10-Q

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, 2011

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-51208

BROOKLYN FEDERAL BANCORP, INC.

(Exact name of registrant as specified in its charter)

Federal	20-2659598
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)
81 Court Street, Brooklyn, New York	11201
(Address of principal executive offices)	(Zip Code)

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

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

YES     x          NO     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     x          NO     o

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

Large Accelerated Filer   o	Accelerated Filer	o
Non-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	12,882,607
Class	Outstanding at August 10, 2011

BROOKLYN FEDERAL BANCORP, INC.

Form 10-Q Quarterly Report

Table of Contents

PART I.

		Page Number
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
PART II.
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	(Reserved)	35
Item 5.	Other Information	35
Item 6.	Exhibits	35
Signature Page		37

PART I

ITEM 1.                      FINANCIAL STATEMENTS

BROOKLYN FEDERAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except share amounts)

	June 30,			September 30,
	2011			2010
Assets	(unaudited)			(audited)
Cash and due from banks (including interest-earning balances of $33,124 and $12,559, respectively)	$	34,640		$	14,201
Securities available-for-sale		132,317			69,107
Loans receivable		297,152			387,783
Less: Allowance for loan losses		20,668			17,941
Loans receivable, net		276,484			369,842
Federal Home Loan Bank of New York (“FHLB”) stock, at cost		1,643			1,803
Bank owned life insurance		6,908			9,880
Accrued interest receivable		1,152			2,061
Premises and equipment, net		1,594			1,822
Prepaid expenses and other assets		15,191			19,039
Total assets	$	469,929		$	487,755
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Non-interest-bearing deposits	$	16,605		$	16,033
Interest-bearing deposits		148,331			154,800
Certificates of deposit		245,834			252,573
Total deposits		410,770			423,406
Borrowings		9,000			10,500
Advance payments by borrowers for taxes and insurance		1,431			2,576
Accrued expenses and other liabilities		7,996			5,534
Total liabilities		429,197			442,016
Stockholders’ equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized; none issued		--			--
Common stock, $0.01 par value, 20,000,000 shares authorized; 13,484,210 issued and 12,882,607 and 12,889,344 outstanding, respectively		135			135
Additional paid-in capital		43,209			43,119
Retained earnings - substantially restricted		6,866			12,687
Treasury shares - at cost, 601,603 shares and 594,866 shares, respectively		(7,728	)		(7,720	)
Unallocated common stock held by employee stock ownership plan (“ESOP”)		(2,116	)		(2,235	)
Unallocated shares of the stock-based incentive plan		(164	)		(259	)
Accumulated other comprehensive income:
Net unrealized gain on securities, net of income tax benefit		530			12
Total stockholders’ equity		40,732			45,739
Total liabilities and stockholders’ equity	$	469,929		$	487,755
See accompanying notes to consolidated financial statements.

1

BROOKLYN FEDERAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	June 30,			June 30,			June 30,			June 30,
	2011			2010			2011			2010
Interest income:
First mortgage and other loans	$	3,065		$	6,292		$	12,549		$	20,387
Mortgage-backed securities		805			822			1,999			2,594
Other securities and interest-earning assets		94			55			245			229
Total interest income		3,964			7,169			14,793			23,210
Interest expense:
Deposits		1,375			1,757			4,336			5,772
Borrowings		64			68			194			173
Total interest expense		1,439			1,825			4,530			5,945
Net interest income before provision for loan losses		2,525			5,344			10,263			17,265
Provision for loan losses		(1,457	)		9,749			3,147			33,626
Net interest income (loss) after provision for loan losses		3,982			(4,405	)		7,116			(16,361	)
Non-interest income:
Total loss on OTTI of securities		-			(9,529	)		(8	)		(11,546	)
Less:
Non-credit portion of OTTI recorded in other comprehensive income before taxes		-			(776	)		-			-
Net loss on OTTI recognized in earnings		-			(10,305	)		(8	)		(11,546	)
Banking fees and service charges		107			178			332			662
Net loss on sale of securities available-for-sale		(24	)		-			(1,388	)		-
Net gain on sale of loans held-for-sale		12			91			178			185
Other		80			155			403			445
Total non-interest income (loss)		175			(9,881	)		(483	)		(10,254	)
Non-interest expense:
Compensation and employee benefits		1,892			1,937			6,090			5,996
Occupancy and equipment		516			444			1,493			1,340
FDIC Insurance		389			263			992			565
Professional fees		844			259			1,798			853
Data processing fees		190			165			535			495
Other		659			418			1,699			1,161
Total non-interest expense		4,490			3,486			12,607			10,410
Loss before income tax benefit		(333	)		(17,772	)		(5,974	)		(37,025	)
Income tax benefit		(398	)		(7,804	)		(304	)		(16,019	)
Net  income (loss)	$	65		$	(9,968	)	$	(5,670	)	$	(21,006	)
Earnings (loss) per common share:
Basic	$	0.01		$	(0.79	)	$	(0.45	)	$	(1.66	)
Diluted	$	0.01		$	(0.79	)	$	(0.45	)	$	(1.66	)
Average common shares outstanding:
Basic		12,652,063			12,631,821			12,647,167			12,623,577
Diluted		12,652,063			12,631,821			12,647,167			12,623,577
See accompanying notes to consolidated financial statements.

2

BROOKLYN FEDERAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except for per share amounts)

(Unaudited)

	Common Stock		Additional Paid-in Capital			Retained Earnings-Substantially Restricted			Treasury Stock			Unallocated Common Stock Held by ESOP			Unallocated Shares of the Stock-based Incentive Plan			Accumulated Other Comprehensive Income (Loss)		Total
Balance at October 1, 2010	$	135	$	43,119		$	12,687		$	(7,720	)	$	(2,235	)	$	(259	)	$	12	$	45,739
Comprehensive income:
Net loss		--		--			(5,670	)		--			--			--			--		(5,670	)
Net unrealized gain on securities available-for-sale, net of income tax expense of $407		--		--			--			--			--			--			518		518
Total comprehensive loss																					(5,152	)
Treasury stock purchased (6,737 shares)		--		--			--			(8	)		--			--			--		(8	)
Allocation of ESOP stock		--		(109	)		--			--			119			--			--		10
Stock-based incentive plan expense		--		199			(151	)		--			--			95			--		143
Dividends paid on common stock		--		--			--			--			--			--			--		--
Balance at June 30, 2011	$	135	$	43,209		$	6,866		$	(7,728	)	$	(2,116	)	$	(164	)	$	530	$	40,732
See accompanying notes to consolidated financial statements.

3

BROOKLYN FEDERAL BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the Nine Months Ended
	June 30,
	2011			2010
Cash flows from operating activities:
Net loss	$	(5,670	)	$	(21,006	)
Adjustments to reconcile net income to net cash used in operating activities:
ESOP expense		10			104
Stock-based incentive plan expense		143			158
Depreciation and amortization		386			340
Provision for loan losses		3,147			33,626
Income from bank-owned life insurance		(221	)		(264	)
Gross loss on OTTI recognized in earnings		8			11,546
Amortization of servicing rights		43			38
Accretion of deferred loan fees, net		(787	)		(505	)
Amortization of premiums, net of discounts		(14	)		(274	)
Originations of loans held-for-sale		(4,371	)		(5,337	)
Proceeds from sales of loans held-for-sale		4,475			5,426
Principal repayments on loans held-for-sale		--			2
Net gain on sales of loans held-for-sale		(104	)		(185	)
Decrease in accrued interest receivable		909			612
Deferred income tax expense (benefit)		949			(14,769	)
Net loss on sales of securities available-for-sale		1,388			--
Decrease (increase) in prepaid expenses and other assets		2,496			(5,434	)
Increase (decrease) in accrued expenses and other liabilities		2,462			(2,419	)
Net cash provided by operating activities		5,249			1,659
Cash flows from investing activities:
Repayments in excess of loan originations		35,358			2,358
Proceeds from the sale of loan notes		55,640			--
Principal repayments on mortgage-backed securities held-to-maturity		--			15,507
Principal repayments on mortgage-backed securities available-for-sale		27,044			101
Purchases of mortgage-backed securities held-to-maturity		--			(15,699	)
Purchases of securities available-for-sale		(103,802	)		(11,068	)
Proceeds from the sale of securities available-for-sale		13,044			--
Net redemptions of FHLB stock		160			412
Purchases of bank-owned life insurance		(15	)		(15	)
Proceeds from surrender of bank-owned life insurance		3,208			--
Purchases of premises and equipment		(158	)		(163	)
Net cash provided by (used in) investing activities		30,479			(8,567	)
Cash flows from financing activities:
(Decrease) increase in deposits		(12,636	)		26,063
Net decrease in short term borrowings		(1,500	)		(17,100	)
Proceeds from long term borrowings		--			5,000
Decrease in advance payments by borrowers for taxes and insurance		(1,145	)		(547	)
Purchase of treasury shares		(8	)		(13	)
Payment of cash dividend		--			(1,017	)
Net cash (used in) provided by financing activities		(15,289	)		12,386
Net increase in cash and cash equivalents		20,439			5,478
Cash and cash equivalents at beginning of year		14,201			3,472
Cash and cash equivalents at end of period	$	34,640		$	8,950
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	4,533		$	5,941
Taxes		175			4,440
Other:
Securities held-for-sale transferred to available-for-sale		--			71,017
See accompanying notes to consolidated financial statements.

4

BROOKLYN FEDERAL BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011

(Unaudited)

Note 1 - Business

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.  The Company completed its initial public offering on April 5, 2005.

The Company issued 9,257,500 shares to BFS Bancorp, MHC, and 3,967,500 shares to depositors resulting in a total of 13,225,000 shares issued and outstanding after completion of the reorganization.  At June 30, 2011, there were 12,882,607 total shares outstanding 71.9% of which were owned by BFS Bancorp, MHC.

Brooklyn Federal Savings Bank

The Bank is a federally chartered savings bank headquartered in Brooklyn, NY.  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 State.  The telephone number at our main office is (718) 855-8500.

Our principal business activity is originating mortgage loans secured by one-to-four-family residential real estate and, to a limited extent, a variety of consumer loans and home equity loans. We offer a variety of deposit accounts, including checking, savings and certificates of deposit, and emphasize personal and efficient service for our customers.

Note 2 - Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with instructions for Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP 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 and nine month periods ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending September 30, 2011.  The Company’s consolidated financial statements, as presented in the Company’s Form 10-K for the year ended September 30, 2010, should be read in conjunction with these statements.

Note 3 - Use of Estimates

The preparation of consolidated financial statements, in conformity with U.S. GAAP, 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, fair values of securities and deferred taxes are particularly susceptible to material change in the near term.

5

Note 4 - Impact of Certain Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2010-06, Fair Value Measurements and Disclosures (“Topic 820”): Improving Disclosures about Fair Value Measurements (“ASU 10-06”). ASU 10-06 revises two disclosure requirements concerning fair value measurements and clarifies two others. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers. It will also require the presentation of purchases, sales, issuances and settlements within Level 3 on a gross basis rather than a net basis. The amendments also clarify that disclosures should be disaggregated by class of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and non-recurring fair value measurements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. These new disclosure requirements were adopted by the Company during the first quarter of fiscal year 2011, with the exception of the requirement concerning gross presentation of Level 3 activity, which is effective for fiscal years beginning after December 15, 2010 and will apply to the Company beginning November 1, 2011. With respect to the portions of this ASU that have been adopted by the Company, adoption did not have a material impact on the Company’s financial position, results of operations, cash flows, or disclosures.  Management does not believe that the adoption of the remaining portion of this ASU will have a material impact on the Company’s financial position, results of operation, cash flows, or disclosures.  

In July 2010, the FASB issued ASU No. 2010-20 which amends the authoritative accounting guidance under Topic 310, Receivables.  The guidance amends existing disclosures to provide financial statement users with greater transparency about an entity’s allowance for loan and lease losses and the credit quality of its loan and lease portfolio.  Under the new guidelines, the allowance for loan and lease losses and fair value are to be disclosed by portfolio segment, while credit quality information, impaired loans and leases and non-accrual status are to be presented by class of loans and leases.  Disclosure of the nature and extent, the financial impact and segment information of troubled debt restructurings will also be required.  The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the loan and lease portfolio’s risk and performance.  This guidance is effective for interim and annual reporting periods ending on or after December 15, 2010.  This ASU was adopted during the first quarter of fiscal year 2011 and did not have a material effect on the Company’s results of operations or financial condition.

In April 2011, the FASB issued ASU No. 2011-02, which amends the authoritative accounting guidance under ASC Topic 310 “Receivables.” The update provides clarifying guidance as to what constitutes a troubled debt restructuring. The update provides clarifying guidance on a creditor’s evaluation of the following: (1) how a restructuring constitutes a concession; and (2) if the debtor is experiencing financial difficulties. The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. In addition, disclosures about troubled debt restructurings which were delayed by the issuance of ASU No. 2011-01, are effective for interim and annual periods beginning on or after June 15, 2011. Adoption of this update is not expected to have a material effect on the Company’s results of operations or financial condition.

6

Note 5 - Securities

Investments in securities at June 30, 2011 and September 30, 2010 are summarized as follows:

June 30, 2011
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
	(In thousands)
Securities available-for-sale:
Mortgage-backed securities-residential:
Government agency	$	16,786	$	67	$	(4	)	$	16,849
Government-sponsored enterprises		98,725		982		(308	)		99,399
Private issuers		4,393		174		-			4,567
Government debentures		10,976		58		(47	)		10,987
Mutual funds		500		15		-			515
Total securities available-for-sale	$	131,380	$	1,296	$	(359	)	$	132,317
September 30, 2010
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
	(In thousands)
Securities available-for-sale:
Mortgage-backed securities-residential:
Government agency	$	16,522	$	217	$	(2	)	$	16,737
Government-sponsored enterprises		24,440		464		(15	)		24,889
Private issuers		22,055		680		(1,383	)		21,352
Government debentures		2,990		39		-			3,029
Mutual funds		3,079		21		-			3,100
Total securities available-for-sale	$	69,086	$	1,421	$	(1,400	)	$	69,107

The Company acquired all of its mortgage-backed securities by purchase (none resulted from retained interests in loans sold or securitized by the Company). At June 30, 2011, mortgage-backed securities issued by government-sponsored enterprises consisted of (i) Federal Home Loan Mortgage Corporation (“Freddie Mac”) securities with an amortized cost of $19.2 million (compared to $6.9 million at September 30, 2010) and an estimated fair value of $19.3 million (compared to $7.2 million at September 30, 2010) and (ii) Federal National Mortgage Association (“Fannie Mae”) securities with an amortized cost of $79.5 million (compared to $17.5 million at September 30, 2010) and an estimated fair value of $80.1 million (compared to $17.7 million at September 30, 2010) and (iii) Ginnie Mae securities with an amortized cost of $16.8 million (compared to $16.5 million at September 30, 2010) and an estimated fair value of $16.9 million (compared to $16.7 million at September 30, 2010). These are the only securities of individual issuers held by the Company with an aggregate book value exceeding 10% of the Company’s equity at June 30, 2011.

The Company recognized total pre-tax other-than-temporary impairment charges of approximately $8,000 on securities for the nine months ended June 30, 2011 (all of which was recognized during the three months ended December 31, 2010 included in this nine month period). The mutual fund investment incurring the impairment was sold in March of 2011. This compared to pre-tax other-than-temporary impairment charges of $10.3 million for the three months ended June 30, 2010 and $11.5 million for the nine months ended June 30, 2010, all of which was recognized in earnings.

The Company sold $14.4 million of securities, realizing a loss of $1.4 million during the nine months ended June 30, 2011, compared to no sale of securities for the nine months ended June 30, 2010.

At June 30, 2011, the Bank pledged securities having an amortized cost of $21.0 million, with an estimated fair value of $21.4 million, as collateral for advances from the Federal Home Loan Bank of New York.

7

The following table summarizes debt securities available-for-sale at estimated fair value by contractual final maturity as of June 30, 2011.  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 a prepayment penalty.

	Amortized		Estimated
	cost		Fair Value
	(In thousands)
Securities available-for-sale:
One year or less	$	-	$	-
Over one year through five years		6,561		6,638
Over five years through ten years		16,572		16,784
More than ten years		107,747		108,380
Total securities available-for-sale:	$	130,880	$	131,802

The following table summarizes securities at June 30, 2011 and September 30, 2010 with gross unrealized losses, segregated by the length of time the securities had been in a continuous loss position:

	Less than 12 months					As of June 30, 2011 12 months or more					Total
	Estimated fair value		Gross unrealized losses			Estimated fair value		Gross unrealized  losses			Estimated fair value		Gross unrealized losses
	(In thousands)
Mortgage-backed securities-residential:
Government agency	$	6,106	$	(3	)	$	66	$	(1	)	$	6,172	$	(4	)
Government-sponsored enterprises		27,673		(281	)		1,324		(27	)		28,997		(308	)
Government debentures		2,943		(47	)		-		-			2,943		(47	)
Total temporarily impaired securities	$	36,722	$	(331	)	$	1,390	$	(28	)	$	38,112	$	(359	)
	Less than 12 months					As of September 30, 2010 12 months or more					Total
	Estimated fair value		Gross unrealized losses			Estimated fair value		Gross unrealized losses			Estimated fair value		Gross unrealized losses
	(In thousands)
Mortgage-backed securities-residential:
Government agency	$	73	$	(2	)	$	-	$	-		$	73	$	(2	)
Government-sponsored enterprises		2,899		(15	)		-		-			2,899		(15	)
Private issuers		-		-			5,316		(1,383	)		5,316		(1,383	)
Total temporarily impaired securities	$	2,972	$	(17	)	$	5,316	$	(1,383	)	$	8,288	$	(1,400	)

8

Securities in unrealized loss positions are analyzed as part of the Company’s ongoing assessment of Other-Than-Temporary Impairments (“OTTI”). When the Company intends to sell or is required to sell 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 or is not required to sell 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 mortgage-backed securities, the Company estimates cash flows over the remaining lives of the underlying collateral to assess whether credit losses exist and determines 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, 2011, the Company does not intend to sell the securities with an unrealized loss position in accumulated other comprehensive loss (“AOCL”), and it is likely that the Company will not 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, 2011.

The following table presents a roll-forward of the credit loss component of OTTI on the Bank’s investment in a mutual fund that invests primarily in agency and private label mortgage-backed securities for which a non-credit component of OTTI was recognized in other comprehensive loss for the nine months ended June 30, 2011. There were no private-issuer mortgage backed securities in an unrealized loss position during the three months ended June 30, 2011. OTTI recognized in earnings 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 Nine Months ended June 30, 2011	Total Other- Than- Temporary Impairment Loss			Other-Than- Temporary Impairment Credit Losses recorded in Earnings			Other-Than- Temporary Impairment Credit Losses recorded in Other Comprehensive Income
	(in thousands)
Beginning balance as of October 1, 2010	$	2,357		$	2,357		$	-
Add: Initial other-than-temporary credit losses		-			-			-
Additional other-than-temporary credit losses		8			8			-
Reduction for previous credit losses realized on securities sold during the period		(2,365	)		(2,365	)		-
Ending balance as of June 30, 2011	$	-		$	-		$	-

9

Note 6 – Loans Receivable, net

The components of the loan portfolio are summarized as follows:

	June 30,			September 30,
	2011			2010
	(In thousands)
Mortgage loans:
One- to four-family	$	82,438		$	73,457
Multi-family		40,391			65,209
Commercial		81,643			119,727
Construction		74,763			95,824
Land		17,871			34,084
		297,106			388,301
Consumer and other loans:
Personal loans		213			331
Loans secured by deposit accounts		123			118
		336			449
Total loans receivable		297,442			388,750
Deferred net loan origination fees		(290	)		(967	)
Allowance for loan losses		(20,668	)		(17,941	)
Total loans receivable, net	$	276,484		$	369,842

The following table summarizes the activity in allowance for loan losses for the three and nine month periods ended June 30, 2011 and 2010 (dollars in thousands):

	For the Three Months Ended
	June			June
	2011			2010
	(In thousands)
Balance, beginning of period	$	21,887		$	20,389
Charge-offs		(762	)		(8,590	)
Recoveries		1,000			-
Provision for loan losses		(1,457	)		9,749
Balance, end of period	$	20,668		$	21,548
	For the Nine Months Ended
	June			June
	2011			2010
	(In thousands)
Balance, beginning of period	$	17,941		$	10,750
Charge-offs		(2,023	)		(22,834	)
Recoveries		1,603			6
Provision for loan losses		3,147			33,626
Balance, end of period	$	20,668		$	21,548

10

The following table summarizes the activity in allowance for loan losses and the impairment evaluation for the three and nine months ended June 30, 2011 (dollars in thousands):

	For the Three Months Ended June 30, 2011
	One-to-Four Family			Multi- Family			Commercial Real Estate			Construction			Land			Consumer and Other			Total
Allowance for loan losses:
Beginning balance	$	166		$	3,793		$	10,082		$	2,534		$	5,305		$	7		$	21,887
Charge-offs		(4	)		(44	)		(33	)		(3	)		(679	)		-			(762	)
Recoveries		-			-			960			30			10			-			1,000
Provision for loan losses		97			(466	)		(3,400	)		5,023			(2,707	)		(4	)		(1,457	)
Ending balance	$	260		$	3,283		$	7,609		$	7,584		$	1,929		$	3		$	20,668
	For the Nine Months Ended June 30, 2011
	One-to-Four Family			Multi- Family			Commercial Real Estate			Construction			Land			Consumer and Other			Total
Allowance for loan losses:
Beginning balance	$	547		$	3,125		$	9,485		$	1,664		$	3,104		$	16		$	17,941
Charge-offs		(61	)		(44	)		(33	)		(1,075	)		(810	)		-			(2,023	)
Recoveries		3			5			980			602			13			-			1,603
Provision for loan losses		(229	)		197			(2,823	)		6,393			(378	)		(13	)		3,147
Ending balance	$	260		$	3,283		$	7,609		$	7,584		$	1,929		$	3		$	20,668
Ending balance: individually evaluated for impairment	$	-		$	-		$	1,041		$	566		$	-		$	-		$	1,607
Ending balance: collectively evaluated for impairment		260			3,283			6,568			7,018			1,929			3			19,061
Ending balance	$	260		$	3,283		$	7,609		$	7,584		$	1,929		$	3		$	20,668
Loans:
Ending balance: individually evaluated for impairment	$	1,284		$	26,489		$	36,822		$	66,783		$	13,358		$	-		$	144,736
Ending balance: collectively evaluated for impairment		81,154			13,902			44,821			7,980			4,513			336			152,706
Ending balance	$	82,438		$	40,391		$	81,643		$	74,763		$	17,871		$	336		$	297,442

The table below sets forth the amounts and categories of our non-performing assets, net of specific allowances at the dates indicated.  We may from time to time agree to modify the contractual terms of a borrower’s loan.  In cases where these modifications represent a concession (for which a portion of interest or principal has been forgiven and loans modified at interest rates materially less than current market rates) to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”).  At June 30, 2011, loans modified in a troubled debt restructuring totaled $21.4 million.  There are no unfunded commitments on any of these loans. One loan for $0.4 million is performing in accordance with its new terms and, therefore, is not included in the table below.  The remaining total of $21.0 million is in non-accrual status, and is included in the table below.

11

The following table sets forth information with respect to the Company’s non-performing loans (dollars in thousands):

	June		September
	2011		2010
	(Dollars in thousands)
Non-accrual loans:
One-to four-family	$	1,284	$	-
Multi-family		26,052		23,956
Commercial real estate		26,046		34,908
Construction		57,268		7,890
Land		6,086		5,103
Consumer		-		-
Total non-accrual loans		116,736		71,857
Loans past maturity and still accruing:
Multi-family		-		1,365
Commercial real estate		1,060		3,713
Construction		-		6,615
Land		-		2,628
Total loans past maturity and still accruing		1,060		14,321
Past due over 90 days and still accruing		-		-
Real estate owned		-		-
Total non-performing loans/assets	$	117,796	$	86,178

At June 30, 2011 and September 30, 2010 there were no loans over 90 days past due that were still accruing interest.

For the three and nine months ended June 30, 2011, there was $3.0 million and $8.1 million of interest income that would have been recorded had our non-accruing loans been current and in accordance with their original terms compared to $1.3 million and $4.4 million for the three and nine months ended June 30, 2010.

12

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company analyzes loans individually by classifying the loans as to credit risk. Loans classified as “watch” are characterized by borrowers who have marginal cash flow, marginal profitability, or have experienced an unprofitable year and a declining financial condition. The borrower has in the past satisfactorily handled debts with the bank, but in recent months has either been late, delinquent in making payments, or made sporadic payments. While the bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. Other characteristics of borrowers in this class include inadequate credit information, weakness of financial statement and repayment capacity, but with collateral that appears to limit exposure. This classification includes loans to established borrowers that are reasonably margined by collateral, but where potential for improvement in financial capacity appears limited. We classify an asset as “special mention” if the asset has a potential weakness that warrants management’s close attention.  While “special mention” assets have not deteriorated to the point of being classified as “substandard,” management has concluded that if the potential weakness in the asset is not addressed, the value of the asset may deteriorate, thereby adversely affecting the repayment of the asset. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the institution will sustain “some loss” if the deficiencies are not corrected.  Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.”As of June 30, 2011, and based on the most recent analysis performed, the risk category by class of loans is as follows (dollars in thousands):

	One-to- Four Family		Multi- Family		Commercial Real Estate		Construction		Land		Consumer and Other		Total
Credit Risk by Internally Assigned Rating:
Pass	$	79,571	$	11,635	$	28,621	$	-	$	1,169	$	336	$	121,332
Watch		1,534		1,903		14,061		3,707		-		-		21,205
Special Mention		49		364		2,139		4,273		3,344		-		10,169
Substandard		1,284		26,489		33,109		66,783		13,358		-		141,023
Doubtful		-		-		3,713		-		-		-		3,713
	$	82,438	$	40,391	$	81,643	$	74,763	$	17,871	$	336	$	297,442

The following table presents an aging analysis of the recorded investment of past due loans receivable as of June 30, 2011 (dollars in thousands):

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		TDR (1)		Current		Total Loans Receivable
One-to-Four Family	$	74	$	-	$	1,230	$	1,304	$	390	$	80,744	$	82,438
Multi-Family		3,598		214		14,982		18,794		7,156		14,441		40,391
Commercial Real Estate		1,415		-		24,402		25,817		2,684		53,142		81,643
Construction		19,206		1,846		24,435		45,487		9,245		20,031		74,763
Land		1,896		-		2,047		3,943		1,958		11,970		17,871
Consumer and Other		23		-		1		24		-		312		336
	$	26,212	$	2,060	$	67,097	$	95,369	$	21,433	$	180,640	$	297,442
(1) $0.4 million of TDR loans have performed in accordance with modified terms
$21.0 million of TDR loans have not performed in accordance with modified terms and are in non-accrual status

13

The following table presents the recorded investment and unpaid principal balances for impaired loans with the associated specific allowance amount, if applicable. Management determined the specific allowance based on the current fair value of the collateral, less selling costs (dollars in thousands):

	As of and for the nine months ended June 30, 2011
	Unpaid Principal Balance		Recorded Balance		Specific Allowance		Average Recorded Investment		Interest Income Recognized
Loans without a specific valuation allowance:
One-to-Four Family	$	1,345	$	1,284			$	1,284	$	10
Multi-Family		28,955		26,489				28,935		123
Commercial Real Estate		44,280		34,587				43,823		13
Construction		60,700		59,553				45,722		404
Land		17,460		13,358				14,617		83
Consumer and Other		-		-				-
Loans with a specific valuation allowance:
One-to-Four Family		-		-	$	-		-		-
Multi-Family		-		-		-		-		-
Commercial Real Estate		2,235		2,235		1,041		2,233		-
Construction		7,230		7,230		566		-		-
Land		-		-		-		-		-
Consumer and Other		-		-		-		-		-
Total:
One-to-Four Family		1,345		1,284		-		1,284		10
Multi-Family		28,955		26,489		-		28,935		123
Commercial Real Estate		46,515		36,822		1,041		46,056		13
Construction		67,930		66,783		566		45,722		404
Land		17,460		13,358		-		14,617		83
Consumer and Other		-		-		-		-		-
Total impaired loans	$	162,205	$	144,736	$	1,607	$	136,613	$	633
	As of and for the year ended September 30, 2010
	Unpaid Principal Balance		Recorded Balance		Specific Allowance		Average Recorded Investment		Interest Income Recognized
Loans without a specific valuation allowance:
One-to-Four Family	$	-	$	-			$	-	$	7
Multi-Family		38,903		31,380				20,917		509
Commercial Real Estate		64,191		47,146				35,889		369
Construction		25,726		24,660				18,882		92
Land		22,582		15,938				15,206		15
Consumer and Other		-		-				-
Loans with a specific valuation allowance:
One-to-Four Family		-		-	$	-		-		-
Multi-Family		-		-		-		-		-
Commercial Real Estate		5,414		5,414		1,081		3,976		27
Construction		-		-		-		-		-
Land		437		437		6		437		8
Consumer and Other		-		-		-		-
Total:
One-to-Four Family		-		-		-		-		7
Multi-Family		38,903		31,380		-		20,917		509
Commercial Real Estate		69,605		52,560		1,081		39,865		396
Construction		25,726		24,660		-		18,882		92
Land		23,019		16,375		6		15,643		23
Consumer and Other		-		-		-		-		-
Total impaired loans	$	157,253	$	124,975	$	1,087	$	95,307	$	1,027

14

Note 7 - Fair Value Disclosures

FASB issued guidance regarding Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements.  This guidance applies to other accounting pronouncements that require or permit fair value measurements.  The Company adopted the guidance effective for its fiscal year beginning October 1, 2008.  The primary effect of the FASB-issued guidance on the Company was to expand the required disclosures pertaining to the methods used to determine fair values.  

The FASB-issued guidance 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 this guidance are as follows:

Level 1:  Quoted prices in active markets for identical assets or liabilities.

Level 2:  Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3:  Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

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.

15

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 statements of financial condition at June 30, 2011 and September 30, 2010 are as follows (in thousands):

			(Level 1)
			Quoted Prices		(Level 2)
			in Active		Significant		(Level 3)
			Markets for		Other		Significant
			Identical		Observable		Unobservable
Description	June 30, 2011		Assets		Inputs		Inputs
Mortgage-backed securities-residential:
Government agency	$	16,849	$	--	$	16,849	$	--
Government-sponsored enterprises		99,399		--		99,399		--
Private issuers		4,567		--		4,567		--
Government debentures		10,987		10,987		--		--
Mutual funds		515		515		--		--
Total securities available-for-sale	$	132,317	$	11,502	$	120,815	$	--
			(Level 1)
			Quoted Prices		(Level 2)
			in Active		Significant		(Level 3)
			Markets for		Other		Significant
			Identical		Observable		Unobservable
Description	September 30, 2010		Assets		Inputs		Inputs
Mortgage-backed securities-residential:
Government agency	$	16,737	$	--	$	16,737	$	--
Government-sponsored enterprises		24,889		--		24,889		--
Private issuers		21,352		--		21,352		--
Government debentures		3,029		3,029		--		--
Mutual funds		3,100		3,100		--		--
Total securities available-for-sale	$	69,107	$	6,129	$	62,978	$	--

16

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, 2011 and September 30, 2010 is as follows (in thousands):

			(Level 1)
			Quoted Prices		(Level 2)
			in Active		Significant		(Level 3)
			Markets for		Other		Significant
			Identical		Observable		Unobservable
Description	June 30, 2011		Assets		Inputs		Inputs
Impaired loans:
One-to-Four Family	$	1,284	$	-	$	-	$	1,284
Multi-Family		26,489		-		-		26,489
Commercial Real Estate		35,781		-		-		35,781
Construction		66,783		-		-		66,783
Land		13,358		-		-		13,358
Total Impaired loans	$	143,695	$	-	$	-	$	143,695
			(Level 1)
			Quoted Prices		(Level 2)
			in Active		Significant		(Level 3)
			Markets for		Other		Significant
			Identical		Observable		Unobservable
Description	September 30, 2010		Assets		Inputs		Inputs
Impaired loans:
Multi-Family	$	31,380	$	-	$	-	$	31,380
Commercial Real Estate		51,479		-		-		51,479
Construction		24,660		-		-		24,660
Land		16,369		-		-		16,369
Total Impaired loans	$	123,888	$	-	$	-	$	123,888

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 available-for-sale, which includes mortgage-backed securities, was obtained either through a primary broker/dealer or other third party provider from readily available price quotes as of June 30, 2011 (Level 1) or by obtaining matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2).

Impaired loans – 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, net of partial charge-offs, less their specific valuation allowances.

17

The following table summarizes the carrying value and estimated fair value of the Company’s financial instruments at June 30, 2011 and September 30, 2010:

	June 30, 2011				September 30, 2010
	Carrying value		Estimated fair value		Carrying value		Estimated fair value
	(In thousands)
Financial assets:
Cash and due from banks	$	34,640	$	34,640	$	14,201	$	14,201
Securities available-for-sale		132,317		132,317		69,107		69,107
Loans receivable, net		276,484		277,466		369,842		369,750
FHLB stock		1,643		N/A		1,803		N/A
Accrued interest receivable		1,152		1,152		2,061		2,061
Financial liabilities:
Deposits		410,770		415,618		423,406		428,667
Borrowings		9,000		9,350		10,500		10,936
Accrued interest payable		24		24		28		28

The methods and assumptions, not previously presented, used to estimate fair value is described as follows:

Carrying amount is the estimated fair value for cash and due from banks, accrued interest receivable and payable, demand deposits, short-term borrowings, and variable rate loans or deposits that reprice frequently and fully. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk.  Fair value of borrowings is based on current rates for similar financing.  It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. The fair value of off-balance sheet items is not considered material.

Note 8 – Enforcement Actions; Going Concern

The Company and the Bank are subject to enforcement actions and other requirements imposed by federal banking regulators. In particular, and as previously reported, the Bank is subject to a Cease and Desist Order (the “Bank Order”) issued by the OTS on March 31, 2011 that required, among other things, the Bank to implement an updated business plan to improve the Bank’s core earnings, reduce expenses, maintain an appropriate level of liquidity and achieve profitability. The Bank Order also required that the Bank achieve and maintain a Tier 1 Capital Ratio equal to or greater than 10% and a Total Risk-Based Capital Ratio equal to or greater than 15%, after the funding of its allowance for loan and lease losses, by April 30, 2011. As of April 30, 2011, the Bank did not meet these capital requirements.

As the Bank failed to achieve the capital ratios required by the Bank Order, the Bank was required to file a Contingency Plan with the OTS within 15 days of April 30, 2011.  The Bank Order required that the Contingency Plan detail actions to be taken and specific time frames to achieve either a merger with, or acquisition by, another federally insured depository institution or holding company thereof, or a voluntary dissolution by the later of the date of all required regulatory approvals or sixty (60) days after implementation of the Contingency Plan.  The Bank filed the Contingency Plan with the OTS on May 12, 2011 and by letter dated June 15, 2011 the OTS directed the Bank to immediately implement and adhere to such Contingency Plan.   The Bank intends to comply with the Contingency Plan and the directive.  Moreover, as the holding companies of the Bank, the Company and BFS Bancorp, MHC also are subject to a separate but related Cease and Desist Order issued by the OTS on the same date as the Bank’s Order, which required, among other terms, that the Company and BFS Bancorp, MHC ensure the Bank’s compliance with the terms of the Bank Order. The Company and BFS Bancorp, MHC are in the process of complying with their respective orders to ensure the Bank’s compliance with the terms of the Bank Order, including the implementation of the Contingency Plan.

The unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the foreseeable future. Failure to comply with the requirements of the Contingency Plan to complete a merger or acquisition would result in the imposition of the Contingency Plan requirement to voluntarily dissolve. These factors give rise to substantial doubt as to the Company's ability to continue as a going concern. These financial statements do not include any adjustments that may result should the Company be unable to continue as a going concern.

18

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain statements contained herein are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions and the effects of new laws and regulations, including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act, changes in regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity.

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 except as required by law.

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, FDIC insurance, 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.

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

19

Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”)

Major financial reform legislation, known as the Dodd-Frank Act, was signed into law by the President on July 21, 2010. Among other things, the Dodd-Frank Act dramatically impacts the rules governing the provision of consumer financial products and services, and implementation of the many requirements of the legislation will require new mandatory and discretionary rulemakings by numerous federal regulatory agencies over the next several years. Many of the provisions of the Dodd-Frank Act affecting BFS Bancorp, MHC, the Company and Bank have effective dates ranging from immediately upon enactment of the legislation to several years following enactment of the Dodd-Frank Act.

Of particular significance, in July 2011, after the close of the Company’s third fiscal quarter, the Dodd-Frank Act marked its one year anniversary, at which time certain important provisions of the Dodd-Frank Act pertaining to the operations of federal savings associations and their holding companies became effective.  For example, effective July 21, 2011, the supervisory and rulemaking (except for consumer protection) functions of the Office of Thrift Supervision (“OTS”) with respect to savings and loan holding companies (including the Company and BFS Bancorp, MHC) and federal savings associations (including the Bank) were formally transferred to the Board of Governors of the Federal Reserve System (“Federal Reserve”), for savings and loan holding companies, and the Office of the Comptroller of the Currency (“OCC”), for federal savings associations.  The OTS will be abolished 90 days thereafter. The Federal Reserve is applying certain parts of its current consolidated supervisory program for bank holding companies, including significantly enhanced reporting requirements, to savings and loan holding companies. The OCC has published an interim final rule that reissues, as new OCC regulations, the former OTS regulations that the OCC has authority to promulgate and enforce as of the transfer date.  Additional rulemakings are expected as the OCC continues to determine what changes are needed for the transition of federal savings associations to OCC supervision.  As there may be significant revisions to the regulations under which we operate and are supervised, we may experience operational challenges in the course of full transition to our new regulators.

July 21, 2011 was also the effective date for the preemption provisions of the Dodd-Frank Act, which require that federal savings associations be subject to the same preemption standards as national banks, with respect to the application of state consumer laws to the inter-state activities of federally chartered depository institutions.  Moreover, July 21, 2011 was the designated transfer date under the Dodd-Frank Act for the formal transfer of rulemaking functions under the federal consumer financial laws from each of the various federal banking agencies to a new governmental entity known as the Bureau of Consumer Financial Protection (“BCFP”) that is charged with the mission of protecting consumer interests.  The BCFP is responsible for administering and carrying out the purposes and objectives of the “Federal consumer financial laws, and to prevent evasions thereof,” with respect to all financial institutions that offer financial products and services to consumers.  The BCFP is also authorized to prescribe rules applicable to any covered person or service provider identifying and prohibiting acts or practices that are “unfair, deceptive, or abusive” in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.  With its broad rulemaking powers, the new BCFP has the potential to reshape the consumer financial laws through rulemaking and enforcement of unfair, deceptive or abusive practices, which may directly impact the business operations of financial institutions offering consumer financial products or services including the Bank.

Other changes in law mandated by the Dodd-Frank Act which became effective on July 21, 2011 included the repeal of the federal prohibition on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on commercial transaction and other accounts. The ultimate impact of this change in law on the operations of the Company and Bank has not yet been determined.

The Company and Bank are continuing to closely monitor and evaluate developments under the Dodd-Frank Act with respect to our business, financial condition, results of operations and prospects.

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:

20

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 that is charged against income.  In determining the allowance for loan losses, management makes significant estimates and has identified this policy as one of the most critical for the Bank.  The methodology for determining the allowance for loan losses is considered a critical accounting policy by management due to the high degree of judgment involved, the subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses.

As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans and discounted cash flow valuations of properties are critical in determining the amount of the allowance required for specific loans.  Assumptions for appraisals and 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 appraisals and discounted cash flow valuations are carefully reviewed by management to determine that the resulting values reasonably reflect amounts realizable on the related loans.

Management performs a quarterly evaluation of the adequacy of the allowance for loan losses.  Consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal and external loan reviews and other relevant factors.  This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision based on changes in economic and real estate market conditions.

The analysis of the allowance for loan losses has two components: specific and general allocations.  Specific allocations are made for loans that are determined to be impaired.  Impairment for all classes of loans 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 portfolio segment, risk weighting (if applicable) and payment history.  For all portfolio segments, we also analyze historical loss experience over the prior 18 months, delinquency trends, general economic conditions and geographic and industry concentrations.  This analysis establishes factors that are applied to the segments 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. 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 the 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.

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. As of June 30, 2011, we had recorded a valuation allowance on all of our deferred income taxes. At September 30, 2010, we had recorded a valuation allowance of all but $1.3 million of our deferred income taxes.

21

Comparison of Financial Condition at June 30, 2011 and September 30, 2010

Overview.  Total assets decreased $17.8 million to $469.9 million at June 30, 2011 from $487.7 million at September 30, 2010.  This decrease was primarily due to a decrease in loans receivables, net offset in part by increases in cash and due from banks and securities available-for-sale.

Cash and Due From Banks.  Cash and due from banks increased $20.4 million, or 143.9%, to $34.6 million at June 30, 2011 from $14.2 million at September 30, 2010.

Securities.  Investment securities increased $63.2 million, or 91.5%, to $132.3 million at June 30, 2011 from $69.1 million at September 30, 2010. This increase was primarily due to $103.8 million purchases of securities, partially offset by $13.0 million in sales of securities and repayments of approximately $27.0 million.

Net Loans.  Loans before allowance for loan losses decreased $90.6 million, or 23.4%, to $297.2 million at June 30, 2011 from $387.8 million at September 30, 2010, primarily due to decreases of $24.8 million in multi-family loans, $38.1 million in commercial real estate loans, $21.1 million in construction loans and $16.2 million in land loans offset in part by an increase in one-to-four family loans of $9.0 million. Due to OTS mandated restrictions, the Bank will not originate any multi-family, commercial real estate, construction or landloans without the prior approval of the OTS.

On the basis of management’s review of assets, at June 30, 2011, we classified $10.1 million of our assets as special mention or potential problem loans compared to $62.5 million at September 30, 2010.   Loans classified as special mention are not considered “classified” under the OTS regulations but do warrant extra attention.  

At June 30, 2011 we classified $144.6 million of loans as substandard or worse compared to $125.0 million at September 30, 2010.  Substandard/doubtful loans include $117.8 million of non-performing loans, of which $116.7 million are non-accrual loans and $1.1 million are loans contractually past their maturity date for which we continue to accrue interest. Of the $116.7 million in non-accrual loans, $21.0 million are TDR’s. We have evaluated each substandard/doubtful loan for potential impairment under ASC 310 “Receivables.” Based upon our analysis $142.5 million of such substandard/doubtful loans did not require an allowance as of June 30, 2011 due to the fact that the collateral value of the real estate, net of estimated selling costs, exceeded the carrying value of the loan. The Company believes that, as of June 30, 2011, the allowance for loan losses is adequate to absorb known and inherent losses within the loan portfolio. There can be no assurances that additional provision for loan losses will not be required in future periods.

Net charge-offs totaled $2.0 million for the nine months ended June 30, 2011 compared to $22.8 million for the nine months ended June 30, 2010.  Annualized net charge-offs represented 0.13% of average loans for the nine months ended June 30, 2011.

Allowance for Loan Losses and Asset Quality

The Company maintains an allowance for loan and lease losses (“ALLL”) that management believes is sufficient to absorb known and inherent losses in its loan portfolio. The adequacy of the ALLL is determined by management’s continuing review of the Company’s loan portfolio, which includes identification and review of individual factors that may affect a borrower’s ability to repay. Management reviews overall portfolio quality through an analysis of delinquency and non-performing loan data, estimates of the value of underlying collateral and current charge-offs. A review of regulatory examinations, an assessment of current and expected economic conditions and changes in the size and composition of the loan portfolio are also taken into consideration. The ALLL reflects management’s evaluation of the loans presenting identified loss as well as the risk inherent in various segments of the portfolio. As such, an increase in the size of the portfolio or any of its segments could necessitate an increase in the ALLL even though there may not be a decline in credit quality or an increase in potential problem loans.

22

For additional information regarding the Company’s ALLL policy, please refer to Note 2(h) of Notes to Consolidated Financial Statements, “Nature of Business and Summary of Significant Accounting Policies” included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2010.

The following table summarizes the activity in ALLL for the nine month periods ended June 30, 2011 and 2010 (dollars in thousands):

	June			June
	2011			2010
	(Dollars in thousands)
Balance at beginning of period	$	17,941		$	10,750
Charge-offs:
One-to-four-family		(61	)		(170	)
Multi-family		(44	)		(6,869	)
Commercial real estate		(33	)		(13,724	)
Construction		(1,075	)		(264	)
Land		(810	)		(1,772	)
Consumer and other		-			(35	)
Recoveries		1,603			6
Net charge-offs		(420	)		(22,828	)
Provision for loan losses		3,147			33,626
Balance at end of period	$	20,668		$	21,548
Ratios:
Net charge-offs to average loans outstanding		0.13	%		5.34	%
Allowance for loan losses to total loans at end of period		6.96	%		5.82	%

The Company recorded a loan loss provision of $3.1 million for the nine months ended June 30, 2011, a decrease of $30.5 million, compared to a $33.6 million provision in the same prior year period. The $3.1 million recognized as provision for the nine month period ended June 30, 2011 reflects $2.0 million of charge offs for criticized assets, a $2.7 million increase in general loss allowance and  recoveries of $1.6 million. The Company’s future level of non-performing loans will be influenced by economic conditions, including the impact of those conditions on the Bank’s customers, interest rates and other factors existing at the time.

At June 30, 2011 and September 30, 2010, the Bank’s allowance for loan losses was $20.7 million and $17.9 million, respectively.

Non-Performing Loans and Potential Problem Assets

After a one-to-four-family residential loan becomes 15 days late, the Bank delivers a computer-generated late charge notice to the borrower.  Approximately one week later, we deliver a reminder notice.  When a loan becomes 30 days delinquent, the loan servicing department manager determines whether to send an acceleration letter to the borrower and attempts to make personal contact.  After 60 days, we will generally refer the matter to legal counsel who is authorized to commence foreclosure proceedings.  Management is authorized to begin foreclosure proceedings on any loan after 60 days, after determining that it is prudent to do so and the proper acceleration letter has been sent.

23

After a multi-family, commercial real estate or construction loan becomes ten days delinquent, the Bank delivers a computer-generated late charge notice to the borrower and attempts to make personal contact with the borrower.  If there is no successful resolution of the delinquency at that time, we may accelerate the payment terms of the loan and issue a letter notifying the borrower of this acceleration.  After such loan is 15 days delinquent, we may refer the matter to legal counsel who is authorized to commence foreclosure proceedings.  Management is authorized to begin foreclosure proceedings on any delinquent loan after determining that it is prudent to do so.

Loans are reviewed on a regular basis by management’s Asset Classification Committee and are placed on non-accrual status when they become 90 days or more delinquent and collection is doubtful or when, regardless of how many days delinquent the loan is, other factors indicate that the collection of these amounts is doubtful.  When loans are placed on non-accrual status, unpaid accrued interest is reversed, and further income is recognized only to the extent received.

Non-Performing Loans.Non-performing loans are defined as either in non-accrual status, over 90 days past due and still accruing,  and/or past contractual maturity date.  At June 30, 2011, $117.8 million of our loans net of specific allowances, or 39.6%, of our total loans, compared to $86.2 million, or 22.2%, at September 30, 2010, were non-accrual and/or past maturity and therefore non-performing.  These loans consist of multi-family, commercial real estate, construction and land loans.  We are actively pursuing all applicable methods and resources to reduce the number and amount of non-performing loans.

Non-Performing Assets.  The table below sets forth the amounts and categories of our non-performing assets, net of specific allowances at the dates indicated.  We may from time to time agree to modify the contractual terms of a borrower’s loan.  In cases where these modifications represent a concession (for which a portion of interest or principal has been forgiven and loans modified at interest rates materially less than current market rates) to a borrower experiencing financial difficulty, the modification is considered a TDR, or troubled debt restructuring.  If a TDR, at the time of its modification, is current, or performing, it will remain in accrual status, so long as the borrower continues to perform in accordance with the modified terms.  If a TDR, at the time of its modification, is not performing, the loan will remain in non-accrual status until such time that the borrower has demonstrated the ability to perform in accordance with the modified terms, usually six months. At June 30, 2011, loans modified in a troubled debt restructuring totaled $21.4 million.  One loan for $0.4 million is performing in accordance with its new terms and, therefore, is not included in the table below.  The remaining total of $21.0 million is in non-accrual status, and included in the table below.

24

The following table sets forth information with respect to the Company’s non-performing assets (dollars in thousands):

	June		September
	2011		2010
	(Dollars in thousands)
Non-accrual loans:
One-to four-family	$	1,284	$	-
Multi-family		26,052		23,956
Commercial real estate		26,046		34,908
Construction		57,268		7,890
Land		6,086		5,103
Consumer		-		-
Total non-accrual loans		116,736		71,857
Loans past maturity and still accruing:
Multi-family		-		1,365
Commercial real estate		1,060		3,713
Construction		-		6,615
Land		-		2,628
Total loans past maturity and still accruing		1,060		14,321
Past due over 90 days and still accruing		-		-
Real estate owned		-		-
Total non-performing loans/assets	$	117,796	$	86,178

For the three and nine months ended June 30, 2011, there was $3.0 million and $8.1 million of interest income that would have been recorded had our non-accruing loans been current and in accordance with their original terms.

Prepaid Expenses and Other Assets.  Prepaid expenses and other assets decreased $3.8 million, or 20.2%, to $15.2 million at June 30, 2011 from $19.0 million at September 30, 2010.  The decrease was due primarily to a surrender of BOLI insurance policies in response to regulatory requirement to increase risk based capital.

Deposits.  Total deposits decreased $12.6 million, or 3.0%, to $410.8 million at June 30, 2011 from $423.4 million at September 30, 2010. Interest bearing deposits decreased $6.5 million to $148.3 million at June 30, 2011 from $154.8 million at September 30, 2010 and certificates of deposit decreased $6.7 million to $245.8 million from $252.5 million at September 30, 2010 while non-interest bearing deposits increased $0.6 million to $16.6 million at June 30, 2011 from $16.0 million at September 30, 2010.

Accrued Expenses and Other liabilities.  Accrued expenses and other liabilities increased $2.5 million, or 44.5%, to $8.0 million at June 30, 2011 from $5.5 million at September 30, 2010.  The increase was due primarily to an increase in loan servicing payable.

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.

The Company’s primary sources of liquidity are deposits, amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, and earnings and funds provided from operations, as well as access to FHLB of New York advances.  While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and rates offered by the Company’s competition.  The Company sets the interest rates on its deposits to maintain a desired level of total deposits.  In addition, the Company invests excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements.

25

A significant portion of our liquidity consists of cash and cash equivalents and securities available for sale, which are a product of our operating, investing and financing activities.  At June 30, 2011, $34.6 million of our assets were invested in cash and due from banks and $132.3 million were invested in securities available for sale.  Our primary 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, we sell longer-term fixed rate mortgage loans, and we syndicate and sell participation interests in portions of our multi-family, commercial real estate and construction loans. In addition, we invest excess funds in short-term interest-earning assets and other assets, which provide liquidity to meet our lending requirements.  There were no certificates of deposit and short-term investment securities (maturing in less than three years) at June 30, 2011.  As of June 30, 2011 we had $9.0 million in borrowings outstanding from the Federal Home Loan Bank of New York and we have access to additional Federal Home Loan Bank advances of up to $44.1 million.  In addition, we have access to a secured line of credit with the Federal Reserve Bank of New York.

At June 30, 2011 we had $26.2 million in loan commitments outstanding, which included $4.6 million in undisbursed construction loans, $13.5 million in commercial real estate lines of credit, $5.1 million in unused home equity lines of credit and $3.0 million in one-to-four-family loans. Pursuant to the directive we received from the OTS, other than contractual commitments outstanding as of December 3, 2009, the Bank will not originate any multi-family, commercial real estate, construction, or land loans without prior OTS approval.  Certificates of deposit due within one year of June 30, 2011 totaled $145.5 million, or 59.2%, of total certificates of deposit.  The large percentage of certificates of deposit that mature within one year reflects our customers’ hesitancy to invest their funds for long periods in the current low interest rate environment.  If these maturing deposits do not remain with us we will be required to seek other sources of funds, including other certificates of deposit and borrowings.  Depending on market conditions, we may be required to pay higher rates on these deposits or other borrowings than we currently pay on the certificates of deposit due on or before June 30, 2012.  We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us.  We have 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, 2011 and September 30, 2010, as compared to the minimum regulatory capital requirements applicable at that time:

	Actual					For capital adequacy purposes
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
At June 30, 2011:
Total risk-based capital (to risk weighted assets)	$	39,416		12.8	%	$	24,606		8.0	%
Tier I risk-based capital (to risk weighted assets)		35,267		11.5	%		12,303		4.0	%
Tangible capital (to tangible assets)		35,267		7.5	%		7,033		1.5	%
Tier I leverage (core) capital (to adjusted tangible assets)		35,267		7.5	%		14,066		3.0	%
At September 30, 2010:
Total risk-based capital (to risk weighted assets)	$	45,912		10.9	%	$	33,603		8.0	%
Tier I risk-based capital (to risk weighted assets)		39,094		9.3	%		16,802		4.0	%
Tangible capital (to tangible assets)		39,094		8.0	%		7,289		1.5	%
Tier I leverage (core) capital (to adjusted tangible assets)		39,094		8.0	%		14,577		3.0	%

26

The Bank is subject to a cease and desist order issued by the OTS, dated March 31, 2011, that required, among other things, the Bank to have and maintain a Tier 1 Capital Ratio equal to or greater than 10% and a Total Risk-Based Capital Ratio equal to or greater than 15% by April 30, 2011. As a result of these requirements, the Bank does not meet the regulatory definition of “well capitalized” even though the Bank otherwise satisfies the regulatory capital adequacy ratios to be deemed to be “well capitalized”. See Note 8 for additional information pertaining to the cease and desist order.

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 tables set 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 using 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 average yield and cost include fees, which are considered adjustments to yields (dollars in thousands).

27

BROOKLYN FEDERAL  BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED AVERAGE BALANCES

	Three months ended June 30,
	2011							2010
Interest Earning Assets:	Average Balance		Interest		Average Yield/Cost			Average Balance			Interest		Average Yield/Cost
Loans	$	330,186	$	3,065		3.71	%	$	415,572		$	6,292		6.06	%
Mortgage-backed securities		102,697		805		3.13	%		74,291	(1)		822		4.43	%
Investments securities and other interest-earning assets		36,272		94		1.04	%		15,169	(1)		55		1.45	%
Total interest earning assets		469,155		3,964		3.38	%		505,032			7,169		5.68	%
Non-interest earning assets		7,168							11,941
Total Assets	$	476,323						$	516,973
Interest Bearing Liabilities:
Savings accounts	$	68,551		61		0.36	%	$	64,571			68		0.42	%
Money market/NOW accounts		82,574		131		0.64	%		92,498			180		0.78	%
Certificates of deposits		250,021		1,183		1.90	%		260,078			1,509		2.33	%
Total interest-bearing deposits		401,146		1,375		1.38	%		417,147			1,757		1.69	%
Borrowings		9,000		64		2.86	%		9,796			68		2.78	%
Total interest bearing liabilities		410,146		1,439		1.41	%		426,943			1,825		1.71	%
Non-interest bearing liabilities:		25,955							24,283
Total liabilities		436,101							451,226
Stockholder’s equity		40,222							65,747
Total liabilities & stockholder’s equity	$	476,323						$	516,973
Net interest income			$	2,525							$	5,344
Average interest rate spread						1.97	%							3.96	%
Net interest-earning assets	$	59,009						$	78,089
Net Interest Margin						2.15	%							4.23	%
Ratio of average interest earning assets to interest bearing liabilities						114.39	%							118.29	%
(1) These amounts represent net amounts after OTTI

28

BROOKLYN FEDERAL  BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED AVERAGE BALANCES

	Nine months ended June 30,
	2011							2010
Interest Earning Assets:	Average Balance		Interest		Average Yield/Cost			Average Balance			Interest		Average Yield/Cost
Loans	$	322,248	$	12,549		5.19	%	$	427,047		$	20,387		6.37	%
Mortgage-backed securities		113,831		1,999		2.34	%		71,873	(1)		2,594		4.81	%
Investments securities and other interest-earning assets		31,187		245		1.05	%		11,102	(1)		229		2.76	%
Total interest earning assets		467,266		14,793		4.22	%		510,022			23,210		6.07	%
Non-interest earning assets		10,809							12,876
Total Assets	$	478,075						$	522,898
Interest Bearing Liabilities:
Savings accounts	$	69,095		193		0.37	%	$	62,758			261		0.56	%
Money market/NOW accounts		82,563		412		0.67	%		85,698			692		1.08	%
Certificates of deposits		246,754		3,731		2.02	%		259,257			4,819		2.49	%
Total interest-bearing deposits		398,412		4,336		1.46	%		407,713			5,772		1.89	%
Borrowings		9,000		194		2.88	%		12,294			173		1.88	%
Total interest bearing liabilities		407,412		4,530		1.49	%		420,007			5,945		1.89	%
Non-interest bearing liabilities:		27,928							26,818
Total liabilities		435,340							446,825
Stockholder’s equity		42,735							76,073
Total liabilities & stockholder’s equity	$	478,075						$	522,898
Net interest income			$	10,263							$	17,265
Average interest rate spread						2.73	%							4.18	%
Net interest-earning assets	$	59,854						$	90,015
Net Interest Margin						2.93	%							4.51	%
Ratio of average interest earning assets to interest-bearing liabilities						114.69	%							121.43	%
(1) These amounts represent net amounts after OTTI

29

Comparison of Operating Results for the Three Months Ended June 30, 2011 and 2010

Net Income.  Net income increased $10.0 million to $0.1 million for the three months ended June 30, 2011 from a net loss of $9.9 million for the three months ended June 30, 2010.  The primary reasons for the increase were the decrease in the provision for loan losses of $11.2 million and a decrease in other-than-temporary impairment of securities of $10.3 million, which were partially offset by a decrease in interest income of $3.2 million, an increase in professional fees of $0.6 million and a reduction in income tax benefit of $7.4 million.

Net Interest Income Before Provision for Loan Losses.  Net interest income before provision for loan losses decreased $2.8 million, or 52.7%, to $2.5 million for the three months ended June 30, 2011, compared to $5.3 million for the three months ended June 30, 2010.  The Bank’s net interest rate spread decreased 199 basis points to 1.97% for the three months ended June 30, 2011, compared to 3.96% for the three months ended June 30, 2010.  The Bank’s net interest margin decreased 208 basis points to 2.15% for the three months ended June 30, 2011, compared to 4.23% for the three months ended June 30, 2010. The primary reason for the decreases in the net interest rate spread and net interest margin for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010, is the average yield on loans, which decreased 234 basis points.  The Company’s level of non-accrual loans has increased, thereby reducing loan income which would otherwise have been recognized, and interest rates have trended downward since the three months ended June 30, 2010.  Somewhat mitigating the decreases in the net interest rate spread and net interest margin is the lower cost of interest-bearing liabilities, which declined from 1.71% for the three months ended June 30, 2010 to 1.41% for the three months ended June 30, 2011. This is also reflective of the low interest rate environment coupled with the Bank’s decision to conservatively set our interest rates on deposits.

Interest Income.  Interest income decreased $3.2 million, or 44.7%, to $4.0 million for the three months ended June 30, 2011 from $7.2 million for the three months ended June 30, 2010. Interest income on loans decreased $3.2 million, or 51.3%, to $3.1 million for the three months ended June 30, 2011 from $6.3 million for the three months ended June 30, 2010. The average yield on loans decreased 235 basis points to 3.71% for the three months ended June 30, 2011, from 6.06% for the three months ended June 30, 2010. The average balance of the loan portfolio decreased $85.4 million, or 20.5%, to $330.2 million for the three months ended June 30, 2011 from $415.6 million for the three months ended June 30, 2010. Interest income on mortgage-backed securities was relatively the same at approximately $0.8 million for the three months ended June 30, 2011and June 30, 2010. The average yield on mortgage-backed securities decreased 130 basis points to 3.13% for the three months ended June 30, 2011, compared to 4.43% for the quarter ended June 30 2010.  The average balance of the mortgage-backed securities portfolio increased $28.4 million, or 38.2%, to $102.7 million at June 30, 2011 from $74.3 million at June 30, 2010.  Interest income on investment securities and other interest-earning assets was relatively the same at approximately $0.1 million for the three months ended June 30, 2011 and June 30, 2010.  The average yield on investment securities and other interest-earning assets decreased 41 basis points to 1.04% for the three months ended June 30, 2011, compared to 1.45% for the three months ended June 30, 2010. The average balance of investment securities and other interest-earning assets increased $21.1 million, or 139.1%, to $36.3 million for the three months ended June 30, 2011 from $15.2 million for the three months ended June 30, 2010.

Interest Expense.  Interest expense decreased $0.4 million, or 21.1%, to $1.4 million for the three months ended June 30, 2011, compared to $1.8 million for the three months ended June 30, 2010.  Interest expense on deposits decreased $0.4 million, or 21.7%, to $1.4 million for the three months ended June 30, 2011, compared to $1.8 million for the three months ended June 30, 2010.  Interest expense on FHLB borrowings remained flat at $0.1 million for the three months ended June 30, 2011 and 2010.  The decrease in total interest expense was primarily the result of a 31 basis point decrease in the average cost of interest-bearing deposits, to 1.38% for the three months ended, June 30, 2011 compared to 1.69% for the three months ended June 30, 2010, as well as a $16.0 million decrease in the average balance of interest-bearing deposits, to $401.1 million for the three months ended June 30, 2011, from $417.1 million for the three months ended June 30, 2010. The average cost of total interest-bearing liabilities decreased 30 basis points to 1.41% for the three months ended June 30, 2011, from 1.71% for the three months ended June 30, 2010.

30

Provision for Loan Losses. The Company had a recovery in loan loss provision of $1.5 million for the third quarter of fiscal 2011, resulting in a decrease of $11.2 million in loan loss provision during the three months ending June 30, 2011 compared to a $9.8 million loan loss provision in the prior year three month period. The $1.5 million recovery in provision for the three month period ended June 30, 2011 reflects $0.7 million in charge offs for criticized assets offset by a $1.2 million decrease in the general loss allowance and $1.0 million in recoveries.

Non-interest Income. Non-interest income increased $10.1 million, or 101.8%, to $0.2 million for the three months ended June 30, 2011 from a loss of $9.9 million for the three months ended June 30, 2010.  The increase was primarily due to the fact that there was no impairment charge to securities for the three month ending June 30, 2011 compared to a charge of $10.3 million for the three months ended June 30, 2010.

Non-interest Expense.  Non-interest expense increased $1.0 million, or 28.8%, to $4.5 million for the three months ended June 30, 2011, from $3.5 million for the three months ended June 30, 2010.  The increase resulted primarily from increases in professional fees of $0.6 million, other expenses of $0.3 million and FDIC insurance of $0.1 million.

Income Taxes. Income tax benefit decreased $7.4 million to $0.4 million for the three months ended June 30, 2011, compared to a benefit of $7.8 million for the three months ended June 30, 2010.  The reason for this decrease in tax benefit was the reduced loss before provision for income taxes at June 30, 2011 compared to June 30, 2010 as well as a valuation allowance on the entire deferred tax asset balance.

Comparison of Operating Results for the Nine Months Ended June 30, 2011 and 2010

Net Loss.  Net loss decreased $15.3 million to $5.7 million for the nine months ended June 30, 2011 from $21.0 million for the nine months ended June 30, 2010.  The primary reasons for the decreased loss were the decreases in the provision for loan losses of $30.5 million and in the loss on impairment of investment securities of $11.5 million, offset by a decrease in total interest income of $8.4 million, an increase in non-interest expense of $2.2 million and a decrease in income tax benefit of $15.7 million for the nine months ended June 30, 2011 compared to the same period last year.

Net Interest Income Before Provision for Loan Losses.  Net interest income before provision for loan losses decreased $7.0 million, or 40.6%, to $10.3 million for the nine months ended June 30, 2011 from $17.3 million for the nine months ended June 30, 2010.  The decrease in net interest income resulted primarily from a decrease in the average yield of interest-earning assets from 6.07% for the nine months ended June 30, 2010 to 4.22% for the nine months ended June 30, 2011. The Bank’s net interest rate spread decreased 145 basis points to 2.73% for the nine months ended June 30, 2011, compared to 4.18% for the nine months ended June 30, 2010.  The Bank’s net interest margin decreased 158 basis points to 2.93% from 4.51% for the comparative period. The primary reason for the decreases in the net interest rate spread and net interest margin for the nine months ended June 30, 2011, as compared to the nine months ended June 30, 2010, is the average yield on loans, which decreased 118 basis points.  The Company’s level of non-accrual loans have increased substantially, thereby reducing loan income which would otherwise have been recognized. Somewhat mitigating the decreases in the net interest rate spread and net interest margin is the lower cost of interest-bearing liabilities, declining from 1.89% for the nine months ended June 30, 2010 to 1.49% for the nine months ended June 30, 2011. The average balance of interest-bearing deposits decreased by 2.3%, from $407.7 million for the nine months ended June 30, 2010 to $398.4 million for the nine months ended June 30, 2011. This is reflective of the low interest rate environment coupled with the Bank’s decision to conservatively set our interest rates on deposits.

Interest Income.  Interest income decreased $8.4 million, or 36.3%, to $14.8 million for the nine months ended June 30, 2011 from $23.2 million for the nine months ended June 30, 2010.  Interest income on loans decreased $7.8 million, or 38.5%, to $12.6 million for the nine months ended June 30, 2011 from $20.4 million for the nine months ended June 30, 2010. The average balance of the loan portfolio decreased $104.8 million, or 24.5%, to $322.2 million for the nine months ended June 30, 2011 from $427.0 million for the nine months ended June 30, 2010. The average yield on loans decreased 118 basis points to 5.19% for the nine months ended June 30, 2011, from 6.37% for the nine months ended June 30, 2010. Interest income on mortgage-backed securities decreased $0.6 million, or 22.9%, for the nine months ended June 30, 2011, compared to the same period last year. The average balance of mortgage-backed securities increased $42.0 million, and the average yield decreased 247 basis points to 2.34% for the nine months ended June 30, 2011 compared to 4.81% for the nine months ended June 30, 2010.  Interest income on investment securities and other interest-earning assets was flat at $0.2 million for the nine months ended June 30, 2011 and 2010. The average balance on investment securities and other interest-earning assets increased $20.1 million, or 180.9%, to $31.2 million for the nine months ended June 30, 2011 from $11.1 million for the nine months ended June 30, 2010. The average yield on investment securities and other interest-earning assets decreased 171 basis points to 1.05% for the nine months ended June 30, 2011, compared to 2.76% for the nine months ended June 30, 2010.

31

Interest Expense.  Interest expense decreased $1.4 million, or 23.8%, to $4.5 million for the nine months ended June 30, 2011, compared to $5.9 million for the nine months ended June 30, 2010.  Interest expense on deposits decreased $1.4 million, or 24.9%, to $4.3 million for the nine months ended June 30, 2011, compared to $5.7 million for the nine months ended June 30, 2010.  Interest expense on FHLB borrowings remained flat at $0.2 million for the nine months ended June 30, 2011 and June 30, 2010.  The decrease in total interest expense was primarily the result of a 43 basis point decrease in the average cost of interest-bearing deposits, from 1.89% for the nine months ended June 30, 2010 to 1.46% for the nine months ended June 30, 2011. The average balance of interest-bearing deposits decreased $9.3 million, or 2.3%, from $407.7 million for the nine months ended June 30, 2010 to $398.4 million for the nine months ended June 30, 2011.  The average balance of FHLB borrowings decreased $3.3 million, or 26.8%, for the nine months ended June 30, 2011, compared to the nine months ended June 30, 2010.  The average cost of total interest-bearing liabilities decreased 40 basis points to 1.49% for the nine months ended June 30, 2011, from 1.89% for the nine months ended June 30, 2010.

Provision for Loan Losses. The Company recorded $3.1 million in loan loss provision for the nine months ended June 30, 2011, resulting in a decrease of $30.5 million in loan loss provision in the nine months ended June 30, 2011 compared to a $33.6 million loan loss provision in the prior year period.  Based upon the Company’s evaluation, the $3.1 million in the loan loss provision for the nine months ended June 30, 2011, reflects $2.0 million of charge offs for criticized assets, a $2.7 million increase in general loss allowance and a recovery of $1.6 million.

Non-interest Loss. Non-interest loss decreased $9.8 million to a loss of $0.5 million for the nine months ended June 30, 2011 from a loss of $10.3 million for the nine months ended June 30, 2010.  The decrease in loss was primarily due to a decrease in the impairment charge of $11.5 million to $8,000 for the nine months ended June 30, 2011, from $11.5 million for the nine months ended June 30, 2010. This was offset by a $1.4 million loss on the sale of securities for the nine months ended June 30, 2011 compared to no sales of securities during the comparable period of the prior year, and a decrease in banking fees and service charges of $0.3 million from $0.6 million for the nine months ended June 30, 2010 to $0.3 million for the nine months ended June 30, 2011.

Non-interest Expense.  Non-interest expense increased $2.2 million, or 21.1%, to $12.6 million for the nine months ended June 30, 2011 compared to $10.4 million for the same period last year.  This was primarily due to increases in occupancy and equipment of $0.2 million, professional fees of $0.9 million, FDIC insurance expense of $0.4 million and other expense of $0.5 million.

Income Taxes. Income tax benefit decreased $15.7 million to $0.3 million for the nine months ended June 30, 2011, from $16.0 million for the nine months ended June 30, 2010.  The reason for this decrease was the reduction in loss before provision for income taxes as well as a valuation allowance on the entire deferred tax asset balance.

32

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 finance 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 environment of decreased interest rates, the Bank’s strategy of investing in liquid instruments has resulted in lower levels of interest income than would have resulted from investing in longer-term loans and investments.  Management intends to lengthen the maturity of the Company’s interest-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, 2010.

ITEM 4. CONTROLS AND PROCEDURES

We are required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information  is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.  In designing and evaluating our disclosure controls and procedures, our management recognized that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2011 (the “Evaluation Date”).

 In connection with the completion and audit of the Company’s consolidated financial statements for the fiscal year ended September 30, 2010, management, together with its independent registered public accounting firm, Crowe Horwath LLP, identified certain miscalculations in its allowance for loan losses during and between fiscal year 2010 quarterly periods as disclosed in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2010.  Control procedures in place for reviewing the Company’s methodology for determining the allowance for loan losses did not timely identify the miscalculations, and as such, the Company did not have adequately designed procedures. As a result, management concluded that a material weakness in its internal control associated with the procedures for determining the allowance for loan losses existed as of September 30, 2010 and continued throughout first two quarters of fiscal year 2011. During the third fiscal quarter ended on the Evaluation Date, the Company took steps to resolve the material weakness by changing its procedures for handling appraisals, as discussed below. Notwithstanding the steps taken during the quarter, the identified material weakness will not be considered remediated until the new procedures have been in operation for a sufficient period of time to be tested and concluded by management to be operating effectively. Therefore, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures continued to not be effective in ensuring 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 were not operating in an effective manner.

33

During the reporting period, the Company changed its procedures for dealing with appraisals as part of its determination of the Bank’s allowance for loan losses, as described above, to remediate the material weakness identified in its procedures for the determination of the allowance for loan losses.  Specifically, the Company changed the timing for providing updated appraisal information to its internal staff involved in evaluating the allowance for loan losses, so that timely decisions can be made with respect to charge-offs and other adjustments.  Under the new procedures, the updated appraisal is provided promptly upon receipt and the staff is notified of any subsequent changes to the valuation following any additional review by Company personnel or third party reviewers and adjustment of the appraisal results. There were no other significant changes made in our internal controls during the period covered by this report or, to our knowledge, in other factors that has materially affected or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Except as set forth below, there are 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.

As previously disclosed, two cases were filed naming the Bank as defendant during the third quarter of fiscal year 2011, as described below, that resulted from actions taken by borrowers whose loans were in default.  We believe that such defensive actions are often taken by defaulting borrowers during times of economic uncertainty in an attempt to incentivize the negotiation of more favorable payment terms, but we are not routinely subject to such actions and thus cannot characterize them as ordinary routine litigation incidental to the Bank’s business.

The Bank is a defendant in an action brought by 50-01 Realty LLC filed on April 13, 2011 in the Supreme Court of the State of New York County of Kings. 50-01 Realty LLC is claiming damages of approximately $44 million for alleged breach of contract and misrepresentation regarding a right of first refusal to purchase an outstanding loan.  The Bank has filed a motion to dismiss the complaint. Management believes that this case is without merit and intends to vigorously defend the case.  It is too preliminary in the proceedings to predict the ultimate results of this matter; however, management does not currently expect that the resolution of these proceedings will have a material adverse effect on the Company’s consolidated financial position or results of operations.

On May 23, 2011, The Mazel Group and Yehuda Backer brought an action against the Bank in the Supreme Court of the State of New York County of Kings claiming damages of up to $100 million, including punitive damages, for alleged breach of contract, tortious interference with precontractual negotiations and breach of duty to protect confidential information.  On July 22, 2011, the parties settled all claims related to this matter, including in a related matter brought by the Bank against the Mazel Group and Yehuda Backer regarding a debt owed to the Bank.  As part of the settlement, The Mazel Group and Yehuda Backer withdrew their complaint against the Bank with prejudice and agreed to a schedule for repayment of their loan balance owed to the Bank.

ITEM 1A. RISK FACTORS

There are no material changes to the risk factors as previously disclosed in the Company’s Form 10-K for the year ended September 30, 2010, as filed with the SEC on June 27, 2011, except as follows:

34

BFS Bancorp, MHC, the Company and Bank are currently undergoing changes in the way we are supervised and examined as a result of the consolidation of federal banking regulators called for by the Dodd-Frank Act, and may experience operational challenges or increased costs in the course of full transition to our new regulators.

As a result of regulatory restructuring called for by the Dodd-Frank Act, effective July 21, 2011, the Federal Reserve became the primary federal regulator of BFS Bancorp, MHC and the Company, and the OCC became the primary federal regulator of the Bank.  The Federal Reserve is applying certain parts of its current consolidated supervisory program for bank holding companies, including significantly enhanced reporting requirements, to savings and loan holding companies.  Also, the OCC recently published an interim final rule that reissues, as new OCC regulations, the former OTS regulations that the OCC has authority to promulgate and enforce as of the transfer date.  As noted in the rulemaking, the interim final rule is part of a larger OCC review of OCC and OTS regulations to determine what changes are needed for the transition to OCC supervision of federal savings associations. The OCC announced that, as a continuation of this review, it will consider more comprehensive substantive amendments to these regulations, as appropriate, later this year.  Accordingly, BFS Bancorp, MHC, the Company and Bank are currently transitioning to the jurisdiction of our new regulators and expect that some aspects of the regulatory restructuring process may result in increased costs, which could have an adverse impact on our results of operations.

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

              The Company did not purchase any shares of Common Stock in the quarter ending June 30, 2011.  Through September 30, 2009, the Board of Directors of the Company 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 repurchase plan was completed in October 2008, purchasing $3.0 million or 238,483 shares at an average cost of $12.58 per share.  The fourth plan was authorized in November 2008 and through June 30, 2011, the Company has repurchased 113,411 shares at an average cost of $10.82 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.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (RESERVED)

ITEM 5. OTHER INFORMATION

None.

ITEM 6.            EXHIBITS

3.1	Certificate of Incorporation of Brooklyn Federal Bancorp, Inc. 1
3.2	Bylaws of Brooklyn Federal Bancorp, Inc. 1
4	Form of Common Stock of Brooklyn Federal Bancorp, Inc. 1
11	Computation of Earnings Per Share
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)

35

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.
101	Interactive Data File

1    Filed as exhibits to the Company’s Registration Statement on Form S-1, and any amendments thereto, with the SEC (Registration Statement No. 333-121580).

36

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 10, 2011	/s/ Gregg J. Wagner
	Gregg J. Wagner
	President and Chief Executive Officer
Date:  August 10, 2011	/s/ Michael A. Trinidad
	Michael A. Trinidad
	Senior Vice President and
	Chief Financial Officer

37

EX-11

EXHIBIT 11

COMPUTATION OF LOSS PER SHARE

(Dollars in thousands, except share amounts)

(Unaudited)

	Three Months Ended
	June 30, 2011			June 30, 2010
Net Income	$	65		$	(9,968	)
Weighted average common shares outstanding for computation of basic EPS		12,652,063			12,631,821
Dilutive common-equivalent shares		--			--
Weighted average common shares for computation of diluted EPS		12,652,063			12,631,821
Earnings per common share:
Basic	$	0.01		$	(0.79	)
Diluted	$	0.01		$	(0.79	)
	Nine Months Ended
	June 30, 2011			June 30, 2010
Net Income	$	(5,670	)	$	(21,006	)
Weighted average common shares outstanding for computation of basic EPS		12,647,167			12,623,577
Dilutive common-equivalent shares		--			--
Weighted average common shares for computation of diluted EPS		12,647,167			12,623,577
Earnings per common share:
Basic	$	(0.45	)	$	(1.66	)
Diluted	$	(0.45	)	$	(1.66	)

EX-31.1

EXHIBIT 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Gregg J. Wagner, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Brooklyn Federal Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 10, 2011

/s/ Gregg J. Wagner 

Gregg J. Wagner
President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION

I, Michael A. Trinidad, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Brooklyn Federal Bancorp, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 10, 2011

/s/  Michael A. Trinidad 

Michael A. Trinidad
Senior Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Brooklyn Federal Bancorp, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregg J. Wagner, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  August 10, 2011

/s/ Gregg J. Wagner 

Gregg J. Wagner
President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Brooklyn Federal Bancorp, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael A. Trinidad, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  August 10, 2011

/s/  Michael A. Trinidad 

Michael A. Trinidad
Senior Vice President and Chief Financial Officer

XML



CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Parentheticals) (USD $) In Thousands, except Share data	Jun. 30, 2011	Sep. 30, 2010
Statement Of Financial Position [Abstract]
Interest-earning balances of Cash and due from banks (in dollars)	$ 33,124	$ 12,559
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	13,484,210	13,484,210
Common stock, shares outstanding	12,882,607	12,889,344
Treasury stock, shares	601,603	594,866

XML



CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Share data	3 Months Ended		9 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Interest income:
First mortgage and other loans	$ 3,065	$ 6,292	$ 12,549	$ 20,387
Mortgage-backed securities	805	822	1,999	2,594
Other securities and interest-earning assets	94	55	245	229
Total interest income	3,964	7,169	14,793	23,210
Interest expense:
Deposits	1,375	1,757	4,336	5,772
Borrowings	64	68	194	173
Total interest expense	1,439	1,825	4,530	5,945
Net interest income before provision for loan losses	2,525	5,344	10,263	17,265
Provision for loan losses	(1,457)	9,749	3,147	33,626
Net interest income (loss) after provision for loan losses	3,982	(4,405)	7,116	(16,361)
Non-interest income:
Total loss on OTTI of securities		(9,529)	(8)	(11,546)
Less: Non-credit portion of OTTI recorded in other comprehensive income before taxes		(776)
Net loss on OTTI recognized in earnings		(10,305)	(8)	(11,546)
Banking fees and service charges	107	178	332	662
Net loss on sale of securities available-for-sale	(24)		(1,388)
Net gain on sale of loans held-for-sale	12	91	104	185
Other	80	155	403	445
Total non-interest income (loss)	175	(9,881)	(483)	(10,254)
Non-interest expense:
Compensation and employee benefits	1,892	1,937	6,090	5,996
Occupancy and equipment	516	444	1,493	1,340
FDIC Insurance	389	263	992	565
Professional fees	844	259	1,798	853
Data processing fees	190	165	535	495
Other	659	418	1,699	1,161
Total non-interest expense	4,490	3,486	12,607	10,410
Loss before income tax benefit	(333)	(17,772)	(5,974)	(37,025)
Income tax benefit	(398)	(7,804)	(304)	(16,019)
Net income (loss)	$ 65	$ (9,968)	$ (5,670)	$ (21,006)
Earnings (loss) per common share:
Basic (in dollars per share)	$ 0.01	$ (0.79)	$ (0.45)	$ (1.66)
Diluted (in dollars per share)	$ 0.01	$ (0.79)	$ (0.45)	$ (1.66)
Average common shares outstanding:
Basic (in shares)	12,652,063	12,631,821	12,647,167	12,623,577
Diluted (in shares)	12,652,063	12,631,821	12,647,167	12,623,577

XML



Document and Entity Information	9 Months Ended
	Jun. 30, 2011	Aug. 10, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	Brooklyn Federal Bancorp, Inc.
Entity Central Index Key	0001310313
Trading Symbol	bfsb
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Current Fiscal Year End Date	--09-30
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		12,882,607
Document Type	10-Q
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3

XML



Securities

9 Months Ended

Jun. 30, 2011

Investments, Debt and Equity Securities [Abstract]

Marketable Securities [Text Block]

Note 5 - Securities

Investments in securities at June 30, 2011 and September 30, 2010 are summarized as follows:

June 30, 2011
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
	(In thousands)
Securities available-for-sale:
Mortgage-backed securities-residential:
Government agency	$	16,786	$	67	$	(4	)	$	16,849
Government-sponsored enterprises		98,725		982		(308	)		99,399
Private issuers		4,393		174		-			4,567
Government debentures		10,976		58		(47	)		10,987
Mutual funds		500		15		-			515
Total securities available-for-sale	$	131,380	$	1,296	$	(359	)	$	132,317
September 30, 2010
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
	(In thousands)
Securities available-for-sale:
Mortgage-backed securities-residential:
Government agency	$	16,522	$	217	$	(2	)	$	16,737
Government-sponsored enterprises		24,440		464		(15	)		24,889
Private issuers		22,055		680		(1,383	)		21,352
Government debentures		2,990		39		-			3,029
Mutual funds		3,079		21		-			3,100
Total securities available-for-sale	$	69,086	$	1,421	$	(1,400	)	$	69,107

The Company acquired all of its mortgage-backed securities by purchase (none resulted from retained interests in loans sold or securitized by the Company). At June 30, 2011, mortgage-backed securities issued by government-sponsored enterprises consisted of (i) Federal Home Loan Mortgage Corporation (“Freddie Mac”) securities with an amortized cost of $19.2 million (compared to $6.9 million at September 30, 2010) and an estimated fair value of $19.3 million (compared to $7.2 million at September 30, 2010) and (ii) Federal National Mortgage Association (“Fannie Mae”) securities with an amortized cost of $79.5 million (compared to $17.5 million at September 30, 2010) and an estimated fair value of $80.1 million (compared to $17.7 million at September 30, 2010) and (iii) Ginnie Mae securities with an amortized cost of $16.8 million (compared to $16.5 million at September 30, 2010) and an estimated fair value of $16.9 million (compared to $16.7 million at September 30, 2010). These are the only securities of individual issuers held by the Company with an aggregate book value exceeding 10% of the Company’s equity at June 30, 2011.

The Company recognized total pre-tax other-than-temporary impairment charges of approximately $8,000 on securities for the nine months ended June 30, 2011 (all of which was recognized during the three months ended December 31, 2010 included in this nine month period). The mutual fund investment incurring the impairment was sold in March of 2011. This compared to pre-tax other-than-temporary impairment charges of $10.3 million for the three months ended June 30, 2010 and $11.5 million for the nine months ended June 30, 2010, all of which was recognized in earnings.

The Company sold $14.4 million of securities, realizing a loss of $1.4 million during the nine months ended June 30, 2011, compared to no sale of securities for the nine months ended June 30, 2010.

At June 30, 2011, the Bank pledged securities having an amortized cost of $21.0 million, with an estimated fair value of $21.4 million, as collateral for advances from the Federal Home Loan Bank of New York.

The following table summarizes debt securities available-for-sale at estimated fair value by contractual final maturity as of June 30, 2011.  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 a prepayment penalty.

	Amortized		Estimated
	cost		Fair Value
	(In thousands)
Securities available-for-sale:
One year or less	$	-	$	-
Over one year through five years		6,561		6,638
Over five years through ten years		16,572		16,784
More than ten years		107,747		108,380
Total securities available-for-sale:	$	130,880	$	131,802

The following table summarizes securities at June 30, 2011 and September 30, 2010 with gross unrealized losses, segregated by the length of time the securities had been in a continuous loss position:

	Less than 12 months					As of June 30, 2011 12 months or more					Total
	Estimated fair value		Gross unrealized losses			Estimated fair value		Gross unrealized  losses			Estimated fair value		Gross unrealized losses
	(In thousands)
Mortgage-backed securities-residential:
Government agency	$	6,106	$	(3	)	$	66	$	(1	)	$	6,172	$	(4	)
Government-sponsored enterprises		27,673		(281	)		1,324		(27	)		28,997		(308	)
Government debentures		2,943		(47	)		-		-			2,943		(47	)
Total temporarily impaired securities	$	36,722	$	(331	)	$	1,390	$	(28	)	$	38,112	$	(359	)
	Less than 12 months					As of September 30, 2010 12 months or more					Total
	Estimated fair value		Gross unrealized losses			Estimated fair value		Gross unrealized losses			Estimated fair value		Gross unrealized losses
	(In thousands)
Mortgage-backed securities-residential:
Government agency	$	73	$	(2	)	$	-	$	-		$	73	$	(2	)
Government-sponsored enterprises		2,899		(15	)		-		-			2,899		(15	)
Private issuers		-		-			5,316		(1,383	)		5,316		(1,383	)
Total temporarily impaired securities	$	2,972	$	(17	)	$	5,316	$	(1,383	)	$	8,288	$	(1,400	)

Securities in unrealized loss positions are analyzed as part of the Company’s ongoing assessment of Other-Than-Temporary Impairments (“OTTI”). When the Company intends to sell or is required to sell 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 or is not required to sell 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 mortgage-backed securities, the Company estimates cash flows over the remaining lives of the underlying collateral to assess whether credit losses exist and determines 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, 2011, the Company does not intend to sell the securities with an unrealized loss position in accumulated other comprehensive loss (“AOCL”), and it is likely that the Company will not 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, 2011.

The following table presents a roll-forward of the credit loss component of OTTI on the Bank’s investment in a mutual fund that invests primarily in agency and private label mortgage-backed securities for which a non-credit component of OTTI was recognized in other comprehensive loss for the nine months ended June 30, 2011. There were no private-issuer mortgage backed securities in an unrealized loss position during the three months ended June 30, 2011. OTTI recognized in earnings 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 Nine Months ended June 30, 2011	Total Other- Than- Temporary Impairment Loss			Other-Than- Temporary Impairment Credit Losses recorded in Earnings			Other-Than- Temporary Impairment Credit Losses recorded in Other Comprehensive Income
	(in thousands)
Beginning balance as of October 1, 2010	$	2,357		$	2,357		$	-
Add: Initial other-than-temporary credit losses		-			-			-
Additional other-than-temporary credit losses		8			8			-
Reduction for previous credit losses realized on securities sold during the period		(2,365	)		(2,365	)		-
Ending balance as of June 30, 2011	$	-		$	-		$	-

XML



Business

9 Months Ended

Jun. 30, 2011

Nature Of Operations [Abstract]

Business

Note 1 - Business

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.  The Company completed its initial public offering on April 5, 2005.

The Company issued 9,257,500 shares to BFS Bancorp, MHC, and 3,967,500 shares to depositors resulting in a total of 13,225,000 shares issued and outstanding after completion of the reorganization.  At June 30, 2011, there were 12,882,607 total shares outstanding 71.9% of which were owned by BFS Bancorp, MHC.

Brooklyn Federal Savings Bank

The Bank is a federally chartered savings bank headquartered in Brooklyn, NY.  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 State.  The telephone number at our main office is (718) 855-8500.

Our principal business activity is originating mortgage loans secured by one-to-four-family residential real estate and, to a limited extent, a variety of consumer loans and home equity loans. We offer a variety of deposit accounts, including checking, savings and certificates of deposit, and emphasize personal and efficient service for our customers.

XML



Fair Value Disclosures

9 Months Ended

Jun. 30, 2011

Fair Value Disclosures [Abstract]

Fair Value Disclosures

Note 7 - Fair Value Disclosures

FASB issued guidance regarding Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements.  This guidance applies to other accounting pronouncements that require or permit fair value measurements.  The Company adopted the guidance effective for its fiscal year beginning October 1, 2008.  The primary effect of the FASB-issued guidance on the Company was to expand the required disclosures pertaining to the methods used to determine fair values.  

The FASB-issued guidance 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 this guidance are as follows:

Level 1:  Quoted prices in active markets for identical assets or liabilities.

Level 2:  Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3:  Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

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 statements of financial condition at June 30, 2011 and September 30, 2010 are as follows (in thousands):

			(Level 1)
			Quoted Prices		(Level 2)
			in Active		Significant		(Level 3)
			Markets for		Other		Significant
			Identical		Observable		Unobservable
Description	June 30, 2011		Assets		Inputs		Inputs
Mortgage-backed securities-residential:
Government agency	$	16,849	$	--	$	16,849	$	--
Government-sponsored enterprises		99,399		--		99,399		--
Private issuers		4,567		--		4,567		--
Government debentures		10,987		10,987		--		--
Mutual funds		515		515		--		--
Total securities available-for-sale	$	132,317	$	11,502	$	120,815	$	--
			(Level 1)
			Quoted Prices		(Level 2)
			in Active		Significant		(Level 3)
			Markets for		Other		Significant
			Identical		Observable		Unobservable
Description	September 30, 2010		Assets		Inputs		Inputs
Mortgage-backed securities-residential:
Government agency	$	16,737	$	--	$	16,737	$	--
Government-sponsored enterprises		24,889		--		24,889		--
Private issuers		21,352		--		21,352		--
Government debentures		3,029		3,029		--		--
Mutual funds		3,100		3,100		--		--
Total securities available-for-sale	$	69,107	$	6,129	$	62,978	$	--

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, 2011 and September 30, 2010 is as follows (in thousands):

			(Level 1)
			Quoted Prices		(Level 2)
			in Active		Significant		(Level 3)
			Markets for		Other		Significant
			Identical		Observable		Unobservable
Description	June 30, 2011		Assets		Inputs		Inputs
Impaired loans:
One-to-Four Family	$	1,284	$	-	$	-	$	1,284
Multi-Family		26,489		-		-		26,489
Commercial Real Estate		35,781		-		-		35,781
Construction		66,783		-		-		66,783
Land		13,358		-		-		13,358
Total Impaired loans	$	143,695	$	-	$	-	$	143,695
			(Level 1)
			Quoted Prices		(Level 2)
			in Active		Significant		(Level 3)
			Markets for		Other		Significant
			Identical		Observable		Unobservable
Description	September 30, 2010		Assets		Inputs		Inputs
Impaired loans:
Multi-Family	$	31,380	$	-	$	-	$	31,380
Commercial Real Estate		51,479		-		-		51,479
Construction		24,660		-		-		24,660
Land		16,369		-		-		16,369
Total Impaired loans	$	123,888	$	-	$	-	$	123,888

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 available-for-sale, which includes mortgage-backed securities, was obtained either through a primary broker/dealer or other third party provider from readily available price quotes as of June 30, 2011 (Level 1) or by obtaining matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2).

Impaired loans – 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, net of partial charge-offs, less their specific valuation allowances.

The following table summarizes the carrying value and estimated fair value of the Company’s financial instruments at June 30, 2011 and September 30, 2010:

	June 30, 2011				September 30, 2010
	Carrying value		Estimated fair value		Carrying value		Estimated fair value
	(In thousands)
Financial assets:
Cash and due from banks	$	34,640	$	34,640	$	14,201	$	14,201
Securities available-for-sale		132,317		132,317		69,107		69,107
Loans receivable, net		276,484		277,466		369,842		369,750
FHLB stock		1,643		N/A		1,803		N/A
Accrued interest receivable		1,152		1,152		2,061		2,061
Financial liabilities:
Deposits		410,770		415,618		423,406		428,667
Borrowings		9,000		9,350		10,500		10,936
Accrued interest payable		24		24		28		28

The methods and assumptions, not previously presented, used to estimate fair value is described as follows:

Carrying amount is the estimated fair value for cash and due from banks, accrued interest receivable and payable, demand deposits, short-term borrowings, and variable rate loans or deposits that reprice frequently and fully. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk.  Fair value of borrowings is based on current rates for similar financing.  It was not practicable to determine the fair value of FHLB stock due to restrictions placed on its transferability. The fair value of off-balance sheet items is not considered material.

XML



Enforcement Actions

9 Months Ended

Jun. 30, 2011

Banking and Thrift [Abstract]

Enforcement Actions; Going Concern

Note 8 – Enforcement Actions; Going Concern

The Company and the Bank are subject to enforcement actions and other requirements imposed by federal banking regulators. In particular, and as previously reported, the Bank is subject to a Cease and Desist Order (the “Bank Order”) issued by the OTS on March 31, 2011 that required, among other things, the Bank to implement an updated business plan to improve the Bank’s core earnings, reduce expenses, maintain an appropriate level of liquidity and achieve profitability. The Bank Order also required that the Bank achieve and maintain a Tier 1 Capital Ratio equal to or greater than 10% and a Total Risk-Based Capital Ratio equal to or greater than 15%, after the funding of its allowance for loan and lease losses, by April 30, 2011. As of April 30, 2011, the Bank did not meet these capital requirements.

As the Bank failed to achieve the capital ratios required by the Bank Order, the Bank was required to file a Contingency Plan with the OTS within 15 days of April 30, 2011.  The Bank Order required that the Contingency Plan detail actions to be taken and specific time frames to achieve either a merger with, or acquisition by, another federally insured depository institution or holding company thereof, or a voluntary dissolution by the later of the date of all required regulatory approvals or sixty (60) days after implementation of the Contingency Plan.  The Bank filed the Contingency Plan with the OTS on May 12, 2011 and by letter dated June 15, 2011 the OTS directed the Bank to immediately implement and adhere to such Contingency Plan.   The Bank intends to comply with the Contingency Plan and the directive.  Moreover, as the holding companies of the Bank, the Company and BFS Bancorp, MHC also are subject to a separate but related Cease and Desist Order issued by the OTS on the same date as the Bank’s Order, which required, among other terms, that the Company and BFS Bancorp, MHC ensure the Bank’s compliance with the terms of the Bank Order. The Company and BFS Bancorp, MHC are in the process of complying with their respective orders to ensure the Bank’s compliance with the terms of the Bank Order, including the implementation of the Contingency Plan.

The unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the foreseeable future. Failure to comply with the requirements of the Contingency Plan to complete a merger or acquisition would result in the imposition of the Contingency Plan requirement to voluntarily dissolve. These factors give rise to substantial doubt as to the Company's ability to continue as a going concern. These financial statements do not include any adjustments that may result should the Company be unable to continue as a going concern.

XML



Loans Receivable, net

9 Months Ended

Jun. 30, 2011

Receivables [Abstract]

Loans Receivable, net

Note 6 – Loans Receivable, net

The components of the loan portfolio are summarized as follows:

	June 30,			September 30,
	2011			2010
	(In thousands)
Mortgage loans:
One- to four-family	$	82,438		$	73,457
Multi-family		40,391			65,209
Commercial		81,643			119,727
Construction		74,763			95,824
Land		17,871			34,084
		297,106			388,301
Consumer and other loans:
Personal loans		213			331
Loans secured by deposit accounts		123			118
		336			449
Total loans receivable		297,442			388,750
Deferred net loan origination fees		(290	)		(967	)
Allowance for loan losses		(20,668	)		(17,941	)
Total loans receivable, net	$	276,484		$	369,842

The following table summarizes the activity in allowance for loan losses for the three and nine month periods ended June 30, 2011 and 2010 (dollars in thousands):

	For the Three Months Ended
	June			June
	2011			2010
	(In thousands)
Balance, beginning of period	$	21,887		$	20,389
Charge-offs		(762	)		(8,590	)
Recoveries		1,000			-
Provision for loan losses		(1,457	)		9,749
Balance, end of period	$	20,668		$	21,548
	For the Nine Months Ended
	June			June
	2011			2010
	(In thousands)
Balance, beginning of period	$	17,941		$	10,750
Charge-offs		(2,023	)		(22,834	)
Recoveries		1,603			6
Provision for loan losses		3,147			33,626
Balance, end of period	$	20,668		$	21,548

The following table summarizes the activity in allowance for loan losses and the impairment evaluation for the three and nine months ended June 30, 2011 (dollars in thousands):

	For the Three Months Ended June 30, 2011
	One-to-Four Family			Multi- Family			Commercial Real Estate			Construction			Land			Consumer and Other			Total
Allowance for loan losses:
Beginning balance	$	166		$	3,793		$	10,082		$	2,534		$	5,305		$	7		$	21,887
Charge-offs		(4	)		(44	)		(33	)		(3	)		(679	)		-			(762	)
Recoveries		-			-			960			30			10			-			1,000
Provision for loan losses		97			(466	)		(3,400	)		5,023			(2,707	)		(4	)		(1,457	)
Ending balance	$	260		$	3,283		$	7,609		$	7,584		$	1,929		$	3		$	20,668
	For the Nine Months Ended June 30, 2011
	One-to-Four Family			Multi- Family			Commercial Real Estate			Construction			Land			Consumer and Other			Total
Allowance for loan losses:
Beginning balance	$	547		$	3,125		$	9,485		$	1,664		$	3,104		$	16		$	17,941
Charge-offs		(61	)		(44	)		(33	)		(1,075	)		(810	)		-			(2,023	)
Recoveries		3			5			980			602			13			-			1,603
Provision for loan losses		(229	)		197			(2,823	)		6,393			(378	)		(13	)		3,147
Ending balance	$	260		$	3,283		$	7,609		$	7,584		$	1,929		$	3		$	20,668
Ending balance: individually evaluated for impairment	$	-		$	-		$	1,041		$	566		$	-		$	-		$	1,607
Ending balance: collectively evaluated for impairment		260			3,283			6,568			7,018			1,929			3			19,061
Ending balance	$	260		$	3,283		$	7,609		$	7,584		$	1,929		$	3		$	20,668
Loans:
Ending balance: individually evaluated for impairment	$	1,284		$	26,489		$	36,822		$	66,783		$	13,358		$	-		$	144,736
Ending balance: collectively evaluated for impairment		81,154			13,902			44,821			7,980			4,513			336			152,706
Ending balance	$	82,438		$	40,391		$	81,643		$	74,763		$	17,871		$	336		$	297,442

The table below sets forth the amounts and categories of our non-performing assets, net of specific allowances at the dates indicated.  We may from time to time agree to modify the contractual terms of a borrower’s loan.  In cases where these modifications represent a concession (for which a portion of interest or principal has been forgiven and loans modified at interest rates materially less than current market rates) to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”).  At June 30, 2011, loans modified in a troubled debt restructuring totaled $21.4 million.  There are no unfunded commitments on any of these loans. One loan for $0.4 million is performing in accordance with its new terms and, therefore, is not included in the table below.  The remaining total of $21.0 million is in non-accrual status, and is included in the table below.

The following table sets forth information with respect to the Company’s non-performing loans (dollars in thousands):

	June		September
	2011		2010
	(Dollars in thousands)
Non-accrual loans:
One-to four-family	$	1,284	$	-
Multi-family		26,052		23,956
Commercial real estate		26,046		34,908
Construction		57,268		7,890
Land		6,086		5,103
Consumer		-		-
Total non-accrual loans		116,736		71,857
Loans past maturity and still accruing:
Multi-family		-		1,365
Commercial real estate		1,060		3,713
Construction		-		6,615
Land		-		2,628
Total loans past maturity and still accruing		1,060		14,321
Past due over 90 days and still accruing		-		-
Real estate owned		-		-
Total non-performing loans/assets	$	117,796	$	86,178

At June 30, 2011 and September 30, 2010 there were no loans over 90 days past due that were still accruing interest.

For the three and nine months ended June 30, 2011, there was $3.0 million and $8.1 million of interest income that would have been recorded had our non-accruing loans been current and in accordance with their original terms compared to $1.3 million and $4.4 million for the three and nine months ended June 30, 2010.

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company analyzes loans individually by classifying the loans as to credit risk. Loans classified as “watch” are characterized by borrowers who have marginal cash flow, marginal profitability, or have experienced an unprofitable year and a declining financial condition. The borrower has in the past satisfactorily handled debts with the bank, but in recent months has either been late, delinquent in making payments, or made sporadic payments. While the bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. Other characteristics of borrowers in this class include inadequate credit information, weakness of financial statement and repayment capacity, but with collateral that appears to limit exposure. This classification includes loans to established borrowers that are reasonably margined by collateral, but where potential for improvement in financial capacity appears limited. We classify an asset as “special mention” if the asset has a potential weakness that warrants management’s close attention.  While “special mention” assets have not deteriorated to the point of being classified as “substandard,” management has concluded that if the potential weakness in the asset is not addressed, the value of the asset may deteriorate, thereby adversely affecting the repayment of the asset. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the institution will sustain “some loss” if the deficiencies are not corrected.  Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.”As of June 30, 2011, and based on the most recent analysis performed, the risk category by class of loans is as follows (dollars in thousands):

	One-to- Four Family		Multi- Family		Commercial Real Estate		Construction		Land		Consumer and Other		Total
Credit Risk by Internally Assigned Rating:
Pass	$	79,571	$	11,635	$	28,621	$	-	$	1,169	$	336	$	121,332
Watch		1,534		1,903		14,061		3,707		-		-		21,205
Special Mention		49		364		2,139		4,273		3,344		-		10,169
Substandard		1,284		26,489		33,109		66,783		13,358		-		141,023
Doubtful		-		-		3,713		-		-		-		3,713
	$	82,438	$	40,391	$	81,643	$	74,763	$	17,871	$	336	$	297,442

The following table presents an aging analysis of the recorded investment of past due loans receivable as of June 30, 2011 (dollars in thousands):

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		TDR (1)		Current		Total Loans Receivable
One-to-Four Family	$	74	$	-	$	1,230	$	1,304	$	390	$	80,744	$	82,438
Multi-Family		3,598		214		14,982		18,794		7,156		14,441		40,391
Commercial Real Estate		1,415		-		24,402		25,817		2,684		53,142		81,643
Construction		19,206		1,846		24,435		45,487		9,245		20,031		74,763
Land		1,896		-		2,047		3,943		1,958		11,970		17,871
Consumer and Other		23		-		1		24		-		312		336
	$	26,212	$	2,060	$	67,097	$	95,369	$	21,433	$	180,640	$	297,442
(1) $0.4 million of TDR loans have performed in accordance with modified terms
$21.0 million of TDR loans have not performed in accordance with modified terms and are in non-accrual status

The following table presents the recorded investment and unpaid principal balances for impaired loans with the associated specific allowance amount, if applicable. Management determined the specific allowance based on the current fair value of the collateral, less selling costs (dollars in thousands):

	As of and for the nine months ended June 30, 2011
	Unpaid Principal Balance		Recorded Balance		Specific Allowance		Average Recorded Investment		Interest Income Recognized
Loans without a specific valuation allowance:
One-to-Four Family	$	1,345	$	1,284			$	1,284	$	10
Multi-Family		28,955		26,489				28,935		123
Commercial Real Estate		44,280		34,587				43,823		13
Construction		60,700		59,553				45,722		404
Land		17,460		13,358				14,617		83
Consumer and Other		-		-				-
Loans with a specific valuation allowance:
One-to-Four Family		-		-	$	-		-		-
Multi-Family		-		-		-		-		-
Commercial Real Estate		2,235		2,235		1,041		2,233		-
Construction		7,230		7,230		566		-		-
Land		-		-		-		-		-
Consumer and Other		-		-		-		-		-
Total:
One-to-Four Family		1,345		1,284		-		1,284		10
Multi-Family		28,955		26,489		-		28,935		123
Commercial Real Estate		46,515		36,822		1,041		46,056		13
Construction		67,930		66,783		566		45,722		404
Land		17,460		13,358		-		14,617		83
Consumer and Other		-		-		-		-		-
Total impaired loans	$	162,205	$	144,736	$	1,607	$	136,613	$	633
	As of and for the year ended September 30, 2010
	Unpaid Principal Balance		Recorded Balance		Specific Allowance		Average Recorded Investment		Interest Income Recognized
Loans without a specific valuation allowance:
One-to-Four Family	$	-	$	-			$	-	$	7
Multi-Family		38,903		31,380				20,917		509
Commercial Real Estate		64,191		47,146				35,889		369
Construction		25,726		24,660				18,882		92
Land		22,582		15,938				15,206		15
Consumer and Other		-		-				-
Loans with a specific valuation allowance:
One-to-Four Family		-		-	$	-		-		-
Multi-Family		-		-		-		-		-
Commercial Real Estate		5,414		5,414		1,081		3,976		27
Construction		-		-		-		-		-
Land		437		437		6		437		8
Consumer and Other		-		-		-		-
Total:
One-to-Four Family		-		-		-		-		7
Multi-Family		38,903		31,380		-		20,917		509
Commercial Real Estate		69,605		52,560		1,081		39,865		396
Construction		25,726		24,660		-		18,882		92
Land		23,019		16,375		6		15,643		23
Consumer and Other		-		-		-		-		-
Total impaired loans	$	157,253	$	124,975	$	1,087	$	95,307	$	1,027

XML



CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthenticals) (USD $) In Thousands, except Share data	9 Months Ended
	Jun. 30, 2011
Statement Of Stockholders Equity [Abstract]
Income tax expense on Net unrealized gain on securities available-for-sale	$ 407
Treasury stock, shares (in shares)	6,737

XML



Basis of Presentation

9 Months Ended

Jun. 30, 2011

Organization, Consolidation and Presentation Of Financial Statements [Abstract]

Basis of Presentation

Note 2 - Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with instructions for Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP 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 and nine month periods ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending September 30, 2011.  The Company’s consolidated financial statements, as presented in the Company’s Form 10-K for the year ended September 30, 2010, should be read in conjunction with these statements.

XML



Use of Estimates

9 Months Ended

Jun. 30, 2011

Accounting Policies [Abstract]

Use of Estimates

Note 3 - Use of Estimates

The preparation of consolidated financial statements, in conformity with U.S. GAAP, 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, fair values of securities and deferred taxes are particularly susceptible to material change in the near term.

XML



Impact of Certain Accounting Pronouncements

9 Months Ended

Jun. 30, 2011

Accounting Changes and Error Corrections [Abstract]

Impact of Certain Accounting Pronouncements

Note 4 - Impact of Certain Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2010-06, Fair Value Measurements and Disclosures (“Topic 820”): Improving Disclosures about Fair Value Measurements (“ASU 10-06”). ASU 10-06 revises two disclosure requirements concerning fair value measurements and clarifies two others. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers. It will also require the presentation of purchases, sales, issuances and settlements within Level 3 on a gross basis rather than a net basis. The amendments also clarify that disclosures should be disaggregated by class of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and non-recurring fair value measurements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. These new disclosure requirements were adopted by the Company during the first quarter of fiscal year 2011, with the exception of the requirement concerning gross presentation of Level 3 activity, which is effective for fiscal years beginning after December 15, 2010 and will apply to the Company beginning November 1, 2011. With respect to the portions of this ASU that have been adopted by the Company, adoption did not have a material impact on the Company’s financial position, results of operations, cash flows, or disclosures.  Management does not believe that the adoption of the remaining portion of this ASU will have a material impact on the Company’s financial position, results of operation, cash flows, or disclosures.  

In July 2010, the FASB issued ASU No. 2010-20 which amends the authoritative accounting guidance under Topic 310, Receivables.  The guidance amends existing disclosures to provide financial statement users with greater transparency about an entity’s allowance for loan and lease losses and the credit quality of its loan and lease portfolio.  Under the new guidelines, the allowance for loan and lease losses and fair value are to be disclosed by portfolio segment, while credit quality information, impaired loans and leases and non-accrual status are to be presented by class of loans and leases.  Disclosure of the nature and extent, the financial impact and segment information of troubled debt restructurings will also be required.  The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the loan and lease portfolio’s risk and performance.  This guidance is effective for interim and annual reporting periods ending on or after December 15, 2010.  This ASU was adopted during the first quarter of fiscal year 2011 and did not have a material effect on the Company’s results of operations or financial condition.

In April 2011, the FASB issued ASU No. 2011-02, which amends the authoritative accounting guidance under ASC Topic 310 “Receivables.” The update provides clarifying guidance as to what constitutes a troubled debt restructuring. The update provides clarifying guidance on a creditor’s evaluation of the following: (1) how a restructuring constitutes a concession; and (2) if the debtor is experiencing financial difficulties. The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. In addition, disclosures about troubled debt restructurings which were delayed by the issuance of ASU No. 2011-01, are effective for interim and annual periods beginning on or after June 15, 2011. Adoption of this update is not expected to have a material effect on the Company’s results of operations or financial condition.

XML



CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (USD $) In Thousands	Common Stock	Additional Paid-In Capital	Retained Earnings-Substantially Restricted	Treasury Stock	Unallocated Common Stock Held By Esop	Unallocated Shares Of Stock-Based Incentive Plan	Accumulated Other Comprehensive Income (Loss)	Total
Balance at Sep. 30, 2010	$ 135	$ 43,119	$ 12,687	$ (7,720)	$ (2,235)	$ (259)	$ 12	$ 45,739
Comprehensive income:
Net loss			(5,670)					(5,670)
Net unrealized gain on securities available-for-sale, net of income tax expense of $407							518	518
Total comprehensive loss								(5,152)
Treasury stock purchased (6,737 shares)				(8)				(8)
Allocation of ESOP stock		(109)			119			10
Stock-based incentive plan expense		199	(151)			95		143
Dividends paid on common stock
Balance at Jun. 30, 2011	$ 135	$ 43,209	$ 6,866	$ (7,728)	$ (2,116)	$ (164)	$ 530	$ 40,732

XML



CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands	9 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Cash flows from operating activities:
Net loss	$ (5,670)	$ (21,006)
Adjustments to reconcile net income to net cash used in operating activities:
ESOP expense	10	104
Stock-based incentive plan expense	143	158
Depreciation and amortization	386	340
Provision for loan losses	3,147	33,626
Income from bank-owned life insurance	(221)	(264)
Gross loss on OTTI recognized in earnings	8	11,546
Amortization of servicing rights	43	38
Accretion of deferred loan fees, net	(787)	(505)
Amortization of premiums, net of discounts	(14)	(274)
Originations of loans held-for-sale	(4,371)	(5,337)
Proceeds from sales of loans held-for-sale	4,475	5,426
Principal repayments on loans held-for-sale		2
Net gain on sales of loans held-for-sale	(104)	(185)
Decrease in accrued interest receivable	909	612
Deferred income tax expense (benefit)	949	(14,769)
Net loss on sales of securities available-for-sale	1,388
Decrease (increase) in prepaid expenses and other assets	2,496	(5,434)
Increase (decrease) in accrued expenses and other liabilities	2,462	(2,419)
Net cash provided by operating activities	5,249	1,659
Cash flows from investing activities:
Repayments in excess of loan originations	35,358	2,358
Proceeds from the sale of loan notes	55,640
Principal repayments on mortgage-backed securities held-to-maturity		15,507
Principal repayments on mortgage-backed securities available-for-sale	27,044	101
Purchases of mortgage-backed securities held-to-maturity		(15,699)
Purchases of securities available-for-sale	(103,802)	(11,068)
Proceeds from the sale of securities available-for-sale	13,044
Net redemptions of FHLB stock	160	412
Purchases of bank-owned life insurance	(15)	(15)
Proceeds from surrender of bank-owned life insurance	3,208
Purchases of premises and equipment	(158)	(163)
Net cash provided by (used in) investing activities	30,479	(8,567)
Cash flows from financing activities:
(Decrease) increase in deposits	(12,636)	26,063
Net decrease in short term borrowings	(1,500)	(17,100)
Proceeds from long term borrowings		5,000
Decrease in advance payments by borrowers for taxes and insurance	(1,145)	(547)
Purchase of treasury shares	(8)	(13)
Payment of cash dividend		(1,017)
Net cash (used in) provided by financing activities	(15,289)	12,386
Net increase in cash and cash equivalents	20,439	5,478
Cash and cash equivalents at beginning of year	14,201	3,472
Cash and cash equivalents at end of period	34,640	8,950
Cash paid during the period for:
Interest	4,533	5,941
Taxes	175	4,440
Other:
Securities held-for-sale transferred to available-for-sale		$ 71,017

XML



CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (USD $) In Thousands	Jun. 30, 2011	Sep. 30, 2010
Assets
Cash and due from banks (including interest-earning balances of $33,124 and $12,559, respectively)	$ 34,640	$ 14,201
Securities available-for-sale	132,317	69,107
Loans receivable	297,152	387,783
Less: Allowance for loan losses	20,668	17,941
Loans receivable, net	276,484	369,842
Federal Home Loan Bank of New York ("FHLB") stock, at cost	1,643	1,803
Bank owned life insurance	6,908	9,880
Accrued interest receivable	1,152	2,061
Premises and equipment, net	1,594	1,822
Prepaid expenses and other assets	15,191	19,039
Total assets	469,929	487,755
Deposits:
Non-interest-bearing deposits	16,605	16,033
Interest-bearing deposits	148,331	154,800
Certificates of deposit	245,834	252,573
Total deposits	410,770	423,406
Borrowings	9,000	10,500
Advance payments by borrowers for taxes and insurance	1,431	2,576
Accrued expenses and other liabilities	7,996	5,534
Total liabilities	429,197	442,016
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized; none issued
Common stock, $0.01 par value, 20,000,000 shares authorized; 13,484,210 issued and 12,882,607 and 12,889,344 outstanding, respectively	135	135
Additional paid-in capital	43,209	43,119
Retained earnings - substantially restricted	6,866	12,687
Treasury shares - at cost, 601,603 shares and 594,866 shares, respectively	(7,728)	(7,720)
Unallocated common stock held by employee stock ownership plan ("ESOP")	(2,116)	(2,235)
Unallocated shares of the stock-based incentive plan	(164)	(259)
Accumulated other comprehensive income:
Net unrealized gain on securities, net of income tax benefit	530	12
Total stockholders' equity	40,732	45,739
Total liabilities and stockholders' equity	$ 469,929	$ 487,755