New York advances
              
              
              5,189
              
              
              7,471Advance
                  payments by borrowers for taxes and insurance
              
              
              2,285
              
              
              2,139Accrued
                  expenses and other liabilities
              
              
              4,970
              
              
              5,533Total
                  liabilities
              
              
              314,609
              
              
              328,082Stockholders’
                  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;13,442,000
                  and 13,225,000 issued and 13,420,000 and13,225,000
                  outstanding, respectively
              
              
              134
              
              
              132Additional
                  paid-in capital
              
              
              41,938
              
              
              37,799Retained
                  earnings - substantially restricted
              
              
              46,192
              
              
              44,946Treasury
                  shares - at cost, 22,000 shares
              
              
              (312
              )
              
              —Unallocated
                  common stock held by employee stock ownership plan
                  (“ESOP”)
              
              
              (2,790
              )
              
              (2,870
              )Unallocated
                  shares of the stock-based incentive plan
              
              
              (905
              )
              
              —Accumulated
                  other comprehensive loss:Net
                  unrealized loss on securities, net of tax
              
              
              (50
              )
              
              (44
              )Total
                  stockholders’ equity
              
              
              84,207
              
              
              79,963Total
                  liabilities and stockholders’ equity
              
              $
              398,816
              
              $
              408,045
   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**
                **March
                  31,**
              
              **For
                  the Six Months Ended**
                **March
                  31,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Interest
                  income:First
                  mortgage and other loans
              
              $
              5,962
              
              $
              4,048
              
              $
              12,028
              
              $
              7,751Mortgage-backed
                  securities
              
              
              872
              
              
              936
              
              
              1,748
              
              
              1,772Other
                  securities and interest-earning assets
              
              
              210
              
              
              291
              
              
              415
              
              
              630Total
                  interest income
              
              
              7,044
              
              
              5,275
              
              
              14,191
              
              
              10,153Interest
                  expense:Deposits
              
              
              2,279
              
              
              1,622
              
              
              4,445
              
              
              3,070Borrowings
              
              
              379
              
              
              87
              
              
              996
              
              
              172Total
                  interest expense
              
              
              2,658
              
              
              1,709
              
              
              5,441
              
              
              3,242Net
                  interest income before provision for loan losses
              
              
              4,386
              
              
              3,566
              
              
              8,750
              
              
              6,911(Recovery
                  of) provision for loan losses
              
              
              (13
              )
              
              128
              
              
              4
              
              
              115Net
                  interest income after (recovery of) provision for loan
                  losses
              
              
              4,399
              
              
              3,438
              
              
              8,746
              
              
              6,796Non-interest
                  income:Banking
                  fees and service charges
              
              
              452
              
              
              348
              
              
              1,065
              
              
              865Net
                  gain on sale of loans held-for-sale
              
              
              —
              
              
              13
              
              
              12
              
              
              39Other
              
              
              147
              
              
              185
              
              
              307
              
              
              351Total
                  non-interest income
              
              
              599
              
              
              546
              
              
              1,384
              
              
              1,255Non-interest
                  expense:Compensation
                  and fringe benefits
              
              
              4,815
              
              
              1,529
              
              
              6,359
              
              
              3,039Occupancy
                  and equipment
              
              
              268
              
              
              315
              
              
              542
              
              
              599Professional
                  fees
              
              
              149
              
              
              115
              
              
              258
              
              
              186Data
                  processing fees
              
              
              171
              
              
              160
              
              
              335
              
              
              325Other
              
              
              319
              
              
              225
              
              
              626
              
              
              454Total
                  non-interest expense
              
              
              5,722
              
              
              2,344
              
              
              8,120
              
              
              4,603(Loss)
                  income before income tax (benefit) expense
              
              
              (724
              )
              
              1,640
              
              
              2,010
              
              
              3,448Income
                  tax (benefit) expense
              
              
              (407
              )
              
              615
              
              
              639
              
              
              1,294Net
                  (loss) income
              
              $
              (317
              )
              $
              1,025
              
              $
              1,371
              
              $
              2,154(Loss)
                  earnings per common share:Basic
              
              $
              (0.02
              )
              $
              0.08
              
              $
              0.10
              
              $
              0.17Diluted
              
              $
              (0.02
              )
              $
              0.08
              
              $
              0.10
              
              $
              0.17Average
                  common shares outstanding:Basic
              
              
              13,083,941
              
              
              12,927,482
              
              
              13,086,165
              
              
              12,925,320Diluted
              
              
              13,083,941
              
              
              12,927,482
              
              
              13,802,232
              
              
              12,925,320
 
 See
        accompanying notes to consolidated financial statements.
 
 2
  **BROOKLYN
        FEDERAL BANCORP, INC. AND SUBSIDIARY**
 **CONSOLIDATED
        STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY**
 **Six
        Months Ended March 31, 2007 and 2006**
 **(In
        thousands)**
 **(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**
              
              **Total****Balance
                  September 30, 2005**
              
              $
              132
              
              $
              37,773
              
              $
              40,388
              
              $
              —
              
              $
              (3,038
              )
              $
              —
              
              $
              (46
              )
              $
              75,209Comprehensive
                  income:Net
                  income
              
              
              —
              
              
              —
              
              
              2,154
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              2,154Net
                  unrealized loss on securities available-for-sale
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (7
              )
              
              (7
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,147Allocation
                  of ESOP stock
              
              
              —
              
              
              10
              
              
              —
              
              
              —
              
              
              89
              
              
              —
              
              
              —
              
              
              99**Balance
                  March 31, 2006**
              
              $
              132
              
              $
              37,783
              
              $
              42,542
              
              $
              —
              
              $
              (2,949
              )
              $
              —
              
              $
              (53
              )
              $
              77,455**Balance
                  September 30, 2006**
              
              $
              132
              
              $
              37,799
              
              $
              44,946
              
              $
              —
              
              $
              (2,870
              )
              $
              —
              
              $
              (44
              )
              $
              79,963Comprehensive
                  income:Net
                  income
              
              
              —
              
              
              —
              
              
              1,371
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,371Net
                  unrealized loss on securities available-for-sale
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (6
              )
              
              (6
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,365Treasury
                  stock purchased
              
              
              —
              
              
              —
              
              
              —
              
              
              (312
              )
              
              —
              
              
              —
              
              
              —
              
              
              (312
              )Allocation
                  of ESOP stock
              
              
              
              
              
              26
              
              
              
              
              
              
              
              
              80
              
              
              
              
              
              
              
              
              106Stock-based
                  incentive plan expense
              
              
              2
              
              
              4,113
              
              
              
              
              
              
              
              
              
              
              
              (905
              )
              
              
              
              
              3,210Dividends
                  paid on common stock, $0.03 per share
              
              
              —
              
              
              —
              
              
              (125
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (125
              )**Balance
                  March 31, 2007**
              
              $
              134
              
              $
              41,938
              
              $
              46,192
              
              $
              (312
              )
              $
              (2,790
              )
              $
              (905
              )
              $
              (50
              )
              $
              84,207
 
 See
        accompanying notes to consolidated financial statements.
 
 3
 
  **BROOKLYN
        FEDERAL BANCORP, INC. AND SUBSIDIARY**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **For
        the Six Months Ended March 31, 2007 and 2006**
 **(In
        thousands)**
 **(Unaudited)**
  **For
                  the Six Months Ended**
                **March
                  31,****2007**
              
              **2006****Cash
                  flows from operating activities:**Net
                  income
              
              $
              1,371
              
              $
              2,154Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:ESOP
                  expense
              
              
              106
              
              
              99Stock-based
                  incentive plan
              
              
              3,210
              
              
              —Depreciation
                  and amortization
              
              
              156
              
              
              189Provision
                  for loan losses
              
              
              4
              
              
              115Income
                  from bank-owned life insurance
              
              
              (170
              )
              
              (148
              )Increase
                  in deferred loan fees, net
              
              
              (322
              )
              
              (262
              )Amortization
                  of premiums, net of accretion of discounts
              
              
              7
              
              
              34Accretion
                  of discount on certificates of deposit
              
              
              (2
              )
              
              (1
              )Originations
                  of loans held-for-sale
              
              
              (17,318
              )
              
              (20,436
              )Proceeds
                  from sales of loans held-for-sale
              
              
              257
              
              
              5,380Principal
                  repayments on loans held-for-sale
              
              
              18,416
              
              
              10Net
                  gain on sales of loans held-for-sale
              
              
              (12
              )
              
              (39
              )Increase
                  in accrued interest receivable
              
              
              (207
              )
              
              (218
              )Deferred
                  income tax benefit
              
              
              (1,454
              )
              
              (81
              )Decrease
                  in prepaid expenses and other assets
              
              
              256
              
              
              244Decrease
                  in accrued expenses and other liabilities
              
              
              (563
              )
              
              (783
              )Net
                  cash provided by (used in) operating activities
              
              
              3,735
              
              
              (13,743
              )**Cash
                  flows from investing activities:**Repayments
                  in excess of loan originations
              
              
              6,875
              
              
              5,284Purchase
                  of loans receivable
              
              
              —
              
              
              (3,000
              )Principal
                  repayments on mortgage-backed securities held-to-maturity
              
              
              9,293
              
              
              16,128Purchases
                  of mortgage-backed securities held-to-maturity
              
              
              (5,950
              )
              
              (18,746
              )Maturities
                  and principal pay downs of other securities
                  held-to-maturity
              
              
              1
              
              
              396Purchases
                  of securities available-for-sale
              
              
              (117
              )
              
              (89
              )Purchases
                  of certificates of deposit
              
              
              —
              
              
              (2,286
              )Maturities
                  of certificates of deposit
              
              
              1,784
              
              
              3,393Redemption
                  of FHLB of New York stock
              
              
              1,426
              
              
              98Purchases
                  of bank-owned life insurance
              
              
              (15
              )
              
              (15
              )Purchases
                  of premises and equipment
              
              
              (37
              )
              
              (10
              )Net
                  cash provided by investing activities
              
              
              13,260
              
              
              1,153**Cash
                  flows from financing activities:**Increase
                  in deposits
              
              
              18,630
              
              
              17,325Net
                  decrease in overnight FHLB advances
              
              
              (35,300
              )
              
              —Proceeds
                  from FHLB of New York term advances
              
              
              25,000
              
              
              2,000Repayments
                  of FHLB of New York term advances
              
              
              (21,386
              )
              
              (1,250
              )Increase
                  (decrease) in advance payments by borrowers for taxes and
                  insurance
              
              
              146
              
              
              (21
              )Purchase
                  of treasury stock
              
              
              (312
              )
              
              —Payment
                  of cash dividend
              
              
              (125
              )
              
              —Net
                  cash (used in) provided by financing activities
              
              
              (13,347
              )
              
              18,054Net
                  increase in cash and cash equivalents
              
              
              3,648
              
              
              5,464Cash
                  and cash equivalents at beginning of year
              
              
              4,078
              
              
              8,384Cash
                  and cash equivalents at end of period
              
              $
              7,726
              
              $
              13,848**Supplemental
                  disclosure of cash flow information:**Cash
                  paid during the period for:Interest
              
              $
              5,452
              
              $
              3,205Taxes
              
              
              1,805
              
              
              1,315Other:Mortgage
                  loans held-to-maturity transferred to held-for-sale
              
              
              —
              
              
              1,524Mortgage
                  loans held-for-sale transferred to held-to-maturity
              
              
              8,257
              
              
              658
 See
        accompanying notes to consolidated financial statements.
 
 4
  **BROOKLYN
        FEDERAL BANCORP, INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        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 and six-month periods ended March 31, 2007 are not necessarily
        indicative of the results that may be expected for the year ending
        September 30, 2007. The Company’s consolidated financial statements, as
        presented in the Company’s Form 10-K for the year ended September 30, 2006,
        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
        December 2004, the Financial Accounting Standards Board (the “FASB”) issued
        Statement of Accounting Standard (“SFAS”) SFAS No. 123 (revised 2004),
“Share-Based payment.” This statement revised the original guidance contained in SFAS No. 123 and supersedes Accounting Principles Board (“APB”)
        Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related
        implementation guidance. Under SFAS No. 123 (revised 2004), an entity such
        as
        the Company will be required to measure the cost of employee services received
        in exchange for any award of equity instruments made after June 30, 2006,
        based
        on the grant-date fair value of the award (with limited exceptions) and
        recognize such cost over the period during which an employee is required
        to
        provide service in exchange for the award (usually the vesting period). For
        stock options and similar instruments, grant-date fair value will be estimated
        using option-pricing models adjusted for the unique characteristics of
        instruments (unless observable market prices for the same or similar instruments
        are available). On January 16, 2007 the Board of Directors granted 552,500
        options of the 648,025 options available and granted 221,000 shares of
        restricted stock of the 259,210 available shares of restricted stock, in
        accordance with the terms of the Brooklyn Federal Bancorp, Inc. 2006
        Stock-
 5
 Based
        Incentive Plan, which was approved by the Company’s shareholders at the April
        11, 2006 annual meeting of stockholders. During the quarter ending March
        31,
        2007, 10,050 of granted options and 4,000 of granted restricted stock were
        forfeited due to a resignation. The Company expensed, during the quarter
        ending
        March 31, 2007, the entire fair value of 365,000 options and 146,000 shares
        of
        restricted stock due to the provision in the 2006 Stock-Based Incentive Plan
        that accelerates the vesting of options and shares of restricted stock upon
        termination of service following retirement age (as defined in the
        plan).
  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. We are currently evaluating
        the
        impact of adopting FIN 48 on our financial statements.
  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.
  In
        September 2006, the FASB issued SFAS No. 158, *Employers’
        Accounting for Defined Benefit Pension and Other Postretirement
        Plans* ,
        which
        amends SFAS No. 87 and SFAS No. 106 to require recognition of the over funded
        or
        under funded status of pension and other postretirement benefit plans on
        the
        balance sheet. Under SFAS No. 158, gains and losses, prior service costs
        and
        credits, and any remaining transition amounts under SFAS No. 87 and SFAS
        No. 106
        that have not yet been recognized through net periodic benefit cost will
        be
        recognized in accumulated other comprehensive income, net of tax effects,
        until
        they are amortized as a component of net periodic cost. The measurement date
—
the date at which the benefit obligation and plan assets are measured — is
        required to be the company’s fiscal year end. SFAS No. 158 is effective for
        publicly held companies for fiscal years ending after December 15, 2006,
        except for the measurement date provisions, which are effective for fiscal
        years
        ending after December 15, 2008. The Company is currently analyzing the
        effects of SFAS No. 158 but does not expect its implementation will have
        a
        significant impact on the Company’s financial condition or results of
        operations.
  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 policy holder 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. The disclosures are required in
          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
  6
 
  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 does not expect it to have a material impact on the Company’s
          consolidated financial statements.
 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.
 
 **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
  7
 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.
  **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.
  
 
 8
 
  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.
 
 ***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
 
 9
 
  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. We
                  have invested in a new loan servicing system and additional personnel
                  to
                  allow us to service these types of loans more
                  efficiently.·
              *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.·
              *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
  10
  the
                  recent period of leveling short-term interest rates, we have been
                  able to
                  maintain a market level of interest income on our short-term liquid
                  assets, while still reducing security investments and redeploying
                  those
                  funds 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 March 31, 2007, $7.7 million, or 1.9% of our assets,
                  was
                  invested in cash and due from banks, and $5.5 million, or 1.4%
                  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.·
              *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 March 31, 2007 and September 30,
        2006**
  ***Total
        Assets.*** Total
        assets decreased by $9.2 million, or 2.3%, to $398.8 million at March 31,
        2007,
        from $408.0 million at September 30, 2006. This decrease was primarily due
        to
        decreases in certificate of deposit investments, securities held-to-maturity,
        loans held-for-sale and Federal Home Loan Bank of New York (“FHLB”) stock,
        offset primarily by increases in cash and due from banks, loans receivable,
        net
        and other assets.
  ***Cash
        and Due from Banks.*** Cash
        and
        due from banks increased $3.6 million, or 89.5%, to $7.7 million at March
        31,
        2007, from $4.1 million at September 30, 2006.
  ***Investment
        in Certificates of Deposit.*** Certificates of deposit decreased $1.8 million, or 24.9%, to $5.4 million
        at
        March 31, 2007, from $7.2 million at September 30, 2006. The decrease in
        these
        short-term investments was primarily due to certificate maturities.
  ***Securities.*** Securities
        investments, which represent securities available-for-sale and securities
        held-to-maturity, decreased $3.2 million, or 3.5%, to $88.1 million at
        March 31, 2007, from $91.4 million at September 30, 2006. This decrease was
        primarily due to repayments in mortgage-backed securities of $9.3 million,
        offset in part by purchases of mortgage-backed securities of $6.0 million
        and an
        increase in securities available-for-sale of approximately
        $100,000.
  ***Net
        Loans.*** Net
        loans before allowance for loan losses which includes loans held-for-sale,
        decreased $7.9 million, or 2.7%, to $280.5 million at March 31, 2007, from
        $288.4 million at September 30, 2006, primarily due to decreases of $11.8
        million in multi-family loans, $6.1 million in land loans and $2.0 million
        in
        construction loans, offset in part by increases of $9.2 million in commercial
        real estate loans, $2.4 million in one-to four-family loans and $244,000
        in
        consumer and other loans. Net deferred fees/costs decreased approximately
        $166,000.
  11
 At
        March
        31, 2007, loans receivable in non-accrual status were approximately $115,000.
        The non-accrual loan at March 31, 2007 is secured by a multi-family apartment
        building and the Bank has established a specific loss allowance for this
        loan
        totaling $115,000 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 borrower, during the quarter ended March 31, 2007, had finished all
        necessary repairs to the structure and has since rented approximately 83%
        of the
        apartments and is current with all contractual payments to the Company.
 
 The
        Company has five loans totaling $6.7 million classified special mention at
        March
        31, 2007. These loans are comprised of three construction loans totaling
        approximately $1.7 million and two commercial real estate mortgage loans
        totaling approximately $5.0 million. Two construction loans totaling
        approximately $1.3 million are to one borrower and classified special mention
        due to the slow progress of construction. The other construction loan of
        approximately $400,000 is classified special mention due to being past maturity.
        All three-construction loans are current in their interest payments. One
        commercial real estate mortgage loan for $1.6 million is past maturity and
        considered non-performing and the foreclosure process is proceeding. The
        Bank
        does not expect a loss on this non-performing loan. The other commercial
        real
        estate mortgage loan totaling approximately $3.4 million is classified special
        mention due to being past maturity. This loan is current with interest
        payments.
 
 ***Federal
        Home Loan Bank of New York Stock.*** FHLB
        of
        New York stock decreased $1.4 million, or 51.3%, to $1.4 million at March
        31,
        2007, from $2.8 million at September 30, 2006. This decrease was primarily
        due
        to a decreased balance in FHLB borrowings, which triggered a sale of FHLB
        stock.
  ***Prepaid
        Expenses and Other Assets.*** Prepaid
        expenses and other assets including bank-owned life insurance increased $1.4
        million, or 10.8%, to $14.2 million at March 31, 2007, from $12.8 million
        at
        September 30, 2006. This increase was mainly due to increases in miscellaneous
        other assets of approximately $1.2 million, which includes an increase in
        deferred tax assets of approximately $1.5 million, offset in part by a decrease
        in other miscellaneous assets of approximately $300,000. Bank-owned life
        insurance also increased $185,000. ******
  ***Deposits.*** Deposits
        increased by $18.6 million, or 6.9%, to $289.6 million at March 31, 2007,
        from
        $271.0 million at September 30, 2006. 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 $31.7 million, or 64.1%,
        to
        $17.7 million at March 31, 2007, from $49.4 million at September 30, 2006.
        The
        primary reasons for the decrease were the utilization of funds received during
        the period, due to a deposit flow increase, payments received on securities
        held-to-maturity and repayments on the mortgage portfolio.
  12
 ***Accrued
        Expenses and Other Liabilities.*** Accrued
        expenses and other liabilities decreased $563,000, or 10.2%, to $5.0 million
        at
        March 31, 2007, from $5.5 million at September 30, 2006. This decrease was
        primarily due to decreases in income taxes payable of $413,000, other accrued
        expenses of $283,000 and other payables of $58,000, offset in part by an
        increase in Supplemental Executive Retirement Plan (“SERP”) liability of
        $191,000.
  ***Stockholders’
        Equity.*** Stockholders’
        equity increased by $4.2 million, or 5.3%, to $84.2 million at March 31,
        2007, from $80.0 million at September 30, 2006. The primary reasons for the
        increase is the implementation of the stock-based incentive plan and the
        result
        of net income for the period, offset in part by purchases made of approximately
        $312,000 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.
 
 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 March 31,
        2007,
        $7.7 million or 1.9% of the Company’s assets is 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 March 31, 2007 investments in
        certificates of deposit and short-term investment securities (maturing in
        less
        than three years) totaled $5.5 million or 1.4% of the Company’s assets. As of
        March 31, 2007, the Company had $17.7 million in borrowings outstanding from
        the
        FHLB of New York and access to additional FHLB of New York advances.
 
 At
        March
        31, 2007, the Company had approximately $77.0 million in loan commitments
        outstanding, which included $13.1 million in undisbursed construction loans,
        $5.2 million in one- to four-family loans, $1.1 million in unused home equity
        lines of credit, $1.6 million in commercial real estate lines of credit and
        $56.0 million to originate multi-family and
 
 13
 
  nonresidential
          mortgage loans. Certificates of
          deposit due within one year of March 31, 2007 totaled $128.2 million, or
          77.6%
          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 March 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.
 The
        following table sets forth the Bank’s capital position at March 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)
              
              $
              68,054
              
              
              24.0
              %
              $
              22,708
              
              
              8.0
              %
              $
              23,385
              
              
              10.0
              %Tier
                  1 risk-based capital(To
                  risk-weighted assets)
              
              
              66,407
              
              
              23.4
              
              
              11,354
              
              
              4.0
              
              
              17,031
              
              
              6.0Tangible
                  capital(To
                  tangible assets)
              
              
              66,407
              
              
              16.8
              
              
              5,944
              
              
              1.5
              
              
              N/A
              
              
              N/ATier
                  1 leverage (core) capital(To
                  adjusted tangible assets)
              
              
              66,407
              
              
              16.8
              
              
              11,889
              
              
              3.0
              
              
              19,815
              
              
              5.0
 
 **Contractual
        Obligations and Off-Balance Sheet Arrangements**
 
 The
        following tables set forth the Bank’s contractual obligations and commercial
        commitments at March 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
              
              $
              17,721
              
              $
              12,532
              
              $
              4,389
              
              $
              600
              
              $
              200Certificates
                  of Deposit
              
              
              165,197
              
              
              128,219
              
              
              25,787
              
              
              11,191
              
              
              -Lease
                  obligations
              
              
              4,645
              
              
              402
              
              
              931
              
              
              825
              
              
              2,487Total
              
              $
              187,563
              
              $
              141,153
              
              $
              31,107
              
              $
              12,616
              
              $
              2,687
 
 14
 
 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
              
              $
              57,656
              
              $
              57,656
              
              $
              -
              
              $
              -
              
              $
              -Unused
                  lines of credit
              
              
              19,331
              
              
              19,331
              
              
              -
              
              
              -
              
              
              -Total
              
              $
              76,987
              
              $
              76,987
              
              $
              -
              
              $
              -
              
              $
              -
 
 
 **Comparison
        of Operating Results for the Three Months Ended March 31, 2007 and
        2006**
  ***Net
        Income.*** Net
        income decreased $1.3 million, or 130.9%, to a loss of $317,000 for the three
        months ended March 31, 2007, from net income of $1.0 million for the three
        months ended March 31, 2006. The primary reasons for the decrease were a
        $3.4
        million increase in non-interest expense and a $949,000 increase in interest
        expense, offset in part by increases in interest income of $1.8 million,
        non-interest income of $53,000 and decreases in income taxes of $1.0 million
        and
        loan loss provision of $141,000.
  ***Net
        Interest Income Before Provision for Loan Losses.*** Net
        interest income before provision for loan losses increased by $820,000, or
        23.0%, to $4.4 million for the three months ended March 31, 2007, from
        $3.6 million for the three months ended March 31, 2006. The increase in net
        interest income resulted primarily from an increase in the average balance
        of
        interest-earning assets of $42.8 million and a 18 basis point increase in
        the
        Bank’s net interest rate spread to 3.70% for the three months ended March 31,
        2007, from 3.52% for the three months ended March 31, 2006. The Bank’s net
        interest margin increased 39 basis points to 4.56% in the three months ended
        March 31, 2007 compared to 4.17% for the three months ended March 31,
        2006.
  ***Interest
        Income.*** Interest
        income increased $1.7 million, or 33.5%, to $7.0 million for the three
        months ended March 31, 2007, from $5.3 million for the three months ended
        March 31, 2006. Interest income on loans increased by $2.0 million, or 47.3%,
        to
        $6.0 million for the three months ended March 31, 2007, from
        $4.0 million for the three months ended March 31, 2006. The primary reasons
        for the increase in interest income on loans were a $1.6 million increase
        in
        multi-family and commercial real estate loan income, $274,000 in construction
        loan income and $55,000 in one- to four-family and other loan income. The
        average balance of the loan portfolio increased by $71.7 million, or 33.4%,
        to
        $286.6 million for the three months ended March 31, 2007, from $214.9 million
        for the three months ended March 31, 2006. The average yield on loans increased
        78 basis points to 8.32% for the three months ended March 31, 2007, from
        7.54%
        for the three months ended March 31, 2006. Interest income on investment
        securities and other interest-earning assets decreased by $145,000, or 11.8%,
        to
        $1.1 million for the three months ended March 31, 2007, from $1.2
        million for the three months ended March 31, 2006. The decrease in interest
        income on investment securities and other interest-earning assets was primarily
        due to a reduction in the average balance of $28.9 million, or 22.7%, to
        $98.4
        million at March 31, 2007 from $127.3 million at March 31, 2006, offset by
        an
        increase of 54 basis points in the average yield to 4.40% for the quarter
        ended
        March 31, 2007, compared to the average yield of 3.86% for the quarter ended
        March 31, 2006.
  15
 ***Interest
        Expense.*** Interest
        expense increased $949,000, or 55.5%, to $2.7 million for the three months
        ended
        March 31, 2007, from $1.7 million for the three months ended March 31,
        2006. Interest expense on deposits increased $657,000, or 40.5%, to $2.3
        million
        at March 31, 2007, from $1.6 million at March 31, 2006. Interest expense
        on FHLB
        of New York borrowings increased $292,000, or 335.6%, to $379,000 at March
        31,
        2007, from $87,000 at March 31, 2006. The increase was primarily the result
        of
        increases in the average balances of interest-bearing deposits of $14.9 million
        and FHLB of New York borrowings of $21.2 million. In addition, the average
        cost
        of the interest-bearing liabilities increased 97 basis points to 3.62% for
        the
        three months ended March 31, 2007, from 2.65% for the three months ended
        March
        31, 2006.
  ***Provision
        for Loan Losses.*** The
        Bank’s provision for loan losses decreased $141,000, to a recovery of $13,000
        for the three months ended March 31, 2007, from a provision of $128,000 for
        the
        three months ended March 31, 2006. The primary reason for this decrease was
        pay
        offs of higher risk loans, offset by increases in lower risk loans. The
        allowance for loan losses as of March 31, 2007 represented 0.63% of total
        loans,
        compared to 0.66% of total loans as of March 31, 2006.
  ***Non-interest
        Income.*** Non-interest income increased by $53,000, or 9.7%, to $599,000 for the three
        months ended March 31, 2007, from $546,000 for the three months ended March
        31,
        2006. The increase was primarily due to increases in loan fees of $112,000,
        bank
        owned life insurance income of $3,000, offset in part by decreases in net
        gain
        on sale of loans held-for-sale of $13,000, deposit related fees of $8,000
        and
        other miscellaneous income of $41,000.
  ***Non-interest
        Expense.*** Non-interest expense increased by $3.4 million, or 144.1%, to $5.7 million
        for the three months ended March 31, 2007, from $2.3 million for the three
        months ended March 31, 2006. The increase resulted from increases of $3.3
        million in compensation and fringe benefits, which included a $3.2 million
        expense for the vesting charges of the Company’s stock-based incentive plan and
        other increased expenses of $109,000 for compensation, $38,000 for other
        miscellaneous employee costs and $6,000 for the pension and ESOP, offset
        in part
        by an expense decrease of $75,000 for the supplemental executive retirement
        plan. The Company also experienced increased costs in professional fees of
        $34,000, data processing service bureau expense of $11,000 and other expenses
        of
        $94,000, which include advertising, office supplies, printing, and insurance,
        offset by a decrease of $47,000 for occupancy and equipment expense.
  ***Income
          Taxes.***Income tax expense decreased $1.0 million, or 166.2%, to
          a
          benefit of $407,000 for the three months ended March 31, 2007, from a provision
          of $615,000 for the three months ended March 31, 2006. The primary reason
          for
          the decrease in the second fiscal quarter 2007 was the recorded loss of
          $724,000
          before the benefit of taxes. The effective tax rate for the three months
          ended
          March 31, 2007 was 56.2%. The effective tax rate for the three months ended
          March 31, 2006 was 37.5%.
 **Comparison
        of Operating Results for the Six Months Ended March 31, 2007 and
        2006**
  ***Net
        Income.*** Net
        income decreased $783,000, or 36.4%, to $1.4 million for the six months ended
        March 31, 2007, from $2.2 million for the six months ended March 31, 2006.
        The
        primary reasons for the decrease were increases of $2.2 million in interest
        expense and $3.5 million in non-interest expense, offset in part by increases
        of
        $4.0 million in interest income, $129,000 in non-interest income and decreases
        in provision for loan losses of $111,000 and provision for taxes of
        $655,000.
  16
 ***Net
        Interest Income Before Provision for Loan Losses.*** Net
        interest income before provision for loan losses increased by $1.8 million,
        or
        26.6%, to $8.8 million for the six months ended March 31, 2007, from
        $6.9 million for the six months ended March 31, 2006. The increase in net
        interest income resulted primarily from an increase in the average balance
        of
        interest-earning assets of $50.2 million and a 19 basis point increase in
        the
        Bank’s net interest rate spread to 3.64% for the six months ended March 31,
        2007, from 3.45% for the six months ended March 31, 2006. The Bank’s net
        interest margin increased 42 basis points to 4.49% in the six months ended
        March
        31, 2007 compared to 4.07% for the six months ended March 31, 2006.
  ***Interest
        Income.*** Interest
        income increased $4.0 million, or 39.8%, to $14.2 million for the six
        months ended March 31, 2007, from $10.2 million for the six months ended
        March 31, 2006. Interest income on loans increased by $4.3 million, or 55.2%,
        to
        $12.0 million for the six months ended March 31, 2007, from
        $7.7 million for the six months ended March 31, 2006. The primary reasons
        for the increase in interest income on loans were increases of $3.4 million
        in
        multi-family and commercial real estate loan income, $742,000 in construction
        loan income and $114,000 in one- to four-family and other loan income. The
        average balance of the loan portfolio increased by $79.1 million, or 37.6%,
        to
        $289.4 million for the six months ended March 31, 2007, from $210.3 million
        for
        the six months ended March 31, 2006. The average yield on loans increased
        94
        basis points to 8.31% for the six months ended March 31, 2007, from 7.37%
        for
        the six months ended March 31, 2006. Interest income on investment securities
        and other interest-earning assets decreased by $239,000, or 10.0%, to
        $2.2 million for the six months ended March 31, 2007, from $2.4
        million for the six months ended March 31, 2006. The decrease in interest
        income on investment securities and other interest-earning assets was primarily
        due to a reduction in the average balance of $28.9 million, or 22.4%, to
        $100.0
        million at March 31, 2007 from $128.9 at March 31, 2006, offset by an increase
        of 60 basis points in the average yield to 4.33% for the six month period
        ended
        March 31, 2007, compared to the average yield of 3.73% for the period ended
        March 31, 2006.
  ***Interest
        Expense.*** Interest
        expense increased $2.2 million, or 67.8%, to $5.4 million for the six months
        ended March 31, 2007, from $3.2 million for the three months ended March
        31, 2006. Interest expense on deposits increased $1.4 million, or 44.8%,
        to $4.4
        million at March 31, 2007, from $3.0 million at March 31, 2006. Interest
        expense
        on FHLB of New York borrowings increased $824,000, or 479.1%, to $1.0 million
        at
        March 31, 2007, from $172,000 at March 31, 2006. The increase was primarily
        the
        result of increases in the average balances of interest-bearing deposits
        of
        $13.4 million and FHLB of New York borrowings of $29.2 million. In addition,
        the
        average cost of the interest-bearing liabilities increased 111 basis points
        to
        3.65% for the six months ended March 31, 2007, from 2.54% for the six months
        ended March 31, 2006.
  ***Provision
        for Loan Losses.*** The
        Bank’s provision for loan losses decreased $111,000, to $4,000 for the six
        months ended March 31, 2007, or 96.5%, from $115,000 for the six months ended
        March 31, 2006. The primary reason for this decrease was pay offs in higher
        risk
        loans, offset in part by an increase in lower risk loans. The allowance for
        loan
        losses as of March 31, 2007 represented 0.63% of total loans, compared to
        0.66%
        of total loans as of March 31, 2006.
  ***Non-interest
        Income.***Non-interest income increased by $129,000, or 10.3%, to $1.4 million for
        the six
        months ended March 31, 2007, from $1.3 million for the six months ended March
        31, 2006. The increase was primarily due to increases in loan fees of $220,000,
        bank owned life insurance income of $22,000, offset in part by decreases
        in net
        gain on sale of loans
  17
 held-for-sale
        of $27,000, deposit related fees of $20,000 and other miscellaneous income
        of
        $66,000.
  ***Non-interest
        Expense.*** Non-interest expense increased by $3.5 million, or 76.4%, to $8.1 million
        for the six months ended March 31, 2007, from $4.6 million for the six months
        ended March 31, 2006. The increase resulted from increases of $3.3 million
        in
        compensation and fringe benefits, $72,000 in professional fees, $10,000 in
        data
        processing service bureau expense and $172,000 in other expenses which include
        advertising, office supplies, printing, insurance and other operating expenses,
        offset by a reduction in occupancy and equipment expense of $57,000.
  ***Income
        Taxes.*** Income
        tax expense decreased $655,000, or 50.6%, to $639,000 for the six months
        ended
        March 31, 2007, from $1.3 million for the six months ended March 31, 2006.
        The
        primary reason for the decrease for the six months ended March 31, 2007 was
        a
        decrease in income before taxes of $1.4 million. The effective tax rate for
        the
        six months ended March 31, 2007 was 31.8%. The effective tax rate for the
        six
        months ended March 31, 2006 was 37.5%.
  **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 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
 18
 
  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,
          2006.
 **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 March 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.
  **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, 2006 as filed with the SEC on
        December 29, 2006.
  **ITEM
                  2.**
              **UNREGISTERED
                  SALES OF EQUITY SECURITIES AND USE OF
                  PROCEEDS**
  (c)  The
        Company repurchased Common Stock in the quarter ending March 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. Stock repurchases will be made from time to time
        and may
        be effected through open market purchases, block trades and in privately
        negotiated transactions. Repurchased stock will be held as treasury stock
        and
        will be available for general corporate purposes. As of March 31, 2007, 22,000
        shares have been repurchased with repurchases in the quarter described in
        the
        following table:
 
 19
 
 **Company
                  Purchases of Common Stock****Period**
              
              **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
                  programs**January
                  1, 2007 through January 31, 2007
              
              
              _
              
              
              N/A
              
              
              N/A
              
              $
              1.5
                  millionFebruary
                  1, 2007 through February 28, 2007
              
              
              11,400
              
              $
              14.22
              
              
              11,400
              
              $
              1.3
                  millionMarch
                  1, 2007 through March 31, 2007
              
              
              10,600
              
              $
              14.12
              
              
              22,000
              
              $
              1.2
                  million
 
  **ITEM
                  3.**
              **DEFAULTS
                  UPON SENIOR SECURITIES**
  None.
  **ITEM
                  4.**
              **SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY
                  HOLDERS**
  The
        Annual Meeting of Stockholders was held on February 20, 2007. The matters
        considered and voted on by the Company’s stockholders at the annual meeting and
        the vote of the stockholders were as follows:
  **Matter
        1.** The
        election of directors, each for a three-year term.
 
 **NAME**
              
              FOR
              
              %
              
              WITHHOLD
              
              %John
                  A. Loconsolo
              
              12,540,594
              
              99.4
              
              69,647
              
              0.6Salvatore
                  M. Salibello
              
              12,541,974
              
              99.5
              
              68,267
              
              0.5
  Directors Daniel
        O.
        Reich, John C. Gallin, Angelo J. Di Lorenzo and Vincent E. Caccese continued
        in
        their respective terms of office following the Annual Meeting of
        Stockholders.
 
 **Matter
        2** .
        The
        ratification of the appointment of Beard Miller Company LLP as the independent
        auditors of the Company for the fiscal year ending September 30, 2007.
  FOR
              
              %
              
              AGAINST
              
              %
              
              ABSTAIN
              
              %12,571,261
              
              99.7
              
              27,863
              
              0.2
              
              11,117
              
              0.1
  20
  **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
 
  **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:
                  May 14, 2007
              
              /s/
                  Angelo J. Di LorenzoAngelo
                  J. Di LorenzoPresident
                  and Chief Executive OfficerDate:
                  May 14, 2007
              
              /s/
                  Richard A. KieltyRichard
                  A. KieltyExecutive
                  Vice President andChief
                  Financial Officer




22