UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)


OF
THE SECURITIES EXCHANGE ACT OF 1934




For
the quarterly period ended June 30, 2009




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 ofincorporation or
      organization)
                                    (I.R.S.
      EmployerIdentification
Number)
  81
      Court Street, Brooklyn, New York
                                    11201(Address
      of principal executive offices)
                                    (Zip
      Code)




Registrant’s
telephone number, including area code (718) 855-8500.




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


YES   x    NO     o




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


YES   o    NO     o




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


Large
      Accelerated Filer
              o
              
              Accelerated
      Filer
              oNon-accelerated
      Filer
              o
              
              Smaller
      Reporting Company
              x




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


YES   o    NO     x




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the last practicable date.




Common
      Stock, $.01 Par
      Value
                                                    12,890,754Class
                                                    Outstanding
      at August 12,
2009









BROOKLYN
FEDERAL BANCORP, INC.




Form
10-Q Quarterly Report




Table
of Contents





PART I – FINANCIAL
      INFORMATION
                  1Item
      1.
                  Financial
      Statements
                  1Consolidated
      Statements of Financial Condition
                  1Consolidated
      Statements of Income
                  2Consolidated
      Statements of Changes in Stockholder’s Equity
                  3Consolidated
      Statements of Cash Flows
                  4Notes to Consolidated
      Financial Statements
                  5Item
      2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  15Forward-Looking
      Statements
                  15General
                  16Critical Accounting
      Policies
                  16Business
      Strategy
                  18Comparison of
      Financial Condition at June 30, 2009 and September 30,
      2008
                  19Analysis of
      Earnings
                  22Comparison of
      Operating Results for the Three Months Ended June 30, 2009 and
      2008
                  25Comparison of
      Operating Results for the Nine Months ended June 30, 2009 and
      2008
                  26Item
      3.
                  Quantitative and
      Qualitative Disclosures About Market Risk
                  28Item
      4T.
                  Controls and
      Procedures
                  28PART II
      -
                  OTHER
      INFORMATION
                  29Item
      1.
                  Legal
      Proceedings
                  29Item
      1A.
                  Risk
      Factors
                  29Item
      2.
                  Unregistered Sales of
      Equity Securities and Use of Proceeds
                  30Item
      3.
                  Default upon Senior
      Securities
                  30Item
      4.
                  Submission of Matters
      to a Vote of Security Holders
                  30Item
      5.
                  Other
      Information
                  30Item
      6.
                  Exhibits
                  31SIGNATURES
                  32









PART I –
FINANCIAL INFORMATION




Item 1. Financial Statements




Brooklyn
Federal Bancorp, Inc. and Subsidiary


Consolidated Statements of Financial Condition


(In
thousands, except per share amounts and share data)


(Unaudited)





June
      30,
                      2009
                    
                    
                    September
      30,
                      2008AssetsCash
      and due from banks (including interest-earning balances of $3,821 and
      $3,134, respectively)
                    
                    $
                    5,025
                    
                    
                    $
                    5,053Certificates
      of deposit
                    
                    
                    —
                    
                    
                    
                    1,397Securities:Available-for-sale
                    
                    
                    3,293
                    
                    
                    
                    3,655Held-to-maturity
      (estimated fair value of $60,640 and $70,996,
respectively)
                    
                    
                    74,317
                    
                    
                    
                    78,086Total
      securities
                    
                    
                    77,610
                    
                    
                    
                    81,741Loans
      held-for-sale
                    
                    
                    127,389
                    
                    
                    
                    134,171Loans
      receivable
                    
                    
                    295,094
                    
                    
                    
                    241,354Less:
      Allowance for loan losses
                    
                    
                    3,421
                    
                    
                    
                    2,205Loans
      receivable, net
                    
                    
                    291,673
                    
                    
                    
                    239,149Federal
      Home Loan Bank of New York (“FHLB”) stock, at cost
                    
                    
                    2,583
                    
                    
                    
                    2,802Bank
      owned life insurance
                    
                    
                    9,423
                    
                    
                    
                    9,131Accrued
      interest receivable
                    
                    
                    2,890
                    
                    
                    
                    2,477Premises
      and equipment, net
                    
                    
                    2,060
                    
                    
                    
                    2,285Prepaid
      expenses and other assets
                    
                    
                    7,180
                    
                    
                    
                    5,627Total
      assets
                    
                    $
                    525,833
                    
                    
                    $
                    483,833Liabilities
      and Stockholders’ EquityLiabilities:Deposits:Non-interest-bearing
      deposits
                    
                    $
                    19,105
                    
                    
                    $
                    18,773Interest-bearing
      deposits
                    
                    
                    129,381
                    
                    
                    
                    113,303Certificates
      of deposit
                    
                    
                    245,922
                    
                    
                    
                    210,399Total
      deposits
                    
                    
                    394,408
                    
                    
                    
                    342,475Borrowings
                    
                    
                    32,000
                    
                    
                    
                    44,239Advance
      payments by borrowers for taxes and insurance
                    
                    
                    1,384
                    
                    
                    
                    2,389Accrued
      expenses and other liabilities
                    
                    
                    10,692
                    
                    
                    
                    8,407Total
      liabilities
                    
                    
                    438,484
                    
                    
                    
                    397,510Stockholders’
      equity:Preferred
      stock, $0.01 par value, 1,000,000 shares authorized; none
      issued
                    
                    
                    —
                    
                    
                    
                    —Common
      stock, $0.01 par value, 20,000,000 shares authorized; 13,484,210 issued
      and 12,891,654 and 13,000,081 outstanding, respectively
                    
                    
                    135
                    
                    
                    
                    135Additional
      paid-in capital
                    
                    
                    43,068
                    
                    
                    
                    42,939Retained
      earnings - substantially restricted
                    
                    
                    55,900
                    
                    
                    
                    52,839Treasury
      shares - at cost, 592,556 shares and 484,129 shares,
      respectively
                    
                    
                    (7,698
                    )
                    
                    
                    (6,443
                    )Unallocated
      common stock held by employee stock ownership plan
(“ESOP”)
                    
                    
                    (2,433
                    )
                    
                    
                    (2,552
                    )Unallocated
      shares of the stock-based incentive plan
                    
                    
                    (461
                    )
                    
                    
                    (595
                    )Accumulated
      other comprehensive loss:Net
      unrealized loss on securities, net of income tax
                    
                    
                    (1,162
                    )
                    
                    
                    —Total
      stockholders’ equity
                    
                    
                    87,349
                    
                    
                    
                    86,323Total
      liabilities and stockholders’ equity
                    
                    $
                    525,833
                    
                    
                    $
                    483,833




See
accompanying notes to consolidated financial statements.


1




Brooklyn
Federal Bancorp, Inc. and Subsidiary


Consolidated Statements of Income


(In
thousands, except per share amounts and share data)


(Unaudited)


For
      the Three Months Ended
                  June
      30,
                
                
                For
      the Nine Months Ended
                  June
      30,2009
                
                
                2008
                
                
                2009
                
                
                2008Interest
      income:First
      mortgage and other loans
                
                $
                7,800
                
                
                $
                6,034
                
                
                $
                22,380
                
                
                $
                17,575Mortgage-backed
      securities
                
                
                924
                
                
                
                871
                
                
                
                2,796
                
                
                
                2,530Other
      securities and interest-earning assets
                
                
                96
                
                
                
                117
                
                
                
                246
                
                
                
                450Total
      interest income
                
                
                8,820
                
                
                
                7,022
                
                
                
                25,422
                
                
                
                20,555Interest
      expense:Deposits
                
                
                2,313
                
                
                
                2,331
                
                
                
                7,273
                
                
                
                7,248Borrowings
                
                
                64
                
                
                
                134
                
                
                
                281
                
                
                
                438Total
      interest expense
                
                
                2,377
                
                
                
                2,465
                
                
                
                7,554
                
                
                
                7,686Net
      interest income before provision for loan losses
                
                
                6,443
                
                
                
                4,557
                
                
                
                17,868
                
                
                
                12,869Provision
      for loan losses
                
                
                376
                
                
                
                (7
                )
                
                
                1,216
                
                
                
                113Net
      interest income after provision for loan losses
                
                
                6,067
                
                
                
                4,564
                
                
                
                16,652
                
                
                
                12,756Non-interest
      income:Total
      loss on OTTI of securities
                
                
                (2,300
                )
                
                
                (582
                )
                
                
                (3,166
                )
                
                
                (582
                )Less:Non-credit
      portion of OTTI recorded in other comprehensive income (before
      taxes)
                
                
                2,078
                
                
                
                —
                
                
                
                2,078
                
                
                
                —Net
      loss on OTTI recognized in earnings
                
                
                (222
                )
                
                
                (582
                )
                
                
                (1,088
                )
                
                
                (582
                )Banking
      fees and service charges
                
                
                427
                
                
                
                765
                
                
                
                1,053
                
                
                
                1,797Net
      gain on sale of loans held-for-sale
                
                
                92
                
                
                
                53
                
                
                
                222
                
                
                
                276Other
                
                
                161
                
                
                
                404
                
                
                
                459
                
                
                
                714Total
      non-interest income
                
                
                458
                
                
                
                640
                
                
                
                646
                
                
                
                2,205Non-interest
      expense:Compensation
      and fringe benefits
                
                
                2,052
                
                
                
                1,909
                
                
                
                6,727
                
                
                
                5,625Occupancy
      and equipment
                
                
                444
                
                
                
                376
                
                
                
                1,293
                
                
                
                1,052FDIC
      Insurance
                
                
                486
                
                
                
                —
                
                
                
                546
                
                
                
                —Professional
      fees
                
                
                83
                
                
                
                42
                
                
                
                336
                
                
                
                239Data
      processing fees
                
                
                177
                
                
                
                168
                
                
                
                553
                
                
                
                436Other
                
                
                318
                
                
                
                498
                
                
                
                1,040
                
                
                
                1,122Total
      non-interest expense
                
                
                3,560
                
                
                
                2,993
                
                
                
                10,495
                
                
                
                8,474Income
      before income tax expense
                
                
                2,965
                
                
                
                2,211
                
                
                
                6,803
                
                
                
                6,487Income
      tax expense
                
                
                1,226
                
                
                
                773
                
                
                
                2,640
                
                
                
                2,383Net
      income
                
                $
                1,739
                
                
                $
                1,438
                
                
                $
                4,163
                
                
                $
                4,104Earnings
      per common share:Basic
                
                $
                0.14
                
                
                $
                0.11
                
                
                $
                0.33
                
                
                $
                0.32Diluted
                
                $
                0.14
                
                
                $
                0.11
                
                
                $
                0.33
                
                
                $
                0.32Average
      common shares outstanding:Basic
                
                
                12,608,619
                
                
                
                12,880,591
                
                
                
                12,648,701
                
                
                
                12,917,331Diluted
                
                
                12,610,748
                
                
                
                12,881,091
                
                
                
                12,653,142
                
                
                
                12,921,004




See
accompanying notes to consolidated financial statements.


2




Brooklyn
Federal Bancorp, Inc. and Subsidiary


Consolidated Statements of Changes in Stockholders’
Equity


(In
thousands, except per share amounts and share data)


(Unaudited)


Common
                                                                                                                                                                      Stock
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Additional
                                                                                                                                                                      Paid-in
                                                                                                                                                                      Capital
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Retained
                                                                                                                                                                      Earnings-
                                                                                                                                                                      Substantially
                                                                                                                                                                      Restricted
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Treasury
                                                                                                                                                                      Stock
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Unallocated
                                                                                                                                                                      Common
                                                                                                                                                                      Stock
      Held
                                                                                                                                                                      by
      ESOP
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Shares
      of the
                                                                                                                                                                      Stock-based
                                                                                                                                                                      Incentive
                                                                                                                                                                      Plan
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Accumulated
                                                                                                                                                                      Other
                                                                                                                                                                      Comprehensive
                                                                                                                                                                      Income
      (Loss)
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    TotalBalance
      at September 30, 2007
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    135
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    42,758
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    48,379
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (2,468
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (2,711
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (774
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (60
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    85,259Comprehensive
      income:Net
      income
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    4,104
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    4,104Net
      unrealized loss on securities available-for-sale, net of income tax
      benefit of $199
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (281
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (281
                                                                                                                                                                    )Loss
      on impairment of securities available-for- sale, net of income tax benefit
      of $242
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    341
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    341Total
      comprehensive income
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    4,164Treasury
      stock purchased (222,102 shares)
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (2,841
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (2,841
                                                                                                                                                                    )Allocation
      of ESOP stock
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    33
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    5
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    119
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    157Stock-based
      incentive plan expense
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    99
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    4
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    134
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    237Dividends
      paid on common stock, $0.19 per share
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (758
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (758
                                                                                                                                                                    )Balance
      at June 30, 2008
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    135
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    42,890
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    51,734
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (5,309
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (2,592
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (640
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    86,218Balance
      at September 30, 2008
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    135
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    42,939
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    52,839
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (6,443
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (2,552
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (595
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    86,323Comprehensive
      income:Net
      income
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    4,163
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    4,163Net
      unrealized loss on securities available-for-sale, net of income tax
      benefit of $356
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (506
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (506
                                                                                                                                                                    )Loss
      on impairment of securities available-for- sale, net of income tax benefit
      of $358
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    508
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    508Unrealized
      loss on securities held-to-maturity, net of income tax benefit of
      $1,012
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (1,288
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (1,288
                                                                                                                                                                    )Loss
      on impairment of securities held-to-maturity, net of income tax benefit of
      $98
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    124
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    124Total
      comprehensive income
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    3,001Treasury
      stock purchased (108,427 shares)
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (1,255
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (1,255
                                                                                                                                                                    )Allocation
      of ESOP stock
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    28
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    119
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    147Stock-based
      incentive plan expense
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    101
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    134
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    235Dividends
      paid on common stock, $0.30 per share
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (1,102
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    —
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    (1,102
                                                                                                                                                                    )Balance
      at June 30, 2009
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    135
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    43,068
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    55,900
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (7,698
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (2,433
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (461
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (1,162
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    87,349




See
accompanying notes to consolidated financial statements.


3




Brooklyn
Federal Bancorp, Inc. and Subsidiary


Consolidated Statements of Cash Flows


(In
thousands, except per share amounts and share data)


(Unaudited)


For
      the Nine Months Ended
                  June
      30,2009
                
                
                2008Cash
      flows from operating activities:Net
      income
                
                $
                4,163
                
                
                $
                4,104Adjustments
      to reconcile net income to net cash used in operating
      activities:ESOP
      expense
                
                
                147
                
                
                
                152Stock-based
      incentive plan expense
                
                
                235
                
                
                
                233Depreciation
      and amortization
                
                
                339
                
                
                
                196Provision
      for loan losses
                
                
                1,216
                
                
                
                113Income
      from bank-owned life insurance
                
                
                (277
                )
                
                
                (266
                )Gross
      loss on OTTI recognized in earnings
                
                
                1,088
                
                
                
                582Amortization
      of servicing rights
                
                
                147
                
                
                
                124Accretion
      of deferred loan fees, net
                
                
                (299
                )
                
                
                (246
                )Accretion
      of discounts, net of amortization of premiums
                
                
                (100
                )
                
                
                (7
                )Originations
      of loans held-for-sale
                
                
                (76,942
                )
                
                
                (106,609
                )Purchase
      of loans held-for-sale
                
                
                —
                
                
                
                (1,500
                )Proceeds
      from sales of loans held-for-sale
                
                
                12,497
                
                
                
                32,213Principal
      repayments on loans held-for-sale
                
                
                8,501
                
                
                
                20,612Net
      gain on sales of loans held-for-sale
                
                
                (222
                )
                
                
                (276
                )(Increase)
      decrease in accrued interest receivable
                
                
                (413
                )
                
                
                168Deferred
      income tax benefit
                
                
                (1,437
                )
                
                
                (396
                )Decrease
      in prepaid expenses and other assets
                
                
                783
                
                
                
                665Increase
      in accrued expenses and other liabilities
                
                
                2,285
                
                
                
                520Net
      cash used in operating activities
                
                
                (48,289
                )
                
                
                (49,618
                )Cash
      flows from investing activities:Repayments
      in excess of loan originations (loan originations in excess of
      repayments)
                
                
                9,379
                
                
                
                (315
                )Purchase
      of loans receivable
                
                
                —
                
                
                
                (1,336
                )Principal
      repayments on mortgage-backed securities held-to-maturity
                
                
                12,339
                
                
                
                11,370Purchases
      of mortgage-backed securities held-to-maturity
                
                
                (10,770
                )
                
                
                (13,934
                )Maturities
      and principal pay downs of other securities
    held-to-maturity
                
                
                —
                
                
                
                1Purchases
      of securities available-for-sale
                
                
                (500
                )
                
                
                (178
                )Maturities
      of certificates of deposit
                
                
                1,397
                
                
                
                2,493Redemption
      (purchases) of FHLB stock
                
                
                219
                
                
                
                (934
                )Purchases
      of bank-owned life insurance
                
                
                (15
                )
                
                
                (15
                )Proceeds
      from bank-owned life insurance
                
                
                —
                
                
                
                202Purchases
      of premises and equipment
                
                
                (114
                )
                
                
                (1,435
                )Net
      cash provided by (used in) investing activities
                
                
                11,935
                
                
                
                (4,081
                )Cash
      flows from financing activities:Increase
      in deposits
                
                
                51,933
                
                
                
                45,730Net
      (decrease) increase in short term borrowings
                
                
                (13,800
                )
                
                
                20,900Proceeds
      from long term borrowings
                
                
                2,000
                
                
                
                —Repayments
      of long term borrowings
                
                
                (439
                )
                
                
                (4,532
                )Decrease
      in advance payments by borrowers for taxes and insurance
                
                
                (1,005
                )
                
                
                (862
                )Purchase
      of treasury stock
                
                
                (1,255
                )
                
                
                (2,841
                )Payment
      of cash dividend
                
                
                (1,108
                )
                
                
                (758
                )Net
      cash provided by financing activities
                
                
                36,326
                
                
                
                57,637Net
      decrease in cash and cash equivalents
                
                
                (28
                )
                
                
                3,938Cash
      and cash equivalents at beginning of year
                
                
                5,053
                
                
                
                5,398Cash
      and cash equivalents at end of period
                
                $
                5,025
                
                
                $
                9,336Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Interest
                
                $
                7,570
                
                
                $
                7,715Taxes
                
                
                3,188
                
                
                
                2,689Other:Mortgage
      loans held-to-maturity transferred to held-for-sale
                
                
                —
                
                
                
                1,523Mortgage
      loans held-for-sale transferred to held-to-maturity
                
                
                62,820
                
                
                
                5,383
  See
accompanying notes to consolidated financial statements.


4




Brooklyn
Federal Bancorp, Inc. and Subsidiary


Notes to Consolidated Financial Statements


June
30, 2009


(Unaudited)




Note 1.
Organization




BFS
Bancorp, MHC




BFS
Bancorp, MHC is the federally chartered mutual holding company parent of
Brooklyn Federal Bancorp, Inc. The only business that BFS Bancorp, MHC has
engaged in is the majority ownership of Brooklyn Federal Bancorp, Inc. BFS
Bancorp, MHC was formed upon completion of Brooklyn Federal Savings Bank’s
reorganization into the mutual holding company structure. So long as BFS
Bancorp, MHC exists, it will own a majority of the voting stock of Brooklyn
Federal Bancorp, Inc.




Brooklyn
Federal Bancorp, Inc.




Brooklyn
Federal Bancorp, Inc. (the “Company”) was formed to serve as the stock holding
company for Brooklyn Federal Savings Bank (the “Bank”) as part of the Bank’s
reorganization into the mutual holding company structure. For further discussion
of the Company’s formation and operations, see the Company’s Registration
Statement on Form S-1, as amended, declared effective by the Securities and
Exchange Commission (the “SEC”) on February 11, 2005 (File Number 333-121580).
The Company completed its initial public offering on April 5, 2005.




The
Company issued 9,257,500 shares to BFS Bancorp, MHC, resulting in a total of
13,225,000 shares issued and outstanding after completion of the reorganization.
At June 30, 2009 there were 12,891,654 total shares outstanding resulting in a
71.8% ownership by BFS Bancorp, MHC.




Brooklyn
Federal Savings Bank




The Bank
is a federally chartered savings bank headquartered in Brooklyn, New York. The
Bank was originally founded in 1887. We conduct our business from our main
office and four branch offices. All of our offices are located in New York. The
telephone number at our main office is (718) 855-8500.




Our
principal business activity is the origination of mortgage loans secured by one-
to four-family residential real estate, multi-family real estate, commercial
real estate, construction loans, land loans and, to a lesser extent, a variety
of consumer loans and home equity loans. The Bank offers a variety of deposit
accounts, including checking, savings and certificates of deposit, and it
emphasizes personal and efficient service for its customers.




Our
website address is www.brooklynbank.com. Information on our website should not
be considered a part of this document.




Note
2 A) 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 nine-month periods ended June 30, 2009 are not necessarily
indicative of the results that may be expected for the year ending September 30,
2009. The Company’s consolidated financial statements, as presented in the
Company’s Form 10-K for the year ended September 30, 2008, should be read in
conjunction with these statements.




Effective
April 1, 2009, the Company adopted of Financial Accounting Standards (“SFAS”)
No. 165, “Subsequent Events”, issued by the Financial Accounting Standards Board
(“FASB”). SFAS No. 165 establishes general standards for accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued. SFAS No. 165 sets forth the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition in 5 the
financial statements, identifies the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that should be made about events or
transactions that occur after the balance sheet date. In preparing these
consolidated financial statements, the Company evaluated the events and
transactions that occurred from June 30, 2009 through August 14, 2009, the date
these consolidated financial statements were issued.


5




B)
Reclassifications




Certain
amounts in the consolidated financial statements presented for the prior year
period have been reclassified to conform to the current year
presentation.




Note
3 - Use of Estimates




The
preparation of consolidated financial statements, in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from current estimates. Estimates associated with the allowance for loan losses
and the fair values of securities are particularly susceptible to material
change in the near term.




Note
4 - Impact of Certain Accounting Pronouncements




FASB SFAS
No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities-Including an amendment of FASB Statement No. 115” was issued in
February 2007. 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 was effective for our
Company October 1, 2008. The adoption of SFAS No. 159 did not have a material
effect on our consolidated financial statements.




FASB SFAS
No. 141 (R) “Business Combinations” was issued in December of 2007. This
Statement establishes principles and requirements for how the acquirer of a
business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest in
the acquiree. The Statement also provides guidance for recognizing and measuring
the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. The guidance will
become effective as of the beginning of a company’s fiscal year beginning after
December 15, 2008. This pronouncement will impact the Company’s accounting for
business combinations completed after the effective date.




FASB SFAS
No. 160 “Non-controlling Interests in Consolidated Financial Statements—an
amendment of ARB No. 51” was issued in December of 2007. This Statement
establishes accounting and reporting standards for the non-controlling interest
in a subsidiary and for the deconsolidation of a subsidiary. The guidance will
become effective as of the beginning of a company’s fiscal year beginning after
December 15, 2008. The Company believes that this new pronouncement will not
have a material impact on the Company’s consolidated financial
statements.




In
February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 140-3,
“Accounting for Transfers of Financial Assets and Repurchase Financing
Transactions.” This FSP addresses the issue of whether or not these transactions
should be viewed as two separate transactions or as one “linked” transaction.
The FSP includes a “rebuttable presumption” that presumes linkage of the two
transactions unless the presumption can be overcome by meeting certain criteria.
The FSP will be effective for fiscal years beginning after November 15, 2008 and
will apply only to original transfers made after that date; early adoption will
not be allowed. The Company is currently evaluating the potential impact, if
any, the new pronouncement will have on its consolidated financial
statements.




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities—an amendment of FASB Statement No. 133”. SFAS No. 161
requires entities that utilize derivative instruments to provide qualitative
disclosures about their objectives and strategies for using such instruments, as
well as any details of credit-risk-related contingent features contained within
derivatives. SFAS No. 161 also requires entities to disclose additional
information about the amounts and location of derivatives located within the
financial statements, how the provisions of SFAS No. 133 has been applied, and
the impact that hedges have on an entity’s financial position, financial
performance, and cash flows. SFAS No. 161 is effective for fiscal years and 6
interim periods beginning after November 15, 2008, with early application
encouraged. The impact to the Company is to expand its disclosure regarding its
derivative instruments.


6




In April
2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of
Intangible Assets.” This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible
Assets”. The intent of this FSP is to improve the consistency between the useful
life of a recognized intangible asset under SFAS No. 142 and the period of
expected cash flows used to measure the fair value of the asset under SFAS No.
141R, and other GAAP. This FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. Early adoption is prohibited. The Company is currently evaluating
the potential impact, if any, the new pronouncement will have on its
consolidated financial statements.




In June
2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities.” This FSP
clarifies that all outstanding unvested share-based payment awards that contain
rights to non-forfeitable dividends participate in undistributed earnings with
common shareholders. Awards of this nature are considered participating
securities and the two-class method of computing basic and diluted earnings per
share must be applied. This FSP is effective for fiscal years beginning after
December 15, 2008. The Company is currently evaluating the potential impact, if
any, the new pronouncement will have on its consolidated financial
statements.




In June
2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 07-5,
“Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an
Entity’s Own Stock” (“EITF 07-5”). EITF 07-5 provides that an entity should use
a two step approach to evaluate whether an equity-linked financial instrument
(or embedded feature) is indexed to its own stock, including evaluating the
instrument’s contingent exercise and settlement provisions. It also clarifies
the impact of foreign currency denominated strike prices and market-based
employee stock option valuation instruments on the evaluation. EITF 07-5 is
effective for fiscal years beginning after December 15, 2008. The Company is
currently evaluating the potential impact, if any, the new pronouncement will
have on its consolidated financial statements.




In June
2008, the FASB ratified EITF Issue No. 08-3, “Accounting for Lessees for
Maintenance Deposits Under Lease Arrangements” (“EITF 08-3”). EITF 08-3 provides
guidance for accounting for nonrefundable maintenance deposits. It also provides
revenue recognition accounting guidance for the lessor. EITF 08-3 is effective
for fiscal years beginning after December 15, 2008. The Company is currently
evaluating the potential impact, if any, the new pronouncement will have on its
consolidated financial statements.




In
September 2008, the FASB issued FSP FAS 133-1 and FASB Interpretation (“FIN”)
45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment
of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of
the Effective Date of FASB Statement No. 161.” FSP FAS 133-1 and FIN 45-4 amends
and enhances disclosure requirements for sellers of credit derivatives and
financial guarantees. It also clarifies that the disclosure requirements of SFAS
No. 161 are effective for quarterly periods beginning after November 15, 2008,
and fiscal years that include those periods. FSP FAS 133-1 and FIN 45-4 is
effective for reporting periods (annual or interim) ending after November 15,
2008. The implementation of this standard did not have a material impact on our
consolidated financial statements.




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




In
November 2008, the SEC released a proposed roadmap regarding the potential use
by U.S. issuers of financial statements prepared in accordance with
International Financial Reporting Standards (“IFRS”). IFRS is a comprehensive
series of accounting standards published by the International Accounting
Standards Board (“IASB”). Under the proposed roadmap, the Company may be
required to prepare financial statements in accordance with IFRS as early as
2014. The SEC will make a determination in 2011 regarding the mandatory adoption
of IFRS. The Company is currently assessing the impact that this potential
change would have on its 7 consolidated financial statements, and it will
continue to monitor the development of the potential implementation of
IFRS.


7




In
November 2008, the FASB ratified EITF Issue No. 08-6,“Equity Method
Investment Accounting Considerations” (“EITF 08-6”). EITF 08-6 clarifies the
accounting for certain transactions and impairment considerations involving
equity method investments. EITF 08-6 is effective for fiscal years beginning
after December 15, 2008, with early adoption prohibited. The Company is
currently reviewing the effect this new pronouncement will have on its
consolidated financial statements.




In
December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, “Disclosures by
Public Entities (Enterprises) about Transfers of Financial Assets and Interests
in Variable Interest Entities.” FSP FAS 140-4 and FIN 46(R)-8 amends FASB SFAS
No. 140 “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities”, to require public entities to provide
additional disclosures about transfers of financial assets. It also amends FIN
46(R), “Consolidation of Variable Interest Entities”, to require public
enterprises, including sponsors that have a variable interest in a variable
interest entity, to provide additional disclosures about their involvement with
variable interest entities. Additionally, this FSP requires certain disclosures
to be provided by a public enterprise that is (a) a sponsor of a qualifying
special purpose entity (SPE) that holds a variable interest in the qualifying
SPE but was not the transferor of financial assets to the qualifying SPE and (b)
a servicer of a qualifying SPE that holds a significant variable interest in the
qualifying SPE but was not the transferor of financial assets to the qualifying
SPE. The disclosures required by FSP FAS 140-4 and FIN 46(R)-8 are intended to
provide greater transparency to financial statement users about a transferor’s
continuing involvement with transferred financial assets and an enterprise’s
involvement with variable interest entities and qualifying SPEs. FSP FAS 140-4
and FIN 46(R) is effective for reporting periods (annual or interim) ending
after December 15, 2008. The implementation of this pronouncement did not have a
material impact on our consolidated financial statements.




In
January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment of
Guidance of EITF Issue No. 99-20.” FSP EITF 99-20-1 amends the impairment
guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment
on Purchased Beneficial Interests and Beneficial Interests That Continue to Be
Held by a Transferor in Securitized Financial Assets”, to achieve more
consistent determination of whether an other-than-temporary impairment has
occurred. FSP EITF 99-20-1 also retains and emphasizes the objective of
other-than-temporary impairment assessment and the related disclosure
requirements in SFAS No. 115, “Accounting for Certain Investments in Debt and
Equity Securities”, and other related guidance. FSP EITF 99-20-1 is effective
for interim and annual reporting periods ending after December 15, 2008, and
shall be applied prospectively. Retrospective application to a prior interim or
annual reporting period is not permitted. The implementation of this
pronouncement did not have a material impact on our consolidated financial
statements.




In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation
of Other-Than-Temporary Impairments (“OTTI”).” FSP FAS 115-2 and FAS 124-2
clarified the interaction of the factors that should be considered when
determining whether a debt security is other-than-temporarily impaired. For debt
securities, management must assess whether (a) it has the intent to sell the
security and (b) it is more likely than not that it will be required to sell the
security prior to its anticipated recovery. These steps are done before
assessing whether the entity will recover the cost basis of the investment.
Previously, this assessment required management to assert it has both the intent
and the ability to hold a security for a period of time sufficient to allow for
an anticipated recovery in fair value to avoid recognizing an
other-than-temporary impairment. This change does not affect the need to
forecast recovery of the value of the security through either cash flows or
market price.




In
instances when a determination is made that an other-than-temporary impairment
exists but the investor does not intend to sell the debt security and it is not
more likely than not that it will be required to sell the debt security prior to
its anticipated recovery, FSP FAS 115-2 and FAS 124-2 changes the presentation
and amount of the other-than-temporary impairment recognized in the income
statement. The other-than-temporary impairment is separated into (a) the amount
of the total other-than-temporary impairment related to a decrease in cash flows
expected to be collected from the debt security (the credit loss) and (b) the
amount of the total other-than-temporary impairment related to all other
factors. The amount of the total other-than-temporary impairment related to the
credit loss is recognized in earnings. The amount of the total
other-than-temporary impairment related to all other factors is recognized in
other comprehensive income.


8




This FSP
is effective for interim and annual reporting periods ending after June 15,
2009, with early adoption permitted for periods ending after March 15, 2009. FSP
FAS 115-2 and FAS 124-2 were adopted for our June 30,
2009 consolidated financial statements. See Note 5 for impact of
adoption.




In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets, an amendment of FASB Statement No. 140.” This statement prescribes the
information that a reporting entity must provide in its financial reports about
a transfer of financial assets; the effects of a transfer on its financial
position, financial performance and cash flows; and a transferor’s continuing
involvement in transferred financial assets. Specifically, among other aspects,
SFAS No. 166 amends SFAS No. 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities,” by removing the concept of
a qualifying special-purpose entity from SFAS No. 140 and removes the exception
from applying FIN 46(R) to variable interest entities that are qualifying
special-purpose entities. It also modifies the financial-components approach
used in SFAS No. 140. SFAS No. 166 is effective for fiscal years beginning after
November 15, 2009. The Company is currently reviewing the effect this new
pronouncement will have on its consolidated financial statements.




In June
2009, the FASB issued SFAS No. 168, The FASB “Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles, a replacement of
FASB Statement No. 162.” SFAS No. 168 replaces SFAS No. 162, The Hierarchy of
Generally Accepted Accounting Principles, to establish the FASB Accounting
Standards Codification as the source of authoritative accounting principles
recognized by the FASB to be applied by nongovernmental entities in preparation
of financial statements in conformity with generally accepted accounting
principles in the United States. SFAS No. 168 is effective for interim and
annual periods ending after September 15, 2009. The Company believes that this
new pronouncement will not have a material impact on the Company’s consolidated
financial statements.




Note
5 – Securities




Investments
in securities available-for-sale and held-to-maturity at June 30, 2009 are
summarized as follows:


(In
      Thousands)
                                        
                                        Amortized
                                          cost
                                        
                                        
                                        Carrying
                                          cost
                                        
                                        
                                        Gross
                                          unrealized
                                          gains
                                        
                                        
                                        Gross
                                          unrealized
                                          losses
                                        
                                        
                                        Estimated
                                          fair
      valueSecurities
      available-for-sale:Mutual
      fund shares
                                        
                                        $
                                        3,289
                                        
                                        
                                        $
                                        3,289
                                        
                                        
                                        $
                                        4
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        3,293Securities
      held-to-maturity:Mortgage-backed
      securities:Government
      agency
                                        
                                        $
                                        130
                                        
                                        
                                        $
                                        130
                                        
                                        
                                        $
                                        4
                                        
                                        
                                        $
                                        (5
                                        )
                                        
                                        $
                                        129Government-sponsored
      enterprises
                                        
                                        
                                        23,107
                                        
                                        
                                        
                                        23,107
                                        
                                        
                                        
                                        316
                                        
                                        
                                        
                                        (81
                                        )
                                        
                                        
                                        23,342Private
      issuers
                                        
                                        
                                        53,380
                                        
                                        
                                        
                                        51,080
                                        
                                        
                                        
                                        50
                                        
                                        
                                        
                                        (13,961
                                        )
                                        
                                        
                                        37,169Total
      securities held-to-maturity
                                        
                                        $
                                        76,617
                                        
                                        
                                        $
                                        74,317
                                        
                                        
                                        $
                                        370
                                        
                                        
                                        $
                                        (14,047
                                        )
                                        
                                        $
                                        60,640




The
following table shown below summarizes securities held-to-maturity at amortized
cost and estimated fair value by contractual final maturity as of June 30, 2009.
Actual maturities will differ from contractual final maturity due to scheduled
monthly payments and due to borrowers having the right to prepay obligations
with or without prepayment penalty.




(In
      thousands)
                                                  
                                                  Amortized
                                                    cost
                                                  
                                                  
                                                  Carrying
                                                    cost
                                                  
                                                  
                                                  Estimated
      fair
                                                    valueMortgage-backed
      securities:One
      year or less
                                                  
                                                  $
                                                  3
                                                  
                                                  
                                                  $
                                                  3
                                                  
                                                  
                                                  $
                                                  3One
      year through five years
                                                  
                                                  
                                                  553
                                                  
                                                  
                                                  
                                                  553
                                                  
                                                  
                                                  
                                                  564Five
      years through ten years
                                                  
                                                  
                                                  14,826
                                                  
                                                  
                                                  
                                                  14,826
                                                  
                                                  
                                                  
                                                  14,898Over
      ten years
                                                  
                                                  
                                                  61,235
                                                  
                                                  
                                                  
                                                  58,935
                                                  
                                                  
                                                  
                                                  45,175Total
      mortgage-backed securities
                                                  
                                                  $
                                                  76,617
                                                  
                                                  
                                                  $
                                                  74,317
                                                  
                                                  
                                                  $
                                                  60,640


9




Total
pre-tax OTTI for the quarter ended June 30, 2009 was $2.3 million and the net
OTTI that was recognized in earnings was $0.1 million. This OTTI related to
credit loss was attributable to private issued mortgage-backed securities and
was determined through a present-value analysis of expected cash flows on the
securities.




The
following tables present a roll-forward of the credit loss component of OTTI on
debt securities for which a non-credit component of OTTI was recognized in other
comprehensive income for the three months ended June 30, 2009. OTTI recognized
in earnings after that date for credit-impaired debt securities is presented as
additions in two components, based upon whether the current period is the first
time a debt security was credit-impaired (initial credit impairment) or is not
the first time a debt security was credit impaired (subsequent credit
impairment). Changes in the credit loss component of credit-impaired debt
securities were as follows:




For
      the Three Months ended June 30, 2009
                        
                        Total
      Other-Than-Temporary Impairment Loss
                        
                        Other-Than-Temporary
      Impairment Credit Losses recorded in Earnings
                        
                        Other-Than-Temporary
      ImpairmentLosses recorded in Other Comprehensive
Income(in
      thousands)Beginning
      balance as of April 1, 2009
                        
                        $
                        2,146
                        
                        
                        $
                        2,146
                        
                        
                        $
                        -Add:
      Initial other-than-temporary credit losses
                        
                        
                        2,300
                        
                        
                        
                        222
                        
                        
                        
                        2,078Additional
      other-than-temporary credit losses
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Ending
      balance as of June 30, 2009
                        
                        $
                        4,446
                        
                        
                        $
                        2,368
                        
                        
                        $
                        2,078For
      the Nine Months ended June 30, 2009
                        
                        Total
      Other-Than-Temporary Impairment Loss
                        
                        Other-Than-Temporary
      Impairment Credit Losses recorded in Earnings
                        
                        Other-Than-Temporary
      ImpairmentLosses recorded in Other Comprehensive
Income(in
      thousands)Beginning
      balance as of September 30, 2008
                        
                        $
                        1,280
                        
                        
                        $
                        1,280
                        
                        
                        $
                        -Add:
      Initial other-than-temporary credit losses
                        
                        
                        3,166
                        
                        
                        
                        1,088
                        
                        
                        
                        2,078Additional
      other-than-temporary credit losses
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Ending
      balance as of June 30, 2009
                        
                        $
                        4,446
                        
                        
                        $
                        2,368
                        
                        
                        $
                        2,078




The
following table summarizes those securities held-to-maturity at June 30, 2009
with gross unrealized losses, segregated by the length of time the securities
had been in a continuous loss position:




As
      of June 30, 2009Less
      than 12 months
                                  
                                  
                                  12
      months or more
                                  
                                  
                                  Total(In
      Thousands)
                                  
                                  Estimated
                                    fair
      value
                                  
                                  
                                  Gross
                                    unrealized
                                    losses
                                  
                                  
                                  Estimated
                                    fair
      value
                                  
                                  
                                  Gross
                                    unrealized
                                    losses
                                  
                                  
                                  Estimated
                                    fair
      value
                                  
                                  
                                  Gross
                                    unrealized
                                    lossesMortgage-backed
      securities:Government
      agency
                                  
                                  $
                                  —
                                  
                                  
                                  $
                                  —
                                  
                                  
                                  $
                                  87
                                  
                                  
                                  $
                                  (5
                                  )
                                  
                                  $
                                  87
                                  
                                  
                                  $
                                  (5
                                  )Government-sponsored
      enterprises
                                  
                                  
                                  3,380
                                  
                                  
                                  
                                  (25
                                  )
                                  
                                  
                                  3,606
                                  
                                  
                                  
                                  (56
                                  )
                                  
                                  
                                  6,986
                                  
                                  
                                  
                                  (81
                                  )Private
      issuers
                                  
                                  
                                  11,761
                                  
                                  
                                  
                                  (786
                                  )
                                  
                                  
                                  21,948
                                  
                                  
                                  
                                  (13,175
                                  )
                                  
                                  
                                  33,709
                                  
                                  
                                  
                                  (13,961
                                  )Total
      temporarily impaired securities held-to-maturity
                                  
                                  $
                                  15,141
                                  
                                  
                                  $
                                  (811
                                  )
                                  
                                  $
                                  25,641
                                  
                                  
                                  $
                                  (13,236
                                  )
                                  
                                  $
                                  40,782
                                  
                                  
                                  $
                                  (14,047
                                  )
  In April
2009, the Financial Accounting Standards Board (the “FASB”) amended the OTTI
model for debt securities. The impairment model for equity securities was not
affected. Under the new guidance, an OTTI loss must be fully recognized in
earnings if an investor has the intent to sell the debt security or if it is
more likely than not that the investor will be required to sell the debt
security before recovery of its amortized cost basis. However, even if an
investor does not expect to sell a debt security, it must evaluate the expected
cash flows to be received and determine if a credit loss has occurred. In the
event of a credit loss, only the amount of impairment associated with the credit
loss is recognized in earnings. Amounts relating to factors other than credit
losses are recorded in Accumulated Other Comprehensive Loss (“AOCL”). The
guidance also requires additional disclosures regarding the calculation of
credit losses as well as factors considered in reaching a conclusion that an
investment is not other-than-temporarily impaired. The Company adopted the new
guidance effective April 1, 2009.




Available-for-sale
securities in unrealized loss positions are analyzed as part of the Company’s
ongoing assessment of OTTI. When the Company intends to sell available-for-sale
securities, the Company recognizes an impairment loss equal to the full
difference between the amortized cost basis and fair value of those securities.
When the Company does not intend to sell available-for-sale equity or debt
securities in an unrealized loss position, potential OTTI is considered based on
a variety of factors, including the length of time and extent to which the fair
value has been less than cost; adverse conditions specifically related to the
industry, the geographic area or financial condition of the issuer or the
underlying collateral of a security; the payment structure of the security;
changes to the rating of the security by a rating agency; the volatility of the
fair value changes; and changes in fair value of the security after the balance
sheet date. For debt securities, the Company estimates cash flows over the
remaining lives of the underlying collateral to assess whether credit losses
exist and, where applicable under Emerging Issues Task Force (“EITF”) Issue
99-20, to determine if any adverse changes in cash flows have occurred. The
Company’s cash flow estimates take into account expectations of relevant market
and economic data as of the end of the reporting period. As of June 30, 2009,
the Company does not intend to sell the securities with an unrealized loss
position in AOCL, and it is not more likely than not that the Company will be
required to sell these securities before recovery of their amortized cost basis.
The Company believes that the securities with an unrealized loss in AOCL are not
other-than-temporarily impaired as of June 30, 2009.


10




The Bank
invests primarily in mortgage-backed securities of private issuers and to a
lesser extent U.S. Government-sponsored enterprises and U.S. Government agency
securities. Substantially all of the unrealized losses at June 30, 2009 relate
to the depressed private issuer mortgage-backed securities market. There were no
securities with unrealized losses, due to principal write-downs or non-payment
that were significant at June 30, 2009. At June 30, 2009 a total of 14
securities were in an unrealized loss position for less than 12 months and 32
securities for 12 months or longer of which 3 securities were identified to have
a pre-tax OTTI loss of $2.3million. Of the remaining 29 securities there were no
debt securities past due or securities for which the Bank currently believes it
is not probable that it will collect all amounts due according to the
contractual terms of the security. The Bank has the ability and intent to hold
its debt securities for the time necessary to recover amortized cost and does
not have the intent to sell the securities, and it is more likely than not that
it will not have to sell the securities before recovery of their amortized cost.
Based on these facts and circumstances, the Bank did not consider the 29
securities with unrealized losses to be other-than-temporarily impaired at June
30, 2009.




Note
6 – Fair Value Measurement




Management
uses its best judgment in estimating the fair value of the Company’s financial
instruments; however, there are inherent weaknesses in any estimation technique.
Therefore, for substantially all financial instruments, the fair value estimates
herein are not necessarily indicative of the amounts the Company could have
realized in a sale transaction on the date indicated. The estimated fair value
amounts have been measured as of their period-end and have not been re-evaluated
or updated for purposes of these consolidated financial statements subsequent to
the date indicated. As such, the estimated fair values of these financial
instruments subsequent to the reporting date may be different than the amounts
reported at this period-end.




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements, which defines fair value,
establishes a framework for measuring fair value under GAAP, and expands
disclosures about fair value measurements. SFAS No. 157 applies to other
accounting pronouncements that require or permit fair value measurements. The
new standard is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and for interim periods within those fiscal
years. The Company adopted SFAS No. 157 effective for its fiscal year beginning
October 1, 2008.




In
December 2007, the FASB issued FSP FAS 157-2, “Effective Date of FASB Statement
No. 157”. FSP FAS 157-2 delays the effective date of SFAS No. 157 for all
non-financial assets and liabilities, except those that are recognized or
disclosed at fair value on a recurring basis (at least annually) to fiscal years
beginning after November 15, 2008 and interim periods within those fiscal years.
In October 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
Financial Asset When The Market for That Asset Is Not Active” to clarify the
application of the provisions of SFAS No. 157 in an inactive market and how an
entity would determine fair value in an inactive market. FSP FAS 157-3 was
effective immediately and was adopted for our December 31, 2008 consolidated
financial statements. The adoption of SFAS No. 157, FSP FAS 157-2 and FSP FAS
157-3 had no impact on the amounts reported in the consolidated financial
statements.




In April
2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly.” FASB SFAS No. 157, “Fair Value
Measurements,” defines fair value as the price that would be received to sell
the asset or transfer the liability in an orderly transaction (that is, not a
forced liquidation or distressed sale) between market participants at the
measurement date under current market conditions. FSP FAS 157-4 provides
additional guidance on determining when the volume and level of activity for the
asset or liability has significantly decreased. The FSP also includes guidance
on identifying circumstances when a transaction may not be considered
orderly.




FSP FAS
157-4 provides a list of factors that a reporting entity should evaluate to
determine whether there has been a significant decrease in the volume and level
of activity for the asset or liability in relation to normal market activity for
the asset or liability. When the reporting entity concludes there has been a
significant decrease in the volume and level of activity for the asset or
liability, further analysis of the information from that market is needed and
significant adjustments to the related prices may be necessary to estimate fair
value in accordance with SFAS No. 157.


11




This FSP
clarifies that when there has been a significant decrease in the volume and
level of activity for the asset or liability, some transactions may not be
orderly. In those situations, the entity must evaluate the weight of the
evidence to determine whether the transaction is orderly. The FSP provides a
list of circumstances that may indicate that a transaction is not orderly. A
transaction price that is not associated with an orderly transaction is given
little, if any, weight when estimating fair value.




This FSP
is effective for interim and annual reporting periods ending after June 15,
2009, with early adoption permitted for periods ending after March 15, 2009. FSP
FAS 157-4 was adopted for our June 30, 2009 consolidated financial statements.
The adoption had no impact on the amounts reported in the consolidated financial
statements.




The
primary effect of SFAS No. 157 on the Company was to expand the required
disclosures pertaining to the methods used to determine fair
values.




SFAS No.
157 establishes a fair value hierarchy that prioritizes the inputs to valuation
methods used to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurements) and the lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value hierarchy under SFAS No. 157
are as follows:


Level
      1.
                Unadjusted
      quoted prices in active markets that are accessible at the measurement
      date for identical, unrestricted assets or liabilities.Level
      2.
                Quoted
      prices in markets that are not active, or inputs that are observable
      either directly or indirectly, for substantially the full term of the
      asset or liabilityLevel
      3.
                Prices
      or valuation techniques that require inputs that are both significant to
      the fair value measurement and unobservable (i.e. supported with little or
      no market activity).




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




For
financial assets measured at fair value on a recurring basis, the fair value
measurements by level within the fair value hierarchy as reported on the
consolidated statement of financial condition at June 30, 2009 are as follows
(in thousands):




Description
                                                        
                                                        June
      30, 2009
                                                        
                                                        
                                                        (Level
      1)
                                                          Quoted
      Prices
                                                          in
      Active
                                                          Markets
      for
                                                          Identical
                                                          Assets
                                                        
                                                        
                                                        (Level
      2)
                                                          Significant
                                                          Other
                                                          Observable
                                                          Inputs
                                                        
                                                        
                                                        (Level
      3)
                                                          Significant
                                                          Unobservable
                                                          InputsSecurities
      available-for-sale
                                                        
                                                        $
                                                        3,293
                                                        
                                                        
                                                        $
                                                        3,293
                                                        
                                                        
                                                        $
                                                        —
                                                        
                                                        
                                                        $
                                                        —




12




For
financial assets measured at fair value on a nonrecurring basis, the fair value
measurements by level within the fair value hierarchy as reported on the
consolidated statement of financial condition at June 30, 2009 are as follows
(in thousands):




Description
                                                          
                                                          June
      30, 2009
                                                          
                                                          
                                                          (Level
      1)
                                                            Quoted
      Prices
                                                            in
      Active
                                                            Markets
      for
                                                            Identical
                                                            Assets
                                                          
                                                          
                                                          (Level
      2)
                                                            Significant
                                                            Other
                                                            Observable
                                                            Inputs
                                                          
                                                          
                                                          (Level
      3)
                                                            Significant
                                                            Unobservable
                                                            InputsImpaired
      loans
                                                          
                                                          $
                                                          1,448
                                                          
                                                          
                                                          $
                                                          —
                                                          
                                                          
                                                          $
                                                          —
                                                          
                                                          
                                                          $
                                                          1,448




The
      following valuation techniques were used to measure fair value of assets
      in the tables above:Securities
      available-for-sale – The fair value of the securities was obtained through
      a primary broker/dealer from readily available price quotes as of June 30,
      2009.Impaired
      loans – Impaired loans are those that are accounted for under FASB SFAS
      No. 114, “Accounting by Creditors for Impairment of a Loan,” in which the
      Company has measured impairment generally based on the fair value of the
      loan’s collateral. Fair value is generally determined based upon
      independent third party appraisals of the properties, or discounted cash
      flows based upon the expected proceeds. These assets are included as Level
      3 fair values, based upon the lowest level of input that is significant to
      the fair value measurements. The fair value consists of the loan balances
      of $1.9 million less their specific valuation allowances of $435,000 as
      determined under SFAS No.
114.




SFAS No.
107, “Disclosures about Fair Value of Financial Instruments,” requires
disclosures for financial instruments for which it is practicable to estimate
fair value. The definition of a financial instrument includes many of the assets
and liabilities recognized in the Bank’s consolidated statements of financial
condition, as well as certain off-balance sheet items. Fair value is defined as
the amount at which a financial instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or
liquidation.




Quoted
market prices are used to estimate fair values when those prices are available.
However, active markets do not exist for many types of financial instruments.
Consequently, fair values for these instruments must be estimated by management
using techniques such as discounted cash flow analysis and comparison to similar
instruments. Estimates developed using these methods are highly subjective and
require judgments regarding significant matters such as the amount and timing of
future cash flows and the selection of discount rates that appropriately reflect
market and credit risks. Changes in these judgments often have a material effect
on the fair value estimates. Since these estimates are made as of a specific
point in time, they are susceptible to material near-term changes. Fair values
disclosed do not reflect any premium or discount that could result from the sale
of a large volume of a particular financial instrument, nor do they reflect
possible tax ramifications or estimated transaction costs.




In April
2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board (“APB”)
28-1, “Interim Disclosures about Fair Value of Financial Instruments” (FSP FAS
107-1 and APB 28-1). FSP FAS 107-1 and APB 28-1 amends SFAS No. 107,
“Disclosures about Fair Value of Financial Instruments,” to require disclosures
about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements. This FSP
also amends APB Opinion No. 28, Interim Financial Reporting, to require those
disclosures in summarized financial information at interim reporting
periods.




This FSP
is effective for interim and annual reporting periods ending after June 15,
2009, with early adoption permitted for periods ending after March 15, 2009. FSP
FAS 107-1 and APB 28-1 was adopted for our June 30, 2009 consolidated financial
statements. The adoption had no impact on the amounts reported in the
consolidated financial statements.


13




The
following table summarizes the carrying value and estimated fair value of the
Company’s financial instruments at June 30, 2009:




June
      30, 2009
                                  
                                  
                                  September
      30, 2008Carrying
                                    value
                                  
                                  
                                  Estimated
                                    fair
      value
                                  
                                  
                                  Carrying
                                    value
                                  
                                  
                                  Estimated
                                    fair
      value(In
      thousands)Financial
      assets:Cash
      and due from banks
                                  
                                  $
                                  5,025
                                  
                                  
                                  $
                                  5,025
                                  
                                  
                                  $
                                  5,053
                                  
                                  
                                  $
                                  5,053Certificates
      of Deposits
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  1,397
                                  
                                  
                                  
                                  1,405Securities
      available-for-sale
                                  
                                  
                                  3,293
                                  
                                  
                                  
                                  3,293
                                  
                                  
                                  
                                  3,655
                                  
                                  
                                  
                                  3,655Securities
      held-to-maturity
                                  
                                  
                                  74,317
                                  
                                  
                                  
                                  60,640
                                  
                                  
                                  
                                  78,086
                                  
                                  
                                  
                                  70,793Loans
      held-for-sale
                                  
                                  
                                  127,389
                                  
                                  
                                  
                                  128,808
                                  
                                  
                                  
                                  134,171
                                  
                                  
                                  
                                  134,312Loans
      receivable, net
                                  
                                  
                                  291,673
                                  
                                  
                                  
                                  294,006
                                  
                                  
                                  
                                  239,149
                                  
                                  
                                  
                                  239,403FHLB
      stock
                                  
                                  
                                  2,583
                                  
                                  
                                  
                                  2,583
                                  
                                  
                                  
                                  2,802
                                  
                                  
                                  
                                  2,802Accrued
      interest receivable
                                  
                                  
                                  2,890
                                  
                                  
                                  
                                  2,890
                                  
                                  
                                  
                                  2,477
                                  
                                  
                                  
                                  2,477Financial
      liabilities:Deposits
                                  
                                  
                                  394,408
                                  
                                  
                                  
                                  397,890
                                  
                                  
                                  
                                  342,475
                                  
                                  
                                  
                                  346,053Borrowings
                                  
                                  
                                  32,000
                                  
                                  
                                  
                                  32,026
                                  
                                  
                                  
                                  44,239
                                  
                                  
                                  
                                  44,830Accrued
      Interest Payable
                                  
                                  
                                  27
                                  
                                  
                                  
                                  27
                                  
                                  
                                  
                                  43
                                  
                                  
                                  
                                  43




The
following methods and assumptions were utilized by the Company in estimating the
fair values of its financial instruments at June 30, 2009:


(a)
                Cash
      and Due from BanksThe
      estimated fair values of cash and due from banks are assumed to equal the
      carrying values, as these balances are due on demand.(b)
                Certificates
      of DepositThe
      estimated fair values of the investment of certificates of deposit
      represent contractual cash flows discounted using interest rates that
      would be currently received on these deposits with similar characteristics
      and remaining maturities.(c)
                Securities
      Available-for-Sale and Held-to-MaturityIf
      quoted market prices are not available for the specific security, then
      fair values are estimated by using pricing models, quoted prices of
      securities with similar characteristics, or discounted cash flows. These
      pricing models primarily use market-based or independently sourced market
      parameters as inputs, including, but not limited to, yield curves,
      interest rates, equity or debt prices, and credit spreads. In addition to
      observable market information, models also incorporate transaction
      details, such as maturity and cash flow assumptions.(d)
                Loans
      Held-for-SaleThe
      estimated fair value of loans held-for-sale is based on current prices
      established in the secondary market, or for those loans committed to be
      sold, based upon the price established by the
  commitment.(e)
                Loans
      Receivable, NetThe
      loan portfolio was segregated into various components for valuation
      purposes in order to group loans based on their significant financial
      characteristics, such as type of interest rate (adjustable or fixed) and
      payment status (performing or
non-performing).




14





Fair
      values were estimated for each component as described
    below.The
      fair values of performing mortgage loans and consumer loans were estimated
      by discounting the anticipated cash flows from the respective portfolios.
      The discount rates reflected current market rates for loans with similar
      terms to borrowers of similar credit quality.The
      fair values of non-performing mortgage loans and consumer loans were based
      on recent collateral appraisals or management’s analysis of estimated cash
      flows discounted at rates commensurate with the credit risk
      involved.(f)
              FHLB
      StockThe
      estimated fair value of the Bank’s investment in FHLB stock is deemed to
      equal its carrying value, which represents the price at which it may be
      redeemed.(g)
              Accrued
      Interest Receivable and PayableThe
      fair value of accrued interest receivable and payable is estimated to be
      the carrying value since it is currently due.(h)
              DepositsThe
      estimated fair value of deposits with no stated maturity, which include
      NOW, money market, and passbook savings accounts are deemed to be equal to
      the amount payable on demand at the valuation date. The estimated fair
      values of certificates of deposit represent contractual cash flows
      discounted using interest rates currently offered on deposits with similar
      characteristics and remaining maturities.These
      estimated fair values do not include the intangible value of core deposit
      relationships, which comprise a significant portion of the Bank’s deposit
      base. Management believes that the Bank’s core deposit relationships
      provide a relatively stable, low cost funding source, which has a
      substantial intangible value separate from the deposit
      balances.(i)
              BorrowingsThe
      fair values of borrowings are estimated using a discounted cash flow
      analysis based on the current incremental borrowing rates for similar
      types of borrowing arrangements.(j)
              CommitmentsFair
      values of commitments outstanding are estimated based on the fees that
      would be charged for similar agreements, considering the remaining term of
      the agreement, the rate offered and the credit worthiness of the parties.
      The estimated fair values of commitments outstanding as of June 30, 2009
      are not considered significant and are not included in the above
      table.




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.


15




The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made, and advise
readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investing activities, and competitive and regulatory
factors, could affect the Company’s financial performance and could cause the
Company’s actual results for future periods to differ materially from those
anticipated or projected.




The
Company does not undertake, and specifically disclaims any obligation, to update
any forward-looking statements to reflect occurrences or unanticipated events or
circumstances after the date of such statements.




General




The
Company’s results of operations depend mainly on its net interest income, which
is the difference between the interest income earned on its loan and investment
portfolios and interest expense paid on its deposits and borrowed funds. Results
of operations are also affected by fee income from banking operations,
provisions for loan losses, other-than-temporary impairments, 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:




Loans
Held-for-Sale and Related Commitments.Loans held-for-sale represent
commercial and other mortgage loans originated for sale. These loans are carried
at the lower of cost or estimated fair value, as determined on an aggregate
basis. Net unrealized losses are recognized in a valuation allowance by charges
to operations. Premiums and discounts and origination fees and costs on loans
held-for-sale are deferred and recognized as a component of the gain or loss on
sale. Commitments to originate loans that will be held-for-sale and forward
commitments to sell such loans are derivative instruments which are required to
be recognized as assets or liabilities at fair value. Fair value is determined
based solely on the effect of changes in secondary market interest rates and
yield requirements from the commitment date to the date of the financial
statements. The fair values of these commitments have had an immaterial effect
on the Company’s financial position and results of operations.




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. The methodology for determining the allowance for loan
losses is considered a critical accounting policy by management due to the high
degree of judgment involved, the subjectivity of the assumptions utilized and
the potential for changes in the economic environment that could result in
changes to the amount of the recorded allowance for loan losses.




As a
substantial amount of our loan portfolio is collateralized by real estate,
appraisals of the underlying value of property securing loans or discounted cash
flow valuations of properties are critical in determining the amount of the
allowance required for specific loans. Assumptions for appraisals or discounted
cash flow valuations are instrumental in determining the value of properties.
Overly optimistic assumptions or negative changes to assumptions could
significantly impact the valuation of a property securing a loan and the related
allowance determined. The assumptions supporting such appraisals or discounted
cash flow valuations are carefully reviewed by management to determine that the
resulting values reasonably reflect amounts realizable on the related
loans.


16




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.




Other-than-Temporary
Impairment of Securities.We evaluate on a quarterly basis whether any
securities are other-than-temporarily impaired. This evaluation has been
conducted in the past as necessary. In making this determination, we consider
the extent and duration of the impairment, the nature and financial health of
the issuer and our ability and intent to hold securities for a period sufficient
to allow for any anticipated recovery in market value. Other considerations
include, without limitation, a review of the credit quality of the issuer and
the existence of a guarantee or insurance, if applicable to the security. If a
security is determined to be other-than-temporarily impaired, we record an
impairment loss as a charge to income for the period in which the impairment
loss is determined to exist, resulting in a reduction to our earnings for that
period.




The
Bank’s investment in a mutual fund that invests primarily in agency and private
label mortgage backed securities has been steadily losing value, which has
caused a corresponding decrease in the fund’s net asset value. In addition, the
fund implemented a temporary prohibition on cash redemptions, lessening the
ability of the Bank to dispose of its remaining $2.8 million investment in this
asset.




For the
nine months ended June 30, 2009, we concluded that this available-for-sale
investment did incur other-than-temporary impairment and the Bank charged
current earnings approximately $0.9 million.




As to the
securities held-to-maturity we concluded 3 private issue mortgage-backed
securities were OTTI and the bank charged earnings for $0.2 million pre-tax for
credit losses associated with the OTTI and charged a $2.1 million pre-tax to
other comprehensive income. For the remainder of the securities held-to-maturity
the unrealized losses were temporary in nature due to marketability and market
interest rates and not the underlying credit quality of the issuers of the
securities. Additionally, we have the intent and ability to hold these
investments for the time necessary to recover the amortized costs and we do not
have the intent to sell the securities, and it is more likely than not that we
will not have to sell the securities before recovery of their amortized cost.
Future events that would materially change this conclusion and require a charge
to operations for an impairment loss include a change in the credit quality of
the issuers.




Federal
Home Loan Bank Stock, which represents a required investmentin the common stock
ofthe Federal Home
Loan Bank of New York (“FHLB”), is carried at cost as of June 30, 2009 and
September 30, 2008.




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




Management
believes no impairment charge is necessary related to the FHLB stock as of June
30, 2009.


17




We
continue to evaluate all our investments and in the event the market value of
such investments declines further and remains depressed for a substantial period
of time, we will evaluate the investments for other-than-temporary impairment at
that time.




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 and construction
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 more commercial
      real estate loan products and a wider variety of residential 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 and Construction
      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 and commercial real estate and
      construction loans as a means of increasing our interest and fee income.
      Multi-family, commercial real estate and construction 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 and construction 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.


18





●
              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 positions us to reinvest our
      short-term liquid assets in higher yielding loans and investments once
      interest rates begin to rise. During the recent period of lower short-term
      interest rates, we have been able to maintain a market level of interest
      income on our short-term liquid assets, while still utilizing a portion of
      our liquidity to purchase security investments and redeploying the excess
      repayments of those investments to loan originations. Continuing to
      maintain our current level of short-term liquid assets, however, generates
      less interest income than would have been generated if we had invested in
      longer-term loans and investments. At June 30, 2009, $5.0 million, or 1.0%
      of our assets, was invested in cash or cash
equivalents.
              ●
              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 June 30, 2009 and September 30,
2008




Total
Assets. Total assets increased $42.0 million, or 8.7%, to $525.8 million
at June 30, 2009, from $483.8 million at September 30, 2008. This increase was
primarily due to increases in loans receivable, net, and other assets, offset in
part by decreases in cash and due from banks, certificate of deposit
investments, securities available-for-sale, securities held-to-maturity and
loans held-for-sale.




Cash and Due from
Banks.Cash and due from banks decreased $0.1million, or 0.6%, to $5.0
million at June 30, 2009, from $5.1 million at September 30, 2008.




Investment in
Certificates of Deposit. Certificates of deposit decreased $1.4 million,
or 100.0%, to zero at June 30, 2009, from approximately $1.4 million at
September 30, 2008. This decrease was due to maturities of all
certificates.




Securities.Investment securities, which represent securities available-for-sale and
securities held-to-maturity, decreased approximately $4.1 million, or 5.1%, to
$77.6 million at June 30, 2009, from $81.7 million at September 30, 2008. This
decrease was primarily due to repayments of mortgage-backed securities of
approximately $12.3 million and the recording of other-than-temporary impairment
of approximately $3.2 million, offset by purchases of mortgage-backed securities
of approximately $10.8 million and a purchase in a community reinvestment mutual
fund of $0.5 million. Our holdings of securities held-to-maturity and securities
available-for-sale totaled $74.3 million and $3.3 million, at June 30, 2009,
respectively. At September 30, 2008, our holdings of securities held-to-maturity
and securities available-for-sale totaled $78.1 million and $3.6 million,
respectively.




Net Loans.
Net loans before allowance for loan losses, which includes loans held-for-sale,
increased approximately $47.0 million, or 12.5%, to $422.5 million at June 30,
2009, from $375.5 million at September 30, 2008, primarily due to increases in
construction loans of $33.6 million, multi-family loans of $17.2 million, and
$0.4 million for land loans and commercial real estate loans, respectively,
offset by decreases of $4.2 million in one-to four-family loans and $0.2 million
in consumer and other loans. Net deferred fees and costs decreased approximately
$0.2 million.




At June
30, 2009, the Bank had one loan participation, of which our portion is
approximately $1.9 million, that is non-performing and in non-accrual status.
This non-performing and non-accruing loan is secured by a vacant multi-family
apartment building located in New York City. The Bank has established a specific
loan loss allowance of $435,000 for this loan. As disclosed in our Form 10-K
filed with the SEC on December 29, 2008, this loan was classified as special
mention at September 30, 2008, due to being past maturity. Subsequently, in
November 2008, we classified this loan as substandard, placed it in non-accrual
status and commenced the foreclosure process. In December 2008, the borrower
procured an appraisal valuing the property for $14.6 million, with our portion
of the appraisal totaling approximately $1.5 million.


19




On the
basis of management’s review of classified assets at June 30, 2009, we
categorized 14 loans totaling $20.0 million as special mention. This loan
categorization is comprised of eight commercial real estate loans totaling $9.0
million, four construction loans totaling $5.1 million, one land loan totaling
$5.7 million and one residential loan totaling $0.2 million.




On the
basis of management’s review of classified assets at June 30, 2009, we
classified five loans totaling $18.6 million as substandard. One loan for $1.9
million is the non-performing and non-accruing loan described above. The other
four loans are commercial real estate loans totaling $16.7 million.




At June
30, 2009, none of our assets were classified as loss.




Federal Home Loan
Bank of New York Stock.FHLB stock decreased $0.2 million, or 7.8%, to
$2.6 million at June 30, 2009. At September 30, 2008 our FHLB stock investment
balance was $2.8 million. This decrease was primarily due to the net repayment
of $12.2 million of the Bank’s borrowing in FHLB advances since September 30,
2008. The Bank participates in the FHLB’s Mortgage Partnership Finance (“MPF”)
program, which triggered purchases of FHLB stock, offset in part by repayments
in short and long term borrowings.




Bank Owned Life
Insurance.Bank-owned life insurance increased $0.3 million, or 3.2%, to
$9.4 million at June 30, 2009, from $9.1 million at September 30, 2008. This
increase was mainly due to increases in cash surrender value recognized in
earnings.




Accrued Interest
Receivable. Accrued interest receivable increased approximately $0.4
million, or 16.7%, to $2.9 million at June 30, 2009, from $2.5 million at
September 30, 2008.




Premises and
Equipment, net.Premises and equipment, net decreased approximately $0.2
million, or 9.8%, to $2.1 million at June 30, 2009, from $2.3 million at
September 30, 2008.




Prepaid Expenses
and Other Assets.Prepaid expenses and other assets increased
approximately $1.6 million, or 27.6%, to $7.2 million at June 30, 2009, from
$5.6 million at September 30, 2008. This increase was mainly due to an increase
in deferred tax assets of $2.3 million, offset by a decrease in miscellaneous
other assets of approximately $0.7 million.




Deposits.
Deposits increased by $51.9 million, or 15.2%, to $394.4 million at June 30,
2009, from $342.5 million at September 30, 2008. The increase was primarily due
to the Bank’s marketing and promotional efforts in its market area, including
efforts to remain competitive in all of its deposit offerings.




Borrowed
Funds. Total funds borrowed from the FHLB, decreased $12.2 million, or
27.7%, to $32.0 million at June 30, 2009, from $44.2 million at September 30,
2008. The primary reason for the decrease was the utilization of excess cash and
due from banks, after funding mortgage loan originations, to pay down borrowings
during the period.




Advance payments
by borrowers for taxes and insurance (“Escrow”). Escrow deposits
decreased $1.0 million, or 42.1%, to $1.4 million at June 30, 2009, from $2.4
million at September 30, 2008.




Accrued Expenses
and Other Liabilities. Accrued expenses and other liabilities increased
$2.3 million, or 27.2%, to $10.7 million at June 30, 2009, from $8.4 million at
September 30, 2008. This increase was primarily due to increases in taxes
payable of $0.8 million, Supplemental Executive Retirement Plan (“SERP”)
accruals of approximately $0.7 million, loan payables of $0.3 million, accrued
expenses of $0.3 million and unprocessed banking liabilities of $0.2
million.




Stockholders’
Equity.Stockholders’ equity increased by $1.0 million, or 1.2%, to $87.3
million at June 30, 2009, from $86.3 million at September 30, 2008. The primary
reason for the increase is the result of net income for the period of
approximately $4.3 million, offset in part by accumulated other comprehensive
income of $1.2 million, the payment of dividends of approximately $1.1 million
and purchases of treasury stock of approximately $1.3 million 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 its liquidity levels as appropriate to meet asset and liability
management objectives.


20




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 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 June 30, 2009,
$5.0 million, or 1.0%, of the Company’s assets was 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. As of June 30, 2009, the Company had $32.0
million in borrowings outstanding from the FHLB and access to additional FHLB
advances.




At June
30, 2009, the Company had approximately $146.0 million in off-balance sheet
arrangements. The Company had approximately $143.9 million in commitments to
originate loans and unused lines of credit outstanding, which included $90.6
million in undisbursed construction loans, $3.4 million to originate one- to
four-family loans, $3.5 million in unused home equity lines of credit, $11.5
million in commercial real estate lines of credit and $34.9 million to originate
multi-family and nonresidential mortgage loans. The Bank had a stand by letter
of credit commitment of approximately $2.1 million. The Bank has commitments to
sell loans of $1.0 million. Certificates of deposit due within one year of June
30, 2009 totaled $172.6 million, or 70.2% of certificates of deposit. If these
maturing deposits do not remain with the Company, the Company will be required
to seek other sources of funds, including other certificates of deposit and
borrowings. Depending on market conditions, the Company may be required to pay
higher rates on such deposits or other borrowings than the Company currently
pays on the certificates of deposit due on or before June 30, 2010. Management
believes, however, based on past experience that a significant portion of its
certificates of deposit will remain with the Company. The Company has the
ability to attract and retain deposits by adjusting the interest rates
offered.




The
following table sets forth the Bank’s capital position at June 30, 2009, as
compared to the minimum regulatory capital requirements (in
thousands):


Actual
                                                    
                                                    
                                                    
                                                    Minimum
      Capital
                                                      Requirements
                                                    
                                                    
                                                    
                                                    To
      be Well
                                                      Capitalized
                                                      Under
      Prompt
                                                      Corrective
      Actions
                                                      ProvisionsAmount
                                                    
                                                    
                                                    Ratio
                                                    
                                                    
                                                    
                                                    Amount
                                                    
                                                    
                                                    Ratio
                                                    
                                                    
                                                    
                                                    Amount
                                                    
                                                    
                                                    RatioTotal
      risk-based capital
                                                      (To
      risk-weighted assets)
                                                    
                                                    $
                                                    83,380
                                                    
                                                    
                                                    
                                                    18.89
                                                    %
                                                    
                                                    
                                                    $
                                                    35,315
                                                    
                                                    
                                                    
                                                    8.00
                                                    %
                                                    
                                                    
                                                    $
                                                    44,143
                                                    
                                                    
                                                    
                                                    10.00
                                                    %Tier
      1 risk-based capital
                                                      (To
      risk-weighted assets)
                                                    
                                                    
                                                    79,469
                                                    
                                                    
                                                    
                                                    18.00
                                                    %
                                                    
                                                    
                                                    
                                                    17,657
                                                    
                                                    
                                                    
                                                    4.00
                                                    %
                                                    
                                                    
                                                    
                                                    26,486
                                                    
                                                    
                                                    
                                                    6.00
                                                    %Tangible
      capital
                                                      (To
      tangible assets)
                                                    
                                                    
                                                    79,469
                                                    
                                                    
                                                    
                                                    15.13
                                                    %
                                                    
                                                    
                                                    
                                                    7,878
                                                    
                                                    
                                                    
                                                    1.50
                                                    %
                                                    
                                                    
                                                    
                                                    N/A
                                                    
                                                    
                                                    
                                                    N/ATier
      1 leverage (core) capital
                                                      (To
      adjusted tangible assets)
                                                    
                                                    
                                                    79,469
                                                    
                                                    
                                                    
                                                    15.13
                                                    %
                                                    
                                                    
                                                    
                                                    15,756
                                                    
                                                    
                                                    
                                                    3.00
                                                    %
                                                    
                                                    
                                                    
                                                    26,260
                                                    
                                                    
                                                    
                                                    5.00
                                                    %


21




Off-Balance
Sheet Arrangements




The
following tables set forth the Bank’s contractual obligations and commercial
commitments at June 30, 2009 (in thousands):


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
      YearsTo
      originate loans
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          38,296
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          38,296
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          —
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          —
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          —Stand
      by letter of credit
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2,140
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2,140
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          —
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          —
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          —Unused
      lines of credit
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          105,544
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          92,743
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,812
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          10,989
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          —Total
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          145,980
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          133,179
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          1,812
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          10,989
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          —




Analysis of
Earnings




The
Company’s profitability is primarily dependent upon net interest income and
further affected by provisions for loan losses, non-interest income,
non-interest expense and income taxes. The earnings of the Company, which are
principally earnings of the Bank, are significantly affected by general economic
and competitive conditions, particularly changes in market interest rates, and
to a lesser extent by government policies and actions of regulatory
authorities.




The
following table sets forth, for the periods indicated, certain information
relating to the Company’s average interest-earning assets, average
interest-bearing liabilities, net interest income, interest rate spread and
interest rate margin. It reflects the average yield on assets and the average
cost of liabilities. Such yields and costs are derived by dividing annualized
income or expense by the average balances of assets or liabilities,
respectively, for the periods shown. Average balances are derived from daily or
month-end balances as available. Management does not believe that the use of
average monthly balances instead of average daily balances represents a material
difference in information presented. The average balance of loans includes loans
on which the Company has discontinued accruing interest. The yield and cost
include fees, which are considered adjustments to yields.


22




BROOKLYN
FEDERAL BANCORP, INC. AND SUBSIDIARY


CONSOLIDATED
AVERAGE BALANCES


Three
      months ended June 30,2009
                                                                            
                                                                            
                                                                            2008Average
      Balance
                                                                            
                                                                            
                                                                            Interest
                                                                            
                                                                            
                                                                            Average
                                                                              Yield/Cost
                                                                            
                                                                            
                                                                            Average
      Balance
                                                                            
                                                                            
                                                                            Interest
                                                                            
                                                                            
                                                                            Average
                                                                              Yield/CostInterest-earning
      assets:Loans
                                                                            
                                                                            $
                                                                            417,442
                                                                            
                                                                            
                                                                            $
                                                                            7,800
                                                                            
                                                                            
                                                                            
                                                                            7.47
                                                                            %
                                                                            
                                                                            $
                                                                            326,522
                                                                            
                                                                            
                                                                            $
                                                                            6,034
                                                                            
                                                                            
                                                                            
                                                                            7.39
                                                                            %Mortgage-backed
      securities
                                                                            
                                                                            
                                                                            75,927
                                                                            
                                                                            
                                                                            
                                                                            924
                                                                            
                                                                            
                                                                            
                                                                            4.87
                                                                            
                                                                            
                                                                            
                                                                            75,649
                                                                            
                                                                            
                                                                            
                                                                            871
                                                                            
                                                                            
                                                                            
                                                                            4.61Investments
      securities and other interest-earning assets
                                                                            
                                                                            
                                                                            8,904
                                                                            
                                                                            
                                                                            
                                                                            96
                                                                            
                                                                            
                                                                            
                                                                            4.31
                                                                            
                                                                            
                                                                            
                                                                            11,297
                                                                            
                                                                            
                                                                            
                                                                            117
                                                                            
                                                                            
                                                                            
                                                                            4.14Total
      interest-earning assets
                                                                            
                                                                            
                                                                            502,273
                                                                            
                                                                            
                                                                            
                                                                            8,820
                                                                            
                                                                            
                                                                            
                                                                            7.02
                                                                            
                                                                            
                                                                            
                                                                            413,468
                                                                            
                                                                            
                                                                            
                                                                            7,022
                                                                            
                                                                            
                                                                            
                                                                            6.79Non
      interest-earning assets
                                                                            
                                                                            
                                                                            18,611
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            20,812Total
      Assets
                                                                            
                                                                            $
                                                                            520,884
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            434,280Interest-bearing
      liabilities:Savings
      accounts
                                                                            
                                                                            $
                                                                            62,313
                                                                            
                                                                            
                                                                            
                                                                            150
                                                                            
                                                                            
                                                                            
                                                                            0.96
                                                                            
                                                                            
                                                                            $
                                                                            58,069
                                                                            
                                                                            
                                                                            
                                                                            149
                                                                            
                                                                            
                                                                            
                                                                            1.03Money
      market/NOW accounts
                                                                            
                                                                            
                                                                            64,107
                                                                            
                                                                            
                                                                            
                                                                            244
                                                                            
                                                                            
                                                                            
                                                                            1.52
                                                                            
                                                                            
                                                                            
                                                                            60,331
                                                                            
                                                                            
                                                                            
                                                                            287
                                                                            
                                                                            
                                                                            
                                                                            1.91Certificates
      of deposits
                                                                            
                                                                            
                                                                            238,109
                                                                            
                                                                            
                                                                            
                                                                            1,919
                                                                            
                                                                            
                                                                            
                                                                            3.22
                                                                            
                                                                            
                                                                            
                                                                            182,375
                                                                            
                                                                            
                                                                            
                                                                            1,895
                                                                            
                                                                            
                                                                            
                                                                            4.17Total
      interest-bearing deposits
                                                                            
                                                                            
                                                                            364,529
                                                                            
                                                                            
                                                                            
                                                                            2,313
                                                                            
                                                                            
                                                                            
                                                                            2.54
                                                                            
                                                                            
                                                                            
                                                                            300,775
                                                                            
                                                                            
                                                                            
                                                                            2,331
                                                                            
                                                                            
                                                                            
                                                                            3.11Borrowings
                                                                            
                                                                            
                                                                            37,100
                                                                            
                                                                            
                                                                            
                                                                            64
                                                                            
                                                                            
                                                                            
                                                                            0.69
                                                                            
                                                                            
                                                                            
                                                                            18,819
                                                                            
                                                                            
                                                                            
                                                                            134
                                                                            
                                                                            
                                                                            
                                                                            2.85Total
      interest-bearing liabilities
                                                                            
                                                                            
                                                                            401,629
                                                                            
                                                                            
                                                                            
                                                                            2,377
                                                                            
                                                                            
                                                                            
                                                                            2.37
                                                                            
                                                                            
                                                                            
                                                                            319,594
                                                                            
                                                                            
                                                                            
                                                                            2,465
                                                                            
                                                                            
                                                                            
                                                                            3.09Non
      interest-bearing liabilities:
                                                                            
                                                                            
                                                                            31,428
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            27,935Total
      liabilities
                                                                            
                                                                            
                                                                            433,057
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            347,529Stockholders’
      equity
                                                                            
                                                                            
                                                                            87,827
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            86,751Total
      liabilities & stockholder’s equity
                                                                            
                                                                            $
                                                                            520,884
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            434,280Net
      interest income
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            6,443
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            4,557Average
      interest rate spread
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            4.65
                                                                            %
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            3.70
                                                                            %Net
      interest-earning assetsNet
      Interest Margin
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            5.13
                                                                            %
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            4.41
                                                                            %Ratio
      of average interest-earning assets to interest-bearing
      liabilities
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            1.25
                                                                            x
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            1.29
                                                                            x


23




BROOKLYN
FEDERAL BANCORP, INC. AND SUBSIDIARY


CONSOLIDATED
AVERAGE BALANCES


Nine
      months ended June 30,2009
                                                                              
                                                                              
                                                                              2008Average
      Balance
                                                                              
                                                                              
                                                                              Interest
                                                                              
                                                                              
                                                                              Average
                                                                                Yield/Cost
                                                                              
                                                                              
                                                                              Average
      Balance
                                                                              
                                                                              
                                                                              Interest
                                                                              
                                                                              
                                                                              Average
                                                                                Yield/CostInterest-earning
      assets:Loans
                                                                              
                                                                              $
                                                                              402,673
                                                                              
                                                                              
                                                                              $
                                                                              22,380
                                                                              
                                                                              
                                                                              
                                                                              7.41
                                                                              %
                                                                              
                                                                              $
                                                                              309,032
                                                                              
                                                                              
                                                                              $
                                                                              17,575
                                                                              
                                                                              
                                                                              
                                                                              7.58
                                                                              %Mortgage-backed
      securities
                                                                              
                                                                              
                                                                              77,989
                                                                              
                                                                              
                                                                              
                                                                              2,796
                                                                              
                                                                              
                                                                              
                                                                              4.78
                                                                              
                                                                              
                                                                              
                                                                              74,707
                                                                              
                                                                              
                                                                              
                                                                              2,530
                                                                              
                                                                              
                                                                              
                                                                              4.52Investments
      securities and other interest-earning assets
                                                                              
                                                                              
                                                                              9,503
                                                                              
                                                                              
                                                                              
                                                                              246
                                                                              
                                                                              
                                                                              
                                                                              3.45
                                                                              
                                                                              
                                                                              
                                                                              12,665
                                                                              
                                                                              
                                                                              
                                                                              450
                                                                              
                                                                              
                                                                              
                                                                              4.76Total
      interest-earning assets
                                                                              
                                                                              
                                                                              490,165
                                                                              
                                                                              
                                                                              
                                                                              25,422
                                                                              
                                                                              
                                                                              
                                                                              6.92
                                                                              
                                                                              
                                                                              
                                                                              396,404
                                                                              
                                                                              
                                                                              
                                                                              20,555
                                                                              
                                                                              
                                                                              
                                                                              6.91Non
      interest-earning assets
                                                                              
                                                                              
                                                                              18,557
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              19,760Total
      Assets
                                                                              
                                                                              $
                                                                              508,722
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              $
                                                                              416,164Interest-bearing
      liabilities:Savings
      accounts
                                                                              
                                                                              $
                                                                              59,362
                                                                              
                                                                              
                                                                              
                                                                              451
                                                                              
                                                                              
                                                                              
                                                                              1.01
                                                                              
                                                                              
                                                                              $
                                                                              58,320
                                                                              
                                                                              
                                                                              
                                                                              443
                                                                              
                                                                              
                                                                              
                                                                              1.02Money
      market/NOW accounts
                                                                              
                                                                              
                                                                              59,395
                                                                              
                                                                              
                                                                              
                                                                              780
                                                                              
                                                                              
                                                                              
                                                                              1.75
                                                                              
                                                                              
                                                                              
                                                                              56,738
                                                                              
                                                                              
                                                                              
                                                                              1,009
                                                                              
                                                                              
                                                                              
                                                                              2.38Certificates
      of deposits
                                                                              
                                                                              
                                                                              226,954
                                                                              
                                                                              
                                                                              
                                                                              6,042
                                                                              
                                                                              
                                                                              
                                                                              3.55
                                                                              
                                                                              
                                                                              
                                                                              171,684
                                                                              
                                                                              
                                                                              
                                                                              5,796
                                                                              
                                                                              
                                                                              
                                                                              4.51Total
      interest-bearing deposits
                                                                              
                                                                              
                                                                              345,711
                                                                              
                                                                              
                                                                              
                                                                              7,273
                                                                              
                                                                              
                                                                              
                                                                              2.81
                                                                              
                                                                              
                                                                              
                                                                              286,742
                                                                              
                                                                              
                                                                              
                                                                              7,248
                                                                              
                                                                              
                                                                              
                                                                              3.38Borrowings
                                                                              
                                                                              
                                                                              45,220
                                                                              
                                                                              
                                                                              
                                                                              281
                                                                              
                                                                              
                                                                              
                                                                              0.83
                                                                              
                                                                              
                                                                              
                                                                              16,544
                                                                              
                                                                              
                                                                              
                                                                              438
                                                                              
                                                                              
                                                                              
                                                                              3.54Total
      interest-bearing liabilities
                                                                              
                                                                              
                                                                              390,931
                                                                              
                                                                              
                                                                              
                                                                              7,554
                                                                              
                                                                              
                                                                              
                                                                              2.58
                                                                              
                                                                              
                                                                              
                                                                              303,286
                                                                              
                                                                              
                                                                              
                                                                              7,686
                                                                              
                                                                              
                                                                              
                                                                              3.38Non
      interest-bearing liabilities:
                                                                              
                                                                              
                                                                              30,652
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              27,002Total
      liabilities
                                                                              
                                                                              
                                                                              421,583
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              330,288Stockholders’
      equity
                                                                              
                                                                              
                                                                              87,139
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              85,876Total
      liabilities & stockholders’ equity
                                                                              
                                                                              $
                                                                              508,722
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              $
                                                                              416,164Net
      interest income
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              $
                                                                              17,868
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              $
                                                                              12,869Average
      interest rate spread
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              4.34
                                                                              %
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              3.53
                                                                              %Net
      interest-earning assetsNet
      Interest Margin
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              4.86
                                                                              %
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              4.33
                                                                              %Ratio
      of average interest-earning assets to interest-bearing
      liabilities
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              1.25
                                                                              x
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              
                                                                              1.31
                                                                              x


24




Comparison of Operating Results for the Three Months Ended June 30,
2009 and 2008




Net
Income. Net income increased by approximately $0.3 million, or 20.9%, to
$1.7 million for the three months ended June 30, 2009, from net income of $1.4
million for the three months ended June 30, 2008. The primary reasons for the
increase were an increase in interest income of $1.8 million and a decrease in
interest expense of $0.1 million, offset by increases of $0.6 million in
non-interest expense, $0.4 million in income tax expense, loan loss provision of
$0.4 million and $0.2 million in non-interest income.




Net Interest
Income Before Provision for Loan Losses.Net interest income
before provision for loan losses increased by approximately $1.8 million, or
41.4%, to $6.4 million for the three months ended June 30, 2009, from
$4.6 million for the three months ended June 30, 2008. The increase in net
interest income resulted primarily from an increase in the average balance of
interest-earning assets of $88.83 million and a 95 basis point increase in the
Bank’s net interest rate spread to 4.65% for the three months ended June 30,
2009, from 3.70% for the three months ended June 30, 2008. The Bank’s net
interest margin increased 72 basis points to 5.13% for the three months ended
June 30, 2009 compared to 4.41% for the three months ended June 30,
2008.




Interest
Income.Interest income
increased $1.8 million, or 25.6%, to $8.8 million for the three months ended
June 30, 2009, from $7.0 million for the three months ended June 30, 2008.
Interest income on loans increased by $1.8 million, or 29.3%, to $7.8 million
for the three months ended June 30, 2009, from $6.0 million for the three months
ended June 30, 2008. The primary reasons for the increase in interest income on
loans were a $1.1 million increase in multi-family and commercial real estate
loan income and a $0.8 million increase in construction loan income, offset in
part by a decrease in one- to four-family income and other loan income of $0.1
million. The average balance of the loan portfolio increased by approximately
$90.9 million, or 27.8%, to $417.4 million for the three months ended June 30,
2009, from $326.5 million for the three months ended June 30, 2008. The average
yield on loans increased 8 basis points to 7.47% for the three months ended June
30, 2009, from 7.39% for the three months ended June 30, 2008. Interest income
on mortgage-backed securities remained relatively unchanged at $0.9 million. The
average balance on the mortgage-backed securities portfolio increased by
approximately $0.3 million, or 0.4%, to $75.9 million for the three months ended
June 30, 2009, from $75.6 million for the three months ended June 30, 2008. The
average yield on mortgage-backed securities increased 26 basis points to 4.87%
for the three months ended June 30, 2009, from 4.61% for the three months ended
June 30, 2008. Interest income on investment securities and other
interest-earning assets remained relatively unchanged at $0.1 million for the
three months ended June 30, 2009 and 2008. The average yield on investment
securities and other interest-earning assets increased 17 basis points to 4.31%
for the quarter ended June 30, 2009, compared to 4.14% for the quarter ended
June 30, 2008. The increase was primarily due to a decrease in the average
balance of $2.4 million, or 21.2%, to $8.9 million at June 30, 2009 from $11.3
million at June 30, 2008.




Interest
Expense. Interest expense decreased $0.1 million, or 3.6%, to $2.4
million for the three months ended June 30, 2009 from $2.5 million for the three
months ended June 30, 2008. Interest expense on deposits remained unchanged for
the three months ended $2.3 million for the three months ended June 30, 2009 and
2008. Interest expense on FHLB borrowings decreased $70,000, or 52.2%, to
$64,000 for the three months ended June 30, 2009, from $134,000 for the three
months ended June 30, 2008. The decrease in total interest expense was primarily
the result of decreases in the average cost of interest-bearing deposits of 57
basis points to 2.54% for the three months ended June 30, 2009, compared to
3.11% for the three months ended June 30, 2008, and in the average cost of FHLB
of borrowings of 216 basis points, to 0.69% for the quarter ended June 30, 2009,
compared to the average cost of 2.85% for the quarter ended June 30, 2008,
offset in part by increased average balances of interest-bearing deposits of
$63.7 million to $364.5 million for the three months ended June 30, 2009, from
$300.8 million for the three months ended June 30, 2008 and FHLB borrowings of
$18.3 million, to $37.1 million for the three months ended June 30, 2009, from
$18.8 million for the three months ended June 30, 2008. The average cost of
total interest-bearing liabilities decreased 72 basis points to 2.37% for the
three months ended June 30, 2009, from 3.09% for the three months ended June 30,
2008.




Provision for
Loan Losses.The Bank’s provision
for loan losses increased by $0.4 million for the quarter ended June 30, 2009.
The primary reasons for the increase were increases in higher risk loan
originations, including multi-family mortgage loans, construction mortgage loans
and land loans. The Bank continues to transfer loans from its held-for-sale loan
portfolio to its mortgage loan receivable portfolio after reaching its internal
limit in participating out interests in certain loans to other financial
institutions. The allowance for loan losses as of June 30, 2009 represented
0.81% of total loans, compared to 0.56% of total loans as of June 30,
2008.


25




Non-interest
Income. Non-interest income decreased by $0.2 million, or 28.4%, to $0.4
million for the quarter ended June 30, 2009 from $0.6 million for the quarter
June 30, 2008. The decrease was primarily due to an decreases in banking fees
and service charges of $0.3 million and other income of $0.2 million offset by
an decrease of $0.4 million OTTI charge of $0.6 million taken for the quarter
ended June 30, 2008 on the Bank’s investment in a mutual fund and offset by a
$0.2 million OTTI charge (see note 5) on the Bank’s private label mortgage
backed securities for the quarter ended June 30, 2009. The market values of the
mutual fund’s holdings had been steadily decreasing through last quarter ending
March 31, 2009, which has caused a corresponding decrease in the fund’s net
asset value, though it has stabilized this quarter. In addition, the fund has
continued the temporary prohibition on cash redemptions, lessening the ability
of the Bank to dispose of its remaining $2.8 million investment in this asset.
The Company continues to evaluate this investment to determine if additional
write-downs will be necessary.




Non-interest
Expense. Non-interest expense increased by $0.6 million, or 18.9%, to
$3.6 million for the three months ended June 30, 2009, from $3.0 million for the
three months ended June 30, 2008. The increase is primarily due to the Bank’s
accrual estimate for its Federal Deposit Insurance Corporation (“FDIC”)
assessment of $0.3 million and the banking industry-wide special assessment of
five (5) basis points on the Bank’s reported regulatory assets less its tier one
(1) capital of approximately $0.2 million. The Bank did not record any FDIC
assessment charges in fiscal year 2008 since the assessments were offset by
utilizing its one-time assessment credits, which have been fully utilized this
fiscal year. In addition, the Company experienced increases in compensation and
fringe benefits of $0.2 million, or 7.5%, to $2.1 million for the three months
ended June 30, 2009, from $1.9 million for the three months ended June 30, 2008
which includes increases primarily in the SERP and pension plans of
approximately $0.1 million, and health care and other employee costs of $0.1
million. The Company also experienced increased costs in occupancy and equipment
of $68,000 and a decrease in other expenses of $0.2 million, or 36.1% to $0.3
million for the three months ended June 30, 2009, from $0.5 million for the
three months ended June 30, 2008.




Income
Taxes.Income tax expense
increased $0.4 million, or 58.6%, to $1.2 million for the three months ended
June 30, 2009, from $0.8 million for the three months ended June 30, 2008. The
primary reason for this increase is the increased income before provision for
income taxes. The effective income tax rate of the Company for the three months
ended June 30, 2009 was 41.3%, compared to the effective income tax rate of
35.0% for the three months ended June 30, 2008. The increase in the effective
income tax rate was primarily due to the increased taxable income of the
Company’s Bank subsidiary.




Comparison of Operating Results for the Nine Months ended June 30,
2009 and 2008




Net
Income. Net income increased by approximately $0.1 million, or 1.4%, to
$4.2 million for the nine months ended June 30, 2009, from net income of $4.1
million for the nine months ended June 30, 2008. The primary reasons for the
increase were an increase in interest income of $4.9 million, offset in part by
a decrease in non-interest income of $1.5 million, and increases in loan loss
provision of $1.1 million, non-interest expense of $2.0 million, and provision
for income tax of $0.2 million.




Net Interest
Income Before Provision for Loan Losses.Net interest income
before provision for loan losses increased by $5.0 million, or 38.8%, to $17.9
million for the nine months ended June 30, 2009, from $12.9 million for the nine
months ended June 30, 2008. The increase in net interest income resulted
primarily from an increase in the average balance of interest-earning assets of
$93.8 million and a 81 basis point increase in the Bank’s net interest rate
spread to 4.34% for the nine months ended June 30, 2009, from 3.53% for the nine
months ended June 30, 2008. The Bank’s net interest margin increased 53 basis
points to 4.86% for the nine months ended June 30, 2009 compared to 4.33% for
the nine months ended June 30, 2008.


26




Interest
Income.Interest income
increased $4.8 million, or 23.7%, to $25.4 million for the nine months ended
June 30, 2009, from $20.6 million for the nine months ended June 30, 2008.
Interest income on loans increased by approximately $4.8 million, or 27.3%, to
$22.4 million for the nine months ended June 30, 2009, from $17.6 million for
the nine months ended June 30, 2008. The primary reasons for the increase in
interest income on loans were a $3.2 million increase in multi-family and
commercial real estate loan income and $1.6 million increase in construction
loan income. The average balance of the loan portfolio increased by
approximately $93.7 million, or 30.3%, to $402.7 million for the nine months
ended June 30, 2009, from $309.0 million for the nine months ended June 30,
2008. The average yield on loans decreased 17 basis points to 7.41% for the nine
months ended June 30, 2009, from 7.58% for the nine months ended June 30, 2008.
Interest income on mortgage-backed securities increased $0.3 million, or 10.5%
to $2.8 million for the nine months ended June 30, 2009, from $2.5 million
for the nine months ended June 30, 2008. The average balance on the
mortgage-backed securities portfolio increased by approximately $3.3 million, or
4.4%, to $78.0 million for the nine months ended June 30, 2009, from $74.7
million for the nine months ended June 30, 2008. The average yield on
mortgage-backed securities increased 26 basis points to 4.78% for the nine
months ended June 30, 2009, from 4.52% for the nine months ended June 30, 2008.
Interest income on investment securities and other interest-earning assets
decreased by $0.2 million, or 45.3%, to $0.2 million for the nine months ended
June 30, 2009 from $0.4 million for the nine months ended June 30, 2008. The
decrease in interest income on investment securities and other interest-earning
assets was primarily due to a decrease of 131 basis points in the average yield
to 3.45% for the nine months ended June 30, 2009, compared to the average yield
of 4.76% for the nine months ended June 30, 2008 and an decrease in the average
balance of $3.2 million, or 25.0%, to $9.5 million for the nine months ended
June 30, 2009 from $12.7 million for the nine months ended June 30,
2008.




Interest
Expense. Interest expense decreased $0.1 million, or 1.7%, to $7.6
million for the nine months ended June 30, 2009 from $7.7 million for the nine
months ended June 30, 2008. Interest expense on deposits increased $25,000, or
0.3%, to approximately $7.3 million for the nine months ended June 30, 2009,
from approximately $7.2 million for the nine months ended June 30, 2008.
Interest expense on FHLB borrowings decreased $0.1 million, or 35.8%, to $0.3
million for the nine months ended June 30, 2009, from $0.4 million for the nine
months ended June 30, 2008. The decrease in total interest expense was primarily
the result of decreases in the average cost of interest-bearing deposits of 57
basis points to 2.81% for the nine months ended June 30, 2009, compared to 3.38%
for the nine months ended June 30, 2008, and in the average cost of FHLB
borrowings of 271 basis points, to 0.83% for the nine months ended June 30,
2009, compared to the average cost of 3.54% for the nine months ended June 30,
2008, offset in part by increased average balances of interest-bearing deposits
of $59.0 million to $345.7 million for the nine months ended June 30, 2009, from
$286.7 million for the nine months ended June 30, 2008 and FHLB borrowings of
$28.7 million, to $45.2 million for the nine months ended June 30, 2009, from
$16.5 million for the nine months ended June 30, 2008. The average cost of total
interest-bearing liabilities decreased 80 basis points to 2.58% for the nine
months ended June 30, 2009, from 3.38% for the nine months ended June 30,
2008.




Provision for
Loan Losses.The Bank’s provision
for loan losses increased by $1.1 million, or 976.1%, to $1.2 million for the
nine months ended June 30, 2009 compared to $0.1 million for the nine months
ended June 30, 2008. The primary reasons for this increase were an additional
specific allowance of $435,000 established for a non-accruing, vacant
multi-family property loan and increases in higher risk loan originations,
including multi-family mortgage loans, commercial real estate mortgage loans,
construction mortgage loans and land loans. The Bank continues to transfer loans
from its held-for-sale loan portfolio to its mortgage loan receivable portfolio
after reaching its internal limit in participating out interests in certain
loans to other financial institutions. The allowance for loan losses as of June
30, 2009 represented 0.81% of total loans, compared to 0.56% of total loans as
of June 30, 2008.




Non-interest
Income. Non-interest income decreased by approximately $1.5 million, or
70.7%, to $0.7 million for the nine months ended June 30, 2009 from $2.2 million
for the nine months ended June 30, 2008. The decrease was primarily due to an
additional impairment charge of $0.9 million taken on the Bank’s investment in a
mutual fund that invests primarily in agency and private label mortgage-backed
securities for the nine months ended June 30, 2009 compared to the $0.6 million
taken during the period end June 30, 2008. The market values of the fund’s
holdings have been steadily decreasing, which has caused a corresponding
decrease in the fund’s net asset value. In addition, the fund has continued the
temporary prohibition on cash redemptions, lessening the ability of the Bank to
dispose of its remaining $2.8 million investment in this asset. Based on these
factors, the loss was considered to be other than temporary. The Company
continues to evaluate this investment to determine if additional write-downs
will be necessary. In addition, the Bank incurred an OTTI charge of $0.2 million
on private label mortgage-backed securities (see note 5) for the nine months
ended June 30, 2009. The decrease was also due to decreases in banking fees and
service charges of $0.7 million, other income of $0.2 million and net gain on
sale of loans held-for-sale of $0.1 million.




Non-interest
Expense.Non-interest expense
increased by approximately $2.0 million, or 23.8%, to $10.5 million for the
nine months ended June 30, 2009, from $8.5 million for the nine months ended
June 30, 2008. The increase resulted from increases of $1.1 million in
compensation and fringe benefits, which includes increases in the SERP and
pension plans of approximately $0.7 million, health care and other employee
costs of $0.2 million and employee and director compensation costs of
approximately $0.2 million. In addition, the Bank incurred an increase in its
FDIC insurance assessment. The increase consisted of its accrual estimate for
its ongoing FDIC insurance assessment of $0.3 million and the banking
industry-wide special assessment of five (5) basis points on the Bank’s reported
regulatory assets less its tier one (1) capital of approximately $0.2 million.
The Bank did not record any FDIC assessment charges in fiscal year 2008 since
the assessment was offset by utilizing its one-time assessment credits, which
have been fully utilized this fiscal year. The Company also experienced
increases in occupancy and equipment of $0.2 million, professional fee expense
of $0.1 million and data processing fees of $0.1 million, offset by a decrease
in other expenses of $0.1 million, which include advertising, office supplies,
printing and insurance.


27




Income
Taxes.Income tax expense
increased $0.2 million, or 10.8%, to $2.6 million for the nine months ended June
30, 2009, from $2.4 million for the nine months ended June 30, 2008. The primary
reason for this increase is the increase in income before provision for income
taxes. The effective income tax rate of the Company for the nine months ended
June 30, 2009 was 38.8%, compared to the effective income tax rate of 36.7% for
the nine months ended June 30, 2008. The increase in the effective income tax
rate was primarily due to the increased taxable income of the Company’s Bank
subsidiary.


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 decreasing interest
rate environment, the Bank’s strategy of investing in liquid instruments has
resulted in lower levels of interest income than would have resulted from
investing in longer-term loans and investments. Management intends to lengthen
the maturity of the Company’s earning-assets as interest rates increase, which
in turn should result in a higher yielding portfolio of interest-earning assets.
There have been no material changes in the Company’s interest rate risk since
September 30, 2008.


Item 4T.
                Controls
      and Procedures




An
evaluation was performed under the supervision and with the participation of the
Company’s management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e)
promulgated under the Securities Exchange Act of 1934, as amended) as of June
30, 2009. 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.


28




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.




In
addition to the other information contained in this Quarterly Report on Form
10-Q, the following risk factors represent material updates and additions to the
risk factor previously disclosed in the Company’s Annual Report on Form 10-K for
the Fiscal Year Ended September 30, 2008, as filed with the Securities and
Exchange Commission. Additional risks not presently known to us, or that we
currently deem immaterial, may also adversely affect our business, financial
condition or results of operations. Further, to the extent that any of the
information contained in this Quarterly Report on Form 10-Q constitutes
forward-looking statements, the risk factor set forth below also is
a cautionary statement identifying important factors that could cause our
actual results to differ materially from those expressed in any forward-looking
statements made by or on behalf of us.




Any
Future FDIC Insurance Premiums Will Adversely Impact Our Earnings.




On May
22, 2009, the FDIC adopted a final rule levying a five basis point special
assessment on each insured depository institution’s assets minus Tier 1 capital
as of June 30, 2009. The special assessment is payable on September 30, 2009. We
recorded an expense of $0.2 million during the quarter ended June 30, 2009, to
reflect the special assessment. The final rule permits the FDIC’s Board of
Directors to levy up to two additional special assessments of up to five basis
points each during 2009 if the FDIC estimates that the Deposit Insurance Fund
reserve ratio will fall to a level that the FDIC’s Board of Directors believes
would adversely affect public confidence or to a level that will be close to or
below zero. The FDIC has publicly announced that it is probable that it will
levy an additional special assessment of up to five basis points later in 2009,
the amount and timing of which are currently uncertain. Any further special
assessments that the FDIC levies will be recorded as an expense during the
appropriate period. In addition, the FDIC materially increased the general
assessment rate and, therefore, our FDIC general insurance premium expense will
increase substantially compared to prior periods.




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




(c) The
Company repurchased Common Stock in the quarter ending June 30, 2009. Through
June 30, 2009 the Board of Directors of the Company has approved four common
stock repurchase plans. The first repurchase plan was completed in August 2007,
purchasing $1.5 million or 102,370 shares at an average cost of $14.65 per
share. The second repurchase plan was completed in March 2008, purchasing $2.0
million or 147,339 shares at an average cost of $13.57 per share. The third plan
was authorized in March 2008 and completed in October 2008, purchasing $3.0
million or 238,483 shares at an average cost of $12.58 per share. In November
2008 the Board of Directors approved the fourth repurchase plan, and through
June 30, 2009 the Company has repurchased 104,364 shares at an average cost of
$11.47 per share. 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 June 30, 2009, 592,556 shares
have been repurchased, with repurchases completed during the quarter described
in the following table:




29




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
      programsApril
      1, 2009 through April 30, 2009
                                                                    
                                                                    
                                                                    3,700
                                                                    
                                                                    
                                                                    $
                                                                    11.14
                                                                    
                                                                    
                                                                    
                                                                    588,722
                                                                    
                                                                    
                                                                    $
                                                                    845,877May
      1, 2009 through May 31, 2009
                                                                    
                                                                    
                                                                    1,200
                                                                    
                                                                    
                                                                    $
                                                                    11.29
                                                                    
                                                                    
                                                                    
                                                                    589,922
                                                                    
                                                                    
                                                                    $
                                                                    832,329June
      1, 2009 through June 30, 2009
                                                                    
                                                                    
                                                                    2,634
                                                                    
                                                                    
                                                                    $
                                                                    11.29
                                                                    
                                                                    
                                                                    
                                                                    592,556
                                                                    
                                                                    
                                                                    $
                                                                    802,584Total
                                                                    
                                                                    
                                                                    7,534
                                                                    
                                                                    
                                                                    $
                                                                    11.22




Item
      3.
                  Default
      upon Senior Securities.None.Item
      4.
                  Submission
      of Matters to a Vote of Security Holders.None.Item
      5.
                  Other
      Information.None.




30




Item 6.
                                  Exhibits.11
                                  Computation
      of Earnings Per Share31.1
                                  Certification
      of Chief Executive Officer Pursuant to Rule
      13a-14(a)/15d-14(a)31.2
                                  Certification
      of Chief Financial Officer Pursuant to Rule
      13a-14(a)/15d-14(a)32.1
                                  Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
                                  Certification
      of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.


31




SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.


BROOKLYN
      FEDERAL BANCORP, INC.(Registrant)Date:
      August 14, 2009
                            /s/
      Richard A. KieltyPresident
      and Chief Executive OfficerDate:
      August 14, 2009
                            /s/
      Ralph WaltherRalph
      WaltherVice
      President andChief
      Financial Officer






32