form10q-118745

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from __________ to ___________

Commission File Number: 0-503777

FLATBUSH FEDERAL BANCORP, INC.

(Exact name of registrant as specified in its charter)

FEDERAL	11-3700733
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

2146 NOSTRAND AVENUE, BROOKLYN, NEW YORK 11210

(Address of principal executive offices)

(718) 859-6800

(Registrant’s telephone number)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 (Do not check if a smaller reporting company) o	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

APPLICABLE ONLY TO CORPORATE ISSUERS

As of November 11, 2011 the Registrant had outstanding 2,736,907 shares of common stock.

FLATBUSH FEDERAL BANCORP, INC. AND SUBSIDIARIES

INDEX

Page

Number

PART I – FINANCIAL INFORMATION

	Item 1:	Financial Statements

		Consolidated Statements of Financial Condition at September 30, 2011 and December 31, 2010 (Unaudited)	1

		Consolidated Statements of Operations for the Three months and Nine months ended September 30, 2011 and 2010 (Unaudited)	2

		Consolidated Statements of Comprehensive (Loss) Income for the Three months and Nine months ended September 30, 2011 and 2010 (Unaudited)	3

		Consolidated Statements of Cash Flows for the Nine months ended September 30, 2011 and 2010 (Unaudited)	4

		Notes to Consolidated Financial Statements (Unaudited)	5 – 25

	Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operation	26-32

	Item 3:	Quantitative and Qualitative Disclosure About Market Risk	33

	Item 4:	Controls and Procedures	33

PART II – OTHER INFORMATION

	Item 1:	Legal Proceedings	34

	Item 1A:	Risk Factors	34

	Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	34

	Item 3:	Defaults upon Senior Securities	34

	Item 4:	(Removed and Reserved)	34

	Item 5:	Other Information	35

	Item 6:	Exhibits	35

SIGNATURES			36

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

FLATBUSH FEDERAL BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)


	September 30,			December 31,
ASSETS	2011			2010

Cash and amounts due from depository institutions	$	1,781,068		$	1,568,478
Interest earning deposits in other banks		1,597,749			1,065,862
Federal funds sold		2,200,000			5,550,000
Cash and cash equivalents		5,578,817			8,184,340

Investment securities held to maturity, fair value of $4,422,748 (2011)		4,351,459			-
Mortgage-backed securities held to maturity; fair value of $24,736,414 (2011) and $23,084,343 (2010)		23,077,826			21,779,811
Loans receivable, net of allowance for loan losses of $3,091,966 (2011) and $1,649,319 (2010)		98,713,695			106,477,978
Real estate owned		608,000			-
Premises and equipment		2,316,071			2,287,820
Federal Home Loan Bank of New York stock		826,600			807,900
Accrued interest receivable		595,001			607,089
Bank owned life insurance		4,484,706			4,371,605
Other assets		3,549,714			2,502,199
Total assets	$	144,101,889		$	147,018,742

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing	$	5,054,064		$	5,319,364
Interest bearing		108,955,257			111,754,193
Total deposits		114,009,321			117,073,557
Federal Home Loan Bank of New York advances		12,934,725			12,042,583
Advance payments by borrowers for taxes and insurance		317,725			333,023
Other liabilities		1,669,223			1,816,062
Total liabilities		128,930,994			131,265,225
Stockholders’ equity:
Preferred stock $0.01 par value; 1,000,000 shares authorized; none issued and outstanding		---			---
Common stock $0.01 par value; authorized 9,000,000 shares; issued 2,799,657 shares; outstanding 2,736,907 shares		27,998			27,998
Paid-in capital		12,708,742			12,653,326
Retained earnings		5,010,684			5,791,170
Unearned employees’ stock ownership plan (ESOP) shares		(417,827	)		(443,983	)
Treasury stock, 62,750 shares		(446,534	)		(446,534	)
Accumulated other comprehensive loss		(1,712,168	)		(1,828,460	)
Total stockholders’ equity		15,170,895			15,753,517

Total liabilities and stockholders’ equity	$	144,101,889		$	147,018,742

See notes to consolidated financial statements.

FLATBUSH FEDERAL BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended September 30,					Nine months ended September 30,
	2011			2010		2011			2010
Interest Income
Loans, including fees	$	1,351,169		$	1,650,044	$	4,256,060		$	4,946,815
Mortgage-backed securities		276,247			324,023		813,876			1,084,572
Federal Home Loan Bank of New York stock		34,554			12,362		63,479			43,745
Other interest earning assets		197			1,627		3,312			4,031
Total interest income		1,662,167			1,988,056		5,136,727			6,079,163

Interest Expense
Deposits		351,860			423,167		1,082,415			1,326,601
Borrowings		26,794			75,841		94,699			260,135
Total interest expense		378,654			499,008		1,177,114			1,586,736

Net Interest Income		1,283,513			1,489,048		3,959,613			4,492,427
Provision for loan losses		-			100,000		1,703,410			388,578
Net interest income after provision for loan losses		1,283,513			1,389,048		2,256,203			4,103,849

Non-interest income
Fees and service charges		23,461			25,105		86,723			77,397
BOLI income		38,275			38,240		113,101			113,414
Other		667			763		21,600			2,020
Total non-interest income		62,403			64,108		221,424			192,831

Non-interest expenses
Salaries and employee benefits		617,245			606,816		1,843,564			1,810,339
Net occupancy expense of premises		183,910			132,664		441,488			369,398
Equipment		215,643			113,470		511,598			359,329
Directors’ compensation		44,377			41,991		137,913			139,974
Professional fees		108,400			75,000		288,195			269,150
Other insurance premiums		53,364			32,912		125,957			103,798
Federal deposit insurance premiums		33,000			48,681		128,894			164,170
Other		129,012			120,130		360,209			361,295
Total non-interest expenses		1,384,951			1,171,664		3,837,818			3,577,453

(Loss) income before income tax (benefit) expense		(39,035	)		281,492		(1,360,191	)		719,227
Income tax (benefit) expense		(19,344	)		31,732		(579,706	)		183,589
Net (loss) income	$	(19,691	)	$	249,760	$	(780,485	)	$	535,638

Net (loss) income per common share – Basic and diluted	$	(0.01	)	$	0.09	$	(0.29	)	$	0.20
Weighted average number of shares outstanding – Basic and diluted		2,672,772			2,667,504		2,671,459			2,666,200

See notes to consolidated financial statements.

FLATBUSH FEDERAL BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010

Net (loss) income	$	(19,691	)	$	249,760		$	(780,485	)	$	535,638

Other comprehensive (loss) income,
net of income taxes:
Benefit plans		66,661			63,112			199,983			189,336
Deferred income taxes		(27,897	)		(26,412	)		(83,691	)		(79,236	)
		38,764			36,700			116,292			110,100
Comprehensive (loss) income	$	19,073		$	286,460		$	(664,193	)	$	645,738

FLATBUSH FEDERAL BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months ended September 30,
	2011			2010
Cash flow from operating activities:
Net (loss) income	$	(780,485	)	$	535,638
Adjustments to reconcile net (loss) income to net cash (used) provided by operating activities:
Depreciation and amortization of premises and equipment		91,795			131,803
Net accretion of discounts, premiums and deferred loan fees and costs		(17,207	)		(125,428	)
Provision for loan losses		1,703,410			388,578
ESOP shares committed to be released		20,077			17,608
MRP expense		30,436			30,438
Stock option expense		31,059			31,059
Decrease in accrued interest receivable		12,088			54,279
Increase in cash surrender value of BOLI		(113,101	)		(113,414	)
(Increase) decrease in other assets		(1,131,207	)		168,445
Increase (decrease) in other liabilities		53,144			(539,018	)
Net cash (used) provided by operating activities		(99,991	)		579,988

Cash flow from investing activities:
Purchases of investment securities held to maturity		(4,357,242	)		-
Principal repayments on mortgage-backed securities held to maturity		3,853,615			6,663,434
Purchases of mortgage-backed securities held to maturity		(5,150,439	)		-
Purchases of loan participation interests		(150,403	)		(1,589,496	)
Net change in loans receivable		5,625,075			2,341,947
Additions to premises and equipment		(120,046	)		(9,882	)
(Purchase) redemption of Federal Home Loan Bank of New York stock, net		(18,700	)		424,400
Net cash (used) provided by investing activities		(318,140	)		7,830,403

Cash flow from financing activities:
Net (decrease) increase in deposits		(3,064,236	)		3,450,050
Repayment of advances from Federal Home Loan Bank of New York		(3,107,858	)		(9,362,451	)
Net change in short-term borrowings from Federal Home Loan Bank of New York		4.000,000			(500,000	)
(Decrease) increase in advance payments by borrowers for taxes and insurance		(15,298	)		232,596
Net cash (used) by financing activities		(2,187,392	)		(6,179,805	)
Net (decrease) increase in cash and cash equivalents		(2,605,523	)		2,230,586
Cash and cash equivalents – beginning		8,184,340			5,458,027

Cash and cash equivalents – ending	$	5,578,817		$	7,688,613
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	1,198,477		$	1,523,997
Income taxes	$	412,340		$	61,000
Acquisition of real estate owned in settlement of loans receivable	$	608,000		$	-

See notes to consolidated financial statements.

FLATBUSH FEDERAL BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Flatbush Federal Bancorp, Inc. (the “Company”), Flatbush Federal Savings and Loan Association (the “Association”) and the Association’s subsidiary Flatbush REIT, Inc. The Company’s business is conducted principally through the Association. All significant intercompany accounts and transactions have been eliminated in consolidation.

NOTE 2. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations and cash flows in accordance with U.S. generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the three and nine months ended September 30, 2011, are not necessarily indicative of the results which may be expected for the entire year.

The unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2010, which are included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 855, “Subsequent Events”, the Company has evaluated events and transactions occurring subsequent to the Statement of Financial Condition date of September 30, 2011 for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.

NOTE 3. NET (LOSS) INCOME PER COMMON SHARE

Net (loss) income per common share was computed by dividing net (loss) income for the three and nine months ended September 30, 2011 and 2010 by the weighted average number of shares of common stock outstanding adjusted for unearned shares of the ESOP. Stock options and restricted stock awards granted are considered common stock equivalents and therefore considered in diluted net income per share calculations, if dilutive, using the treasury stock method. At and for the three months and nine months ended September 30, 2011 and 2010, there was no dilutive effect for the 82,378 and 82,378, respectively, of stock options outstanding. At and for the three months and nine months ended September 30, 2011 and 2010, there was no dilutive effect for the 7,598 and 11,398, respectively, of non-vested restricted stock awards.

NOTE 4. CRITICAL ACCOUNTING POLICIES

The Company considers accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Management reviews the level of the allowance on a quarterly basis, at a minimum, and establishes the provision for loan losses based on the composition of the loan portfolio, delinquency levels, loss experience, economic conditions, and other factors related to the collectability of the loan portfolio. Management has allocated the allowance among categories of loan types as well as classification status at each period-end date. Assumptions and allocation percentages based on loan types and classification status have been consistently applied. Management regularly evaluates various risk factors related to the loan portfolio, such as type of loan, underlying collateral and payment status, and the corresponding allowance allocation percentages.

Although management believes that it uses the best information available to establish the allowance for loan losses, future additions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. In addition, the regulatory authorities, as an integral part of their examination process, periodically review the allowance for loan losses. Such agencies may require management to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examinations.

NOTE 5. INVESTMENT SECURITIES HELD TO MATURITY

		September 30, 2011
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Corporate Debt	$	4,351,459	$	98,315	$	27,026	$	4,422,748

Total	$	4,351,459	$	98,315	$	27,026	$	4,422,748

NOTE 5. INVESTMENT SECURITIES HELD TO MATURITY (CONTINUED)

The age of unrealized losses and fair value of related corporate debt securities held to maturity are as follows:

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2011:
Corporate Debt	$	1,409,231	$	27,026	$	-	$	-	$	1,409,231	$	27,026
Total	$	1,409,231	$	27,026	$	-	$	-	$	1,409,231	$	27,026

When the fair value of a security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair value is below amortized cost, additional analysis is performed to determine whether an other-than-temporary impairment condition exits. Securities are analyzed quarterly for possible other-than-temporary impairment. The analysis considers (i) whether the Association has the intent to sell its securities prior to recovery and/or maturity and (ii) whether it is more likely than not that the Association will have to sell its securities prior to recovery and/or maturity. Often, the information available to conduct these assessments is limited and rapidly changing, making estimates of fair value subject to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the security may be different than previously estimated, which could have a material effect on the Association’s consolidated financial statements.

At September 30, 2011, management concluded that the unrealized losses above (which, at September 30, 2011, related to seven corporate debt securities) are temporary in nature since they are primarily related to market interest rates and not related to the underlying credit quality of the issuer of the securities.

The amortized cost and estimated fair value of investment securities at September 30, 2011 by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers generally have the right to prepay obligations.

	September 30, 2011
	Amortized Cost		Estimated Fair Value
Due within one year	$	-	$	-
Due after one year through five years		2,599,649		2,593,026
Due after five years through ten years		1,751,810		1,829,722
Due after ten years		-		-
Total	$	4,351,459	$	4,422,748

NOTE 6. MORTGAGE-BACKED SECURITIES HELD TO MATURITY

		September 30, 2011
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Government National Mortgage Association	$	5,636,012	$	335,298	$	-	$	5,971,310
Federal National Mortgage Association		13,821,209		1,173,695		-		14,994,904
Federal Home Loan Mortgage Corporation		3,620,605		173,682		24,087		3,770,200

Total	$	23,077,826	$	1,682,675	$	24,087	$	24,736,414

	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

Government National Mortgage Association	$	1,941,011	$	130,052	$	-	$	2,071,063
Federal National Mortgage Association		15,301,382		1,043,256		10,719		16,333,919
Federal Home Loan Mortgage Corporation		4,537,418		152,331		10,388		4,679,361

Total	$	21,779,811	$	1,325,639	$	21,107	$	23,084,343

All mortgage-backed securities held at September 30, 2011, and December 31, 2010, were secured by residential real estate.

The age of unrealized losses and fair value of related mortgage-backed securities held to maturity are as follows:

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2011:
Federal Home Loan Mortgage Corporation	$	535,810	$	17,554	$	377,713	$	6,533	$	913,523	$	24,087

Total	$	535,810	$	17,554	$	377,713	$	6,533	$	913,523	$	24,087

NOTE 6. MORTGAGE-BACKED SECURITIES HELD TO MATURITY (CONTINUED)

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2010:
Federal National Mortgage Association	$	487,785	$	10,719	$	-	$	-	$	487,785	$	10,719
Federal Home Loan Mortgage Corporation		53,835		418		553,080		9,970		606,915		10,388

Total	$	541,620	$	11,137	$	553,080	$	9,970	$	1,094,700	$	21,107

When the fair value of a security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair value is below amortized cost, additional analysis is performed to determine whether an other-than-temporary impairment condition exists. Securities are analyzed quarterly for possible other-than-temporary impairment. The analysis considers (i) whether the Association has the intent to sell its securities prior to recovery and/or maturity and (ii) whether it is more likely than not that the Association will have to sell its securities prior to recovery and/or maturity. Often, the information available to conduct these assessments is limited and rapidly changing, making estimates of fair value subject to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the security may be different than previously estimated, which could have a material effect on the Association’s consolidated financial statements.

At September 30, 2011, and December 31, 2010, management concluded that the unrealized losses above (which, at September 30, 2011, related to four Federal Home Loan Mortgage Corporation securities) are temporary in nature since they are primarily related to market interest rates and not related to the underlying credit quality of the issuer of the securities.

The amortized cost and estimated fair value of mortgage-backed securities at September 30, 2011 by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers generally have the right to prepay obligations.

	September 30, 2011
	Amortized Cost		Estimated Fair Value
Due within one year	$	-	$	-
Due after one year through five years		29,177		29,466
Due after five years through ten years		160,650		166,649
Due after ten years		22,887,999		24,540,299
Total	$	23,077,826	$	24,736,414

NOTE 7. LOANS RECEIVABLE

Loans receivable, net, consists of the following:

	September 30, 2011			December 31, 2010
	(Dollar in thousands)

Gross loans	$	102,538		$	109,099
Loans in process		(645	)		(895	)
Deferred loan fees, net		(87	)		(77	)
Allowance for loan loss		(3,092	)		(1,649	)
	$	98,714		$	106,478

NOTE 7. LOANS RECEIVABLE (CONTINUED)

The following table summarizes the primary segments of the allowance for loan losses (“ALLL”) and activity therein, segregated into the amounts required for loans individually evaluated for impairment and the amounts required for loans collectively evaluated for impairment as of and for the three and nine months ended September 30, 2011.

		Construction, Land and Unsecured Business Loan			Commercial Real Estate			Residential Multifamily Real Estate		Residential One-to four- Family Real Estate		Credit Card			Home Equity		Passbook Loans		Total
		(Dollars in thousands)
Allowance for loan losses:
Three months ended September 30, 2011:
Beginning Balances	$	1,496		$	1,214		$	36	$	343	$	3		$	-	$	-	$	3,092
Charge-offs		-			-			-		-		-			-		-		-
Provision		(119	)		(2	)		-		122		(1	)		-		-		-
Ending Balance	$	1,377		$	1,212		$	36	$	465	$	2		$	-	$	-	$	3,092

Nine months ended September 30, 2011
Beginning Balances	$	810	$	583		$	36	$	214		$	6		$	-	$	-	$	1,649
Charge-offs		-		(247	)		-		(5	)		(8	)		-		-		(260	)
Provision		567		876			-		256			4			-		-		1,703
Ending Balance	$	1,377	$	1,212		$	36	$	465		$	2		$	-	$	-	$	3,092

NOTE 7. LOANS RECEIVABLE (CONTINUED)

	Construction, Land and Unsecured Business Loan		Commercial Real Estate		Residential Multifamily Real Estate		Residential One-to four-family Real Estate		Credit Card		Home Equity		Passbook Loan		Total
	(Dollars in thousands)
Ending balance: individually evaluated for impairment	$	1,255	$	549	$	-	$	178	$	-	$	-	$	-	$	1,982
Ending balance: collectively evaluated for impairment	$	122	$	663	$	36	$	287	$	2	$	-	$	-	$	1,110

Loan receivables:
Ending balance	$	6,344	$	21,886	$	5,785	$	67,706	$	40	$	95	$	37	$	101,893
Ending balance: individually evaluated for impairment	$	4,986	$	2,331	$	-	$	4,733	$	-	$	-	$	-	$	12,050
Ending balance: collectively evaluated for impairment	$	1,358	$	19,555	$	5,785	$	62,973	$	40	$	95	$	37	$	89,843

NOTE 7. LOANS RECEIVABLE (CONTINUED)

The following table summarizes the primary segments of the ALLL, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of December 31, 2010.

	Construction, Land and Unsecured Business Loan		Commercial Real Estate		Residential Multifamily Real Estate		Residential One-to four-family Real Estate		Credit Card		Home Equity		Passbook Loan		Total
	(Dollars in thousands)
Allowance for loan losses:
Ending Balance	$	810	$	583	$	36	$	214	$	6	$	-	$	-	$	1,649
Ending balance: individually evaluated for impairment	$	627	$	207	$	-	$	60	$	4	$	-	$	-	$	898
Ending balance: collectively evaluated for impairment	$	183	$	376	$	36	$	154	$	2	$	-	$	-	$	751

Loan receivables:
Ending balance	$	7,310	$	22,975	$	5,890	$	71,830	$	47	$	113	$	39	$	108,204
Ending balance: individually evaluated for impairment	$	2,040	$	3,156	$	-	$	3,801	$	4	$	-	$	-	$	9,001
Ending balance: collectively evaluated for impairment	$	5,270	$	19,819	$	5,890	$	68,029	$	43	$	113	$	39	$	99,203

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment

NOTE 7. LOANS RECEIVABLE (CONTINUED)

delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for, commercial real estate loans and commercial construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of substantially all of the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral.

For loans secured by real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual smaller balance residential mortgage loans, home equity loans and other consumer loans for impairment disclosures, unless such loans are the subject of a troubled debt restructuring agreement.

Loans whose terms are modified are classified as troubled debt restructurings if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date. Troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months after modification. Loans classified as troubled debt restructurings also are designated as impaired.

The Company adopted Accounting Standards Update (“ASU”) No. 2011-02 on July 1, 2011. ASU No. 2011-02 provides additional guidance to creditors for evaluating whether a modification or restructuring of a receivable is a troubled debt restructuring. In evaluating whether a restructuring constitutes a troubled debt restructuring, ASU No. 2011-02 requires that a creditor must separately conclude that the restructuring constitutes a concession and the borrower is experiencing financial difficulties. As a result of our adoption of ASU No. 2011-02, we reassessed the terms and conditions to customers on all modifications granted from January 1, 2011 through June 30, 2011, and determined that no such loans were troubled debt restructurings. In addition, we did not have any troubled debt restructurings during the quarter ended September 30, 2011.

NOTE 7. LOANS RECEIVABLE (CONTINUED)

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of September 30, 2011 and December 31, 2010.

	Impaired Loans With Specific Allowances				Impaired Loans With No Specific Allowances		Total Impaired Loans
	Recorded Investment		Related Allowance		Recorded Investment		Recorded Investment		Unpaid Principal Balance
	(Dollars in thousands)
September 30, 2011:
Construction and land	$	3,958	$	1,255	$	1,028	$	4, 986	$	4,986
Commercial Real Estate		2,303		549		28		2,331		2,331
Residential one-to four-family Real Estate		1,811		178		2,922		4,733		4,733
Total impaired loans	$	8,072	$	1,982	$	3,978	$	12,050	$	12,050

	Impaired Loans With Specific Allowances				Impaired Loans With No Specific Allowances		Total Impaired Loans
	Recorded Investment		Related Allowance		Recorded Investment		Recorded Investment		Unpaid Principal Balance
	(Dollars in thousands)
December 31, 2010:
Construction and land	$	2,040	$	627	$	-	$	2, 040	$	2,040
Commercial Real Estate		2,143		207		1,013		3,156		3,156
Residential one-to four-family real estate		1,480		60		2,321		3,801		3,801
Credit Card		4		4		-		4		4
Total impaired loans	$	5,667	$	898	$	3,334	$	9,001	$	9,001

NOTE 7. LOANS RECEIVABLE (CONTINUED)

The following table presents the average recorded investment and interest income recognized on impaired loans during the three and nine months ended September 30, 2011.

	Three months ended September 30, 2011				Nine months ended September 30, 2011
	Average Recorded Investment		Interest Income Recorded		Average Recorded Investment		Interest Income Recorded
	(Dollars in thousands)

Construction and land	$	3,969	$	-	$	3,281	$	-
Commercial Real Estate		2,329		6		2,689		24
Residential one-to four-family Real Estate		4,030		-		4,046		8
Credit Card		-		-		2		-
Total	$	10,329	$	6	$	10,018	$	24

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments, for commercial and consumer loans. Credit quality risk ratings include regulatory classifications of substandard, doubtful, loss and special mention. 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 insured 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. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated special mention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans which are not classified as noted above are rated “pass”.

In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

NOTE 7. LOANS RECEIVABLE (CONTINUED)

The following table presents the classes of the loan portfolio summarized by the pass category and the criticized categories of special mention, substandard and doubtful within the internal risk rating system as of September 30, 2011 and December 31, 2010.

	Pass		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
September 30, 2011:
Construction and land	$	-	$	1,318	$	4,986	$	-	$	6,304
Commercial real estate		19,554		-		2,331		-		21,886
Residential mortgage multifamily real estate		5,785		-		-		-		5,785
Residential mortgage one-to four-family real estate		62,110		863		4,733		-		67,706
Unsecured business loan		40		-		-		-		40
Credit card		40		-		-		-		40
Home equity		95		-		-		-		95
Passbook loan		37		-		-		-		37
Total	$	87,662	$	2,182	$	12,050	$	-	$	101,893

	Pass		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)
December 31, 2010:
Construction and land	$	2,895	$	2,355	$	2,040	$	-	$	7,290
Commercial real estate		19,819		-		3,156		-		22,975
Residential mortgage multifamily real estate		5,890		-		-		-		5,890
Residential mortgage one-to four-family real estate		66,963		1,066		3,801		-		71,830
Unsecured business loan		20		-		-		-		20
Credit card		43		-		4		-		47
Home equity		113		-		-		-		113
Passbook loan		39		-		-		-		39
Total	$	95,782	$	3,421	$	9,001	$	-	$	108,204

NOTE 7. LOANS RECEIVABLE (CONTINUED)

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of September 30, 2011 and December 31, 2010:

	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Non-Accrual		Total Loans Receivable
	(Dollars in thousands)
September 30, 2011: Construction and land	$	389	$	929	$	-	$	4,986	$	5,915	$	4,986		$	6,304
Commercial real estate		19,555		551		-		1,780		2,331		1,780			21,886
Unsecured Business Loan		40		-		-		-		-		-			40
Residential Multi family Real Estate		5,785		-		-		-		-		-			5,785
Residential One-to four-family Real Estate		61,464		1,211		298		4,733		6,242		4,733			67,706
Credit Card		37		3		-		-		3		-			40
Home Equity		95		-		-		-		-		-			95
Passbook Loan		37		-		-		-		-		-			37
Total	$	87,402	$	2,694	$	298	$	11,499	$	14,491	$	11,499		$	101,893

NOTE 7. LOANS RECEIVABLE (CONTINUED)

	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Non-Accrual		Total Loans Receivable
	(Dollars in thousands)
December 31, 2010:
Construction and land	$	5,249	$	-	$	-	$	2,041	$	2,041	$	2,041	$	7,290
Commercial real estate		20,378		-		-		2,597		2,597		2,597		22,975
Unsecured Business Loan		20		-		-		-		-		-		20
Residential Multi family Real Estate		5,890		-		-		-		-		-		5,890
Residential One-to four-family Real Estate		65,985		1,912		132		3,801		5,845		3,801		71,830
Credit Card		40		-		3		4		7		4		47
Home Equity		99		-		14		-		14		-		113
Passbook Loan		39		-		-		-		-		-		39
Total	$	97,700	$	1,912	$	149	$	8,443	$	10,504	$	8,443	$	108,204

NOTE 8. RETIREMENT PLANS – COMPONENTS OF NET PERIODIC PENSION COST

Periodic pension expense for the funded employee pension plan was as follows:

	Three months Ended						Nine months Ended
	September 30,						September 30,
	2011			2010			2011			2010

Service cost	$	-		$	-		$	-		$	-
Interest cost		76,216			76,343			228,648			229,029
Expected return on assets		(123,220	)		(106,170	)		(369,660	)		(318,510	)
Amortization of unrecognized net loss		60,678			57,401			182,034			172,203
Net periodic benefit cost	$	13,674		$	27,574		$	41,022		$	82,722

NOTE 8. RETIREMENT PLANS – COMPONENTS OF NET PERIODIC PENSION COST (CONTINUED)

Periodic pension expense for other unfunded plans was as follows:

	Three months ended				Nine months ended
	September 30,				September 30,
	2011		2010		2011		2010

Service cost	$	5,499	$	4,674	$	16,497	$	14,022
Interest cost		15,525		16,782		46,575		50,346
Amortization of past service cost		5,278		5,278		15,834		15,834
Amortization of unrecognized net loss		705		433		2,115		1,299
Net periodic benefit cost	$	27,007	$	27,167	$	81,021	$	81,501

NOTE 9. FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS

In September 2006, the FASB issued ASC Topic 820 “Fair Value Measurement and Disclosure,” which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the United States of America (“GAAP”), and expands disclosures about fair value measurements. FASB ASC 820 applies to other accounting pronouncements that require or permit fair value measurements.

ASC Topic 820 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 ASC Topic 820 are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported with little or no market activity).

An asset 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.

The Company had no financial assets which are required to be measured at fair value on a recurring basis at September 30, 2011 and December 31, 2010.

NOTE 9. FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS (CONT’D)

For assets measured at fair value on a non-recurring basis, the fair value measurements by level within the fair value hierarchy used are as follows:

Description	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
	(In Thousands)
Impaired Loans:
September 30, 2011	$	6,090	$	-	$	-	$	6,090
December 31, 2010	$	4,769	$	-	$	-	$	4,769

The Company had no liabilities which are required to be measured at fair value on a recurring or non-recurring basis at September 30, 2011 and December 31, 2010.

The following information should not be interpreted as an estimate of the fair value of the entire Association since a fair value calculation is only provided for a limited portion of the Association’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Association’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of financial instruments at September 30, 2011 and December 31, 2010:

Cash and Cash Equivalents, Interest Receivable and Interest Payable

The carrying amounts for cash and cash equivalents, interest receivable and interest payable approximate fair value because they mature in three months or less.

Securities

The fair value of securities held to maturity (carried at amortized cost) are determined by matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

Loans Receivable

The fair value of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

NOTE 9. FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS (CONT’D)

Impaired Loans

Impaired loans are those for which the Company has measured and recorded 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.

Federal Home Loan Bank of New York (FHLB) Stock

The carrying amount of restricted investment in FHLB stock approximates fair value, and considers the limited marketability of such securities.

Deposit Liabilities

The fair value disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Advances from FHLB

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity.

Off-Balance Sheet Financial Instruments

Fair value for the Association’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing.

As of September 30, 2011 and December 31, 2010, the fair value of commitments to extend credit were not considered to be material.

NOTE 9. FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS (CONT’D)

The estimated fair values of financial instruments were as follows at September 30, 2011 and December 31, 2010.

	September 30,				December 31,
	2011				2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	5,579	$	5,579	$	8,184	$	8,184
Investment securities held to maturity		4,351		4,423		-		-
Mortgage-backed securities held to maturity		23,078		24,736		21,780		23,084
FHLB stock		827		827		808		808
Loans receivable		98,714		104,727		106,478		112,166
Accrued interest receivable		595		595		607		607

Financial liabilities:
Deposits		114,009		115,556		117,074		118,460
Advances from FHLB		12,935		12,991		12,043		12,209
Accrued interest payable		7		7		28		28

NOTE 10. RECENT ACCOUNTING PRONOUNCEMENTS

ASU 2011-02 (A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring)

The FASB has issued this ASU to clarify the accounting principles applied to loan modifications, as defined by FASB ASC Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors. The ASU clarifies guidance on a creditor’s evaluation of whether or not a concession has been granted, with an emphasis on evaluating all aspects of the modification rather than a focus on specific criteria, such as the effective interest rate test, to determine a concession. The ASU goes on to provide guidance on specific types of modifications such as changes in the interest rate of the borrowing, and insignificant delays in payments, as well as guidance on the creditor’s evaluation of whether or not a debtor is experiencing financial difficulties. For public entities, the amendments in the ASU are effective for the first interim or annual periods beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The entity should also disclose information required by ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which had previously been deferred by ASU 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in ASU No. 2010-20, for interim and annual periods beginning on or after June 15, 2011. Nonpublic entities are required to adopt the amendments in this ASU for annual periods ending on or after December 15, 2012. Early adoption is permitted. The adoption of this guidance did not have a significant impact on the financial position or results of operations.

NOTE 10. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

ASU 2011-03 (Reconsideration of Effective Control for Repurchase Agreements)

The FASB has issued this ASU to clarify the accounting principles applied to repurchase agreements, as set forth by FASB ASC Topic 860, Transfers and Servicing. This ASU, entitled Reconsideration of Effective Control for Repurchase Agreements, amends one of three criteria used to determine whether or not a transfer of assets may be treated as a sale by the transferor. Under Topic 860, the transferor may not maintain effective control over the transferred assets in order to qualify as a sale. This ASU eliminates the criteria under which the transferor must retain collateral sufficient to repurchase or redeem the collateral on substantially agreed upon terms as a method of maintaining effective control. This ASU is effective for both public and nonpublic entities for interim and annual reporting periods beginning on or after December 31, 2011, and requires prospective application to transactions or modifications of transactions which occur on or after the effective date. Early adoption is not permitted. The Company does not expect the adoption of this guidance to have a significant impact on the financial position or results of operations.

ASU 2011-04 (Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs)

This ASU amends FASB ASC Topic 820, Fair Value Measurements, to bring U.S. GAAP for fair value measurements in line with International Accounting Standards. The ASU clarifies existing guidance for items such as: the application of the highest and best use concept to non-financial assets and liabilities; the application of fair value measurement to financial instruments classified in a reporting entity’s stockholder’s equity; and disclosure requirements regarding quantitative information about unobservable inputs used in the fair value measurements of level 3 assets. The ASU also creates an exception to Topic 820 for entities which carry financial instruments within a portfolio or group, under which the entity is now permitted to base the price used for fair valuation upon a price that would be received to sell the net asset position or transfer a net liability position in an orderly transaction. The ASU also allows for the application of premiums and discounts in a fair value measurement if the financial instrument is categorized in level 2 or 3 of the fair value hierarchy. Lastly, the ASU contains new disclosure requirements regarding fair value amounts categorized as level 3 in the fair value hierarchy such as: disclosure of the valuation process used; effects of and relationships between unobservable inputs; usage of nonfinancial assets for purposes other than their highest and best use when that is the basis of the disclosed fair value; and categorization by level of items disclosed at fair value, but not measured at fair value for financial statement purposes. For public entities, this ASU is effective for interim and annual periods beginning after December 15, 2011. For nonpublic entities, the ASU is effective for annual periods beginning after December 15, 2011. Early adoption is not permitted. The Company does not expect the adoption of this guidance to have a significant impact on the financial position or results of operations.

ASU 2011-05 (Presentation of Comprehensive Income)

The provisions of this ASU amend FASB ASC Topic 220, Comprehensive Income, to facilitate the continued alignment of U.S. GAAP with International Accounting Standards. The ASU prohibits the presentation of the components of comprehensive income in the statement of stockholder’s equity. Reporting entities are allowed to present either: a statement of comprehensive income, which reports both net income and other comprehensive income; or separate, but consecutive, statements of net income and other comprehensive income. Under previous GAAP, all 3 presentations were acceptable. Regardless of the presentation selected, the Reporting Entity is required to present all reclassifications between other comprehensive and net income on the face of the new statement or statements. The provisions of this

NOTE 10. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

ASU are effective for fiscal years and interim periods beginning after December 31, 2011 for public entities. For nonpublic entities, the provisions are effective for fiscal years ending after December 31, 2012, and for interim and annual periods thereafter. As the two remaining options for presentation existed prior to the issuance of this ASU, early adoption is permitted. The Company does not expect the adoption of this guidance to have a significant impact on the financial position or results of operations.

NOTE 11. FEDERAL HOME LOAN BANK OF NEW YORK STOCK

Federal Home Loan Bank of New York (“FHLB”) stock, which represents required investment in the common stock of a correspondent bank, is carried at cost and as of September 30, 2011 and December 31, 2010, consists of the common stock of FHLB.

Management evaluates the FHLB stock for impairment in accordance with FASB ASC Topic 942-325-35 (Prior authoritative literature: Statement of Position (SOP) 01-6, Accounting by Certain Entities (Including Entities With Trade Receivables) That Lend to or Finance the Activities of Others). Management’s determination of whether this investment is impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB.

Management believes no impairment charge is necessary related to the FHLB stock as of September 30, 2011.

NOTE 12. PROPERTY SALE

During 2010, the Company entered into an agreement (the “Agreement”) to sell its current main branch building and a portion of Flatbush Federal’s adjoining real estate to a third party (the “Purchaser”) for $9,136,000 (the “Transfer”). Under the Agreement, Purchaser will acquire Flatbush Federal’s current main branch building located at 2146 Nostrand Avenue, Brooklyn, New York (“Property A”). In addition thereto, the Purchaser will take title to 2158 Nostrand Avenue, Brooklyn, New York (“Property B”), and an approximately 12,305 square foot parcel (“Property C”) of a larger adjoining parking lot (“Lot 124”) abutting parts of Nostrand Avenue and Hillel Place, Brooklyn, New York (Property A, Property B, and Property C are collectively, the “Properties”). Property B is currently not leased by Flatbush Federal.

The Agreement provided for an investigation period that expired on August 10, 2010. The investigation period allowed the Purchaser to conduct environmental site assessments, a structural engineering survey and other tests and investigations. With the expiration of the investigation period, the Purchaser is legally committed to complete the Transfer pursuant to the terms of the Agreement.

NOTE 12. PROPERTY SALE (CONTINUED)

On March 24, 2011, the Company and the Purchaser entered into an amendment to the Agreement. The significant terms of the Agreement, as amended, are as follows:

The Purchaser is required to subdivide Lot 124 (of which Property C forms a part of) into two separate tax lots or parcels (the “Subdivision”), which is currently underway. Lot 124 consists of (i) Parcel C and (ii) a 3,100 square foot parcel which abuts Hillel Place (the “Retained Property”). Flatbush Federal will retain title to the Retained Parcel, which will become the site of a new branch building (“Branch Building”).

2.	The Transfer is to close (the “Closing”) five (5) days after the date the Subdivision has been approved and new tax lot numbers are assigned to Property C and the Retained Property.

The Purchaser is obligated to complete construction of and deliver to the Company a building containing a 3,000 square foot ground floor bank branch, a cellar, and three (3) additional floors of office space. In consideration of constructing the three (3) additional floors of office space, the Purchaser shall receive a credit at the Closing of $2,176,600.

4.	One of the principals of the Purchaser will personally guarantee the Purchaser’s obligation to deliver the bank branch and office building to Flatbush Federal.

The Company plans to use the additional three (3) floors of office space (consisting of approximately 7,125 of additional square feet) for its executive and administrative offices.

The Company anticipates that the Transfer will occur during the fourth quarter of 2011, although there can be no assurance that the Transfer will not be extended beyond that date, as a result of unexpected delays in obtaining Municipal Approvals. The Company estimates a pre-tax gain in the range of $8.8 million to $9.0 million will be recorded during the quarter in which the Transfer occurs.

At the Closing, Flatbush Federal will lease back Property A on an interim basis for its continued use as a temporary bank branch (the “Branch Lease”) for one ($1.00) dollar per year. Flatbush Federal must relocate to the new Branch Building no later than 45 days after the Purchaser completes the construction of the Branch Building and if applicable, the Purchaser’s contractor has completed construction of the interior build-out and delivers to Flatbush Federal a temporary certificate of occupancy for the Branch Building, Bank branch expansion and interior build-out. At that time, the Branch Lease will terminate, and Flatbush Federal will open the Branch Building for business as its new bank branch.

ITEM 2

FLATBUSH FEDERAL BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Forward-Looking Statements

This Form 10-Q may include certain forward-looking statements based on current management expectations. The Company’s actual results could differ materially from those management expectations. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of loan and investment portfolios of the Company, changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services and prices.

Comparison of Financial Condition at September 30, 2011 and December 31, 2010

The Company’s total assets as of September 30, 2011 were $144.1 million compared to $147.0 million at December 31, 2010, a decrease of $2.9 million or 2.0%. Loans receivable decreased $7.8 million, or 7.3%, to $98.7 million at September 30, 2011 from $106.5 million at December 31, 2010. Mortgage-backed securities increased $1.3 million, or 6.0%, to $23.1 million at September 30, 2011 from $21.8 million as of December 31, 2010. Investment securities increased and totaled $4.4 million due to purchases during the quarters ended June 30 and September 30, 2011. Cash and cash equivalents decreased $2.6 million or 31.8%, to $5.6 million at September 30, 2011 from $8.2 million at December 31, 2010.

Total deposits decreased $3.2 million, or 2.7%, to $114.0 million at September 30, 2011 from $117.2 million at December 31, 2010. As of September 30, 2011, advances from the Federal Home Loan Bank of New York (“FHLB”) were $12.9 million compared to $12.0 million as of December 31, 2010, an increase of $892,000, or 7.4%.

Total stockholders’ equity decreased $583,000, or 3.7%, to $15.2 million at September 30, 2011 from $15.8 million at December 31, 2010. The decrease to stockholders’ equity reflects a net loss of $780,000, during the nine-month period ended September 30, 2011, offset in part by the amortization of $20,000 of unearned ESOP shares, amortization of $30,000 of restricted stock awards for the Company’s Stock-Based Incentive Program, amortization of $31,000 of stock option awards and a decrease of $116,000 of accumulated other comprehensive loss.

On August 30, 2007, the Company approved a stock repurchase program and authorized the repurchase of up to 50,000 shares of the Company’s outstanding shares of common stock. Stock repurchases are 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. During the three and nine months ended September 30, 2011, the Company did not repurchase any shares. As of September 30, 2011, under the current program, a total of 12,750 shares had been repurchased at a weighted average price of $4.44 per share.

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

General. Net income decreased by $270,000, to a net loss of $20,000 for the quarter ended September 30, 2011 from net income of $250,000 for the same quarter in 2010. The decrease for the current quarter was primarily due to a decrease of $326,000 in interest income and an increase of $214,000 in non-interest expense, partially offset by decreases of $71,000 in interest expense on deposits, $49,000 in interest expense on borrowings from FHLB, $100,000 in the provision for loan loss and $51,000 in income tax expense.

Interest Income. Total interest income decreased $326,000, or 16.4%, to $1.7 million for the quarter ended September 30, 2011 from $2.0 million for the quarter ended September 30, 2010. The decrease in interest income can be primarily attributed to lower average balances and yields for these assets. For the three months ended September 30, 2011, the average balance of $129.4 million in interest-earning assets earned an average yield of 5.14% compared to an average yield of 5.69% on an average balance of $139.8 million for the three months ended September 30, 2010. The decline in the average balance was primarily due to slowing loan demand and loan concentration limits. Concentration limits on loan types totals for construction, multi-family and non-residential loans are maintained to limit concentration risk.

Interest income on loans decreased $299,000, or 18.1%, to $1.35 million for the quarter ended September 30, 2011, from $1.65 million for the same quarter in 2010. The average balance of loans decreased $11.1 million to $99.4 million for the quarter ended September 30, 2011 from $110.5 million for the quarter ended September 30, 2010. The average yield on loans decreased by 53 basis points to 5.44% for the quarter ended September 30, 2011 from 5.97% for the quarter ended September 30, 2010.

Interest income on mortgage-backed securities decreased $48,000, or 14.8%, to $276,000 for the quarter ended September 30, 2011 from $324,000 for the quarter ended September 30, 2010. The average balance of mortgage-backed securities decreased $190,000, or 0.8%, to $22.4 million for the quarter ended September 30, 2011 from $22.5 million for the quarter ended September 30, 2010. The average yield decreased by 81 basis points to 4.94% for the quarter ended September 30, 2011 from 5.75% for the same period in 2010.

Interest income on investment securities increased $22,000, or 191.7%, to $35,000 for the quarter ended September 30, 2011 from $12,000 for the quarter ended September 30, 2010. The average yield on investment securities decreased 288 basis points to 2.69%, for the quarter ended September 30, 2011 from an average yield of 5.57% for the quarter ended September 30, 2010.

Interest Expense. Total interest expense, comprised of interest expense on deposits and FHLB borrowings, decreased $120,000, or 24.0%, to $379,000 for the quarter ended September 30, 2011 from $499,000 for the quarter ended September 30, 2010. The average cost of interest-bearing liabilities decreased by 30 basis points to 1.26% for the quarter ended September 30, 2011 from 1.56% for the quarter ended September 30, 2010. The average balance of interest-bearing liabilities decreased $7.1 million, or 5.6% to $120.6 million for the quarter ended September 30, 2011 from $127.7 million for the quarter ended September 30, 2010.

Interest expense on deposits decreased $71,000, or 16.8%, to $352,000 for the quarter ended September 30, 2011, from $423,000 for the quarter ended September 30, 2010. The average cost of interest-bearing deposits decreased by 19 basis points to 1.30% for the quarter ended September 30, 2011 from 1.49% for the quarter ended September 30, 2010, reflecting the trend of declining interest rates on deposits. The average balance of interest-bearing deposits decreased $5.4 million, or 4.7%, to $108.5 million for the quarter ended September 30, 2011 from $113.9 million for the quarter ended September 30, 2010.

Interest expense on FHLB borrowings decreased $49,000, or 64.5%, to $27,000 for the quarter ended September 30, 2011, from $76,000 for the quarter ended September 30, 2010. The average balance of FHLB borrowings decreased $1.7 million or 12.3%, to $12.1 million for the quarter ended September 30, 2011, from $13.8 million for the quarter ended September 30, 2010. The average cost of FHLB borrowings decreased by 131 basis points to 0.89% for the quarter ended September 30, 2011, from 2.20% for the quarter ended September 30, 2010.

Net Interest Income. Net interest income decreased $205,000, or 13.8%, to $1.28 million for the quarter ended September 30, 2011 from $1.49 million for the same quarter in 2010. The interest rate spread was 3.88% for the quarter ended September 30, 2011 compared to 4.13% for the quarter ended September 30, 2010, a decrease of 25 basis points. Interest margin for the quarter ended September 30, 2011 was 3.97% compared to 4.26% for the quarter ended September 30, 2010, a decrease of 29 basis points. The decrease in interest rate spread and interest margin can be attributed primarily to the decrease in the yield of interest-earning assets.

Provision for Loan Losses. The Company establishes the provision for loan loss, which is charged to operations, at a level deemed appropriate to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. Based on the evaluation of these factors, no provision was recorded for the three months ended September 30, 2011. A provision of $100,000 was recorded for the three months ended September 30, 2010. The level of the allowance at September 30, 2011 is based on estimates, and the ultimate losses may vary from the estimates. Non-performing loans increased to $11.5 million, or 8.0% of total assets as of September 30, 2011 from $8.4 million or 5.7% of total assets as of December 31, 2010 and $6.4 million or 4.3% of total assets as of September 30, 2010. As of September 30, 2011 the non-performing loans included thirteen 1-4 family residential mortgage loans totaling $4.7 million, three non-residential mortgage loans of $1.8 million and five construction loans of $5.0 million which, at quarter-end, maintained aggregate specific allowances for loan loss of $2.0 million. The allowance for loan losses totaled $3.1 million at September 30, 2011, and was comprised of $2.0 million of specific allowance and $1.1 million of general allowance. The allowance for loan losses totaled $1.6 million at December 31, 2010, and was comprised of $898,000 of specific allowance and $751,000 of general allowance. The continued decline in real estate values as well as the increase in non-performing loans contributed to the increased allowance.

Non-Interest Income. Non-interest income decreased $2,000, or 3.1%, to $62,000 for the quarter ended September 30, 2011 from $64,000 for the quarter ended September 30, 2010.

Non-Interest Expenses. Non-interest expenses increased $213,000, or 18.2%, to $1.38 million for the quarter ended September 30, 2011 from $1.17 million for the quarter ended September 30, 2010. The net increase of $213,000 in non-interest expenses is primarily attributable to increases to net occupancy expense of premises, equipment expense and professional fees. Equipment expense increased $103,000 to $216,000 for the quarter ended September 30, 2011, from $113,000 for the quarter ended September 30, 2010 primarily due to data center deconversion costs. Net occupancy expense of premises increased $51,000 to $184,000 for the quarter ended September 30, 2011, from $133,000 for the quarter ended September 30, 2010 primarily due to the loss of rental income from an expired property lease that was not renewed due to the pending sale of the property, along with new leasing terms for an existing branch location. Professional fees increased $33,000 to $108,000 for the quarter ended September 30, 2011, from $75,000 for the quarter ended September 30, 2010 primarily due to increased legal and accounting expenses.

Income Tax Expense. The provision for income taxes decreased $51,000, to a benefit of $19,000 for the quarter ended September 30, 2011 compared to an expense of $32,000 for the same quarter in 2010. The decrease was attributable to decreased pre-tax income.

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

General. Net income decreased by $1.3 million, to a net loss of $780,000 for the nine months ended September 30, 2011 from net income of $536,000 for the same period in 2010. The decrease for the period was primarily due to a decrease of $942,000 in interest income and increases of $1.3 million in provision for loan loss and $260,000 in non-interest expense, partially offset by decreases of $244,000 in interest expense on deposits, $165,000 in interest expense on borrowings from FHLB and $763,000 in income tax expense and an increase of $29,000 in non-interest income.

Interest Income. Total interest income decreased $942,000, or 15.5%, to $5.1 million for the nine months ended September 30, 2011 from $6.1 million for the nine months ended September 30, 2010. The decrease in interest income can be primarily attributed to lower average balances and yields for interest earning assets. For the nine months ended September 30, 2011, the average balance of $131.0 million in interest-earning assets earned an average yield of 5.23% compared to an average yield of 5.67% on an average balance of $143.0 million for the nine months ended September 30, 2010. The decline in the average balance was primarily due to slowing loan demand and loan concentration limits.

Interest income on loans decreased $691,000, or 14.0%, to $4.3 million for the nine months ended September 30, 2011, from $4.9 million for the same period in 2010. The average balance of loans decreased $9.5 million to $102.2 million for the nine months ended September 30, 2011 from $111.7 million for the nine months ended September 30, 2010. The average yield on loans decreased by 36 basis points to 5.55% for the nine months ended September 30, 2011 from 5.91% for the nine months ended September 30, 2010.

Interest income on mortgage-backed securities decreased $271,000, or 25.0%, to $814,000 for the nine months ended September 30, 2011 from $1.1 million for the nine months ended September 30, 2010. The average balance of mortgage-backed securities decreased $3.3 million, or 13.3%, to $21.5 million for the nine months ended September 30, 2011 from $24.8 million for the nine months ended September 30, 2010. The average yield decreased by 78 basis points to 5.06% for the nine months ended September 30, 2011 from 5.84% for the same period in 2010.

Interest income on investment securities increased $19,000, or 45.3%, to $63,000 for the nine months ended September 30, 2011 from $44,000 for the nine months ended September 30, 2010. The average yield on investment securities decreased 249 basis points to 2.94%, for the nine months ended September 30, 2011 from an average yield of 5.43% for the nine months ended September 30, 2010.

Interest Expense. Total interest expense, comprised of interest expense on deposits and FHLB borrowings, decreased $410,000, or 25.8%, to $1.2 million for the nine months ended September 30, 2011 from $1.6 million for the nine months ended September 30, 2010. The average cost of interest-bearing liabilities decreased by 32 basis points to 1.30% for the nine months ended September 30, 2011 from 1.62% for the nine months ended September 30, 2010. The average balance of interest-bearing liabilities decreased $10.1 million, or 7.7% to $120.6 million for the nine months ended September 30, 2011 from $130.7 million for the nine months ended September 30, 2010.

Interest expense on deposits decreased $244,000, or 18.4%, to $1.1 million for the nine months ended September 30, 2011, from $1.3 million for the nine months ended September 30, 2010. The average cost of interest-bearing deposits decreased by 25 basis points to 1.32% for the nine months ended September 30, 2011 from 1.57% for the nine months ended September 30, 2010, reflecting the trend of declining interest rates on deposits. The average balance of interest-bearing deposits decreased $2.9 million, or 2.6%, to $109.7 million for the nine months ended September 30, 2011 from $112.6 million for the nine months ended September 30, 2010.

Interest expense on FHLB borrowings decreased $165,000, or 63.6%, to $95,000 for the nine months ended September 30, 2011, from $260,000 for the nine months ended September 30, 2011. The average balance of FHLB borrowings decreased $7.2 million, or 39.8% to $10.9 million for the nine months ended September 30, 2011, from $18.1 million for the nine months ended September 30, 2010. The average cost of FHLB borrowings decreased by 76 basis points to 1.16% for the nine months ended September 30, 2011, from 1.92% for the nine months ended September 30, 2010.

Net Interest Income. Net interest income decreased $533,000, or 11.9%, to $4.0 million for the nine months ended September 30, 2011 from $4.5 million for the same nine months in 2010. The interest rate spread was 3.93% for the nine months ended September 30, 2011 compared to 4.05% for the nine months ended September 30, 2010, a decrease of 12 basis points. Interest margin for the nine months ended September 30, 2011 was 4.03% compared to 4.19% for the nine months ended September 30, 2010, a decrease of 16 basis points. The decrease in interest rate spread and interest margin can be attributed primarily to the decrease in the average balance and yield of interest-earning assets.

Provision for Loan Losses. The Company establishes the provision for loan loss, which is charged to operations, at a level deemed appropriate to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. Based on the evaluation of these factors, a provision of $1.7 million was recorded for the nine months ended September 30, 2011. A provision of $389,000 was recorded for the nine months ended September 30, 2010. The level of the allowance at September 30, 2011 is based on estimates, and the ultimate losses may vary from the estimates. Non-performing loans increased to $11.5 million, or 8.0% of total assets as of September 30, 2011 from $8.4 million or 5.7% of total assets as of December 31, 2010 and $6.4 million or 4.3% of total assets as of September 2010. As of September 30, 2011 the non-performing loans included thirteen 1-4 family residential mortgage loans totaling $4.7 million, three non-residential mortgage loans of $1.8 million and five construction loans of $5.0 million which, at quarter-end, maintained aggregate specific allowances for loan loss of $2.0 million. The allowance for loan losses totaled $3.1 million at September 30, 2011, and was comprised of $2.0 million of specific allowance and $1.1 million of general allowance. The allowance for loan losses totaled $1.6 million at December 31, 2010, and was comprised of $898,000 of specific allowance and $751,000 of general allowance. The continued decline in real estate values as well as the increase in non-performing loans contributed to the increased allowance. Specific valuation allowances increased during the period primarily due to updated valuation analyses for the loans evaluated for impairment.

Non-Interest Income. Non-interest income increased $28,000 or 14.5%, to $221,000 for the nine months ended September 30, 2011 from $193,000 for the nine months ended September 30, 2010.

Non-Interest Expenses. Non-interest expenses increased $261,000, or 7.3%, to $3.8 million for the nine months ended September 30, 2011 from $3.6 million for the nine months ended September 30, 2010. The net increase of $261,000 in non-interest expenses is primarily attributable to increases to, net occupancy expense of premises and equipment expense. Equipment expense increased $153,000 to $512,000 for the nine months ended September 30, 2011, from $359,000 for the nine months ended September 30, 2010 primarily due to data center deconversion costs. Net occupancy expense of premises increased $72,000 to $441,000 for the nine months ended September 30, 2011, from $369,000 for the nine months ended September 30, 2010 primarily due to the loss of rental income from an expired property lease that was not renewed due to the pending sale of the property, along with new leasing terms for an existing branch location. Professional fees increased $19,000 to $288,000 for the nine months ended September 30, 2011, from $269,000 for the nine months ended September 30, 2010 primarily due to increased legal and accounting expenses.

Income Tax Expense. The provision for income taxes decreased $764,000, to a benefit of $580,000 for the nine months ended September 30, 2011 compared to an expense of $184,000 for the same period in 2010. The decrease was attributable to decreased pre-tax income.

Liquidity and Capital Resources

The Association is required to maintain levels of liquid assets under the Federal banking regulations sufficient to ensure the Association’s safe and sound operation. The Association’s liquidity, calculated by a ratio of short-term assets to short-term liabilities, averaged 5.00% during the month of September 2011. The Association adjusts its liquidity levels in order to meet funding needs for deposit outflows, payment of real estate taxes from escrow accounts on mortgage loans, repayment of borrowings, when applicable, and loan funding commitments. The Association also adjusts its liquidity level as appropriate to meet its asset/liability objectives.

The Association’s primary sources of funds are deposits, borrowings, amortization and prepayments of loans and mortgage-backed securities, maturities of investment securities and funds provided from operations. While scheduled loan and mortgage-backed securities amortization and maturing investment securities are a relatively predictable source of funds, deposit flows and loan and mortgage-backed securities prepayments are greatly influenced by market interest rates, economic conditions and competition.

The Association’s liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities.

The primary sources of investing activity are lending and the purchase of investment securities and mortgage-backed securities. Net loans totaled $98.7 million and $106.5 million at September 30, 2011 and September 30, 2010, respectively. Mortgage-backed securities held to maturity totaled $23.1 million and $21.8 million at September 30 2011 and September 30, 2010, respectively. In addition to funding new loans and mortgage-backed and investment securities purchases through operating and financing activities, such activities were funded by principal repayments on existing loans, mortgage-backed securities and maturities of investment securities.

Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments, such as federal funds and interest-bearing deposits. If the Association requires funds beyond its ability to generate them internally, borrowing agreements exist with the FHLB which provides an additional source of funds. At September 30, 2011, the Company had a borrowing limit of $43.0 million from the FHLB, of which $12.9 million was advanced. At September 30, 2010 advances from the FHLB totaled $12.0 million.

The Association anticipates that it will have sufficient funds available to meet its current loan commitments and obligations. At September 30, 2011, the Association had outstanding commitments to originate or purchase loans of $700,000. Certificates of deposit scheduled to mature in one year or less at September 30, 2011, totaled $58.2 million. Management believes that, based upon its experience and the Association’s deposit flow history, a significant portion of such deposits will remain with the Association.

Under Federal banking regulations, three separate measurements of capital adequacy (the “Capital Rule”) are required. The Capital Rule requires each savings institution to maintain tangible capital equal to at least 1.5% and core capital equal to 4.0% of its adjusted total assets. The Capital rule further requires each savings institution to maintain total capital equal to at least 8.0% of its risk-weighted assets.

The following tables set forth the Association’s capital position at September 30, 2011 and December 31, 2010, as compared to the minimum regulatory capital requirements:

Actual

Minimal Capital Requirements

Under Prompt Corrective Actions Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

September 30, 2011:

(Dollars in Thousands)

Total Capital

17,099

19.26

>$7,103

>8.00%

>$8,879

>10.00%

(to risk-weighted assets)

Tier 1 Capital

15,989

18.01

> -

>5,328

> 6.00%

(to risk-weighted assets)

Core (Tier 1) Capital

16,073

11.23

> 5,724

>4.00%

>7,155

> 5.00%

(to adjusted total assets)

Tangible Capital

16,073

11.23

> 2,146

>1.50%

(to adjusted total assets)

Actual

Minimal Capital Requirements

Under Prompt Corrective Actions Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

December 31, 2010:

(Dollars in Thousands)

Total Capital

17,377

20.30

>$6,847

>8.00%

>$8,558

>10.00%

(to risk-weighted assets)

Tier 1 Capital

16,626

19.43

> -

>5,135

> 6.00%

(to risk-weighted assets)

Core (Tier 1) Capital

16,710

11.45

> 5,836

>4.00%

>7,295

> 5.00%

(to adjusted total assets)

Tangible Capital

16,710

11.45

> 2,188

>1.50%

(to adjusted total assets)

Management of Interest Rate Risk

The ability to maximize net interest income largely depends upon maintaining a positive interest rate spread during periods of fluctuating market interest rates. Interest rate sensitivity is a measure of the difference between amounts of interest-earning assets and interest-bearing liabilities which either reprice or mature within a given period of time. The difference, or the interest rate repricing “gap,” provides an indication of the extent to which an institution’s interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities, and is considered negative when the amount of interest-rate sensitive liabilities exceeds the amount of interest-rate sensitive assets. Generally, during a period of rising interest rates, a negative gap within shorter maturities would adversely affect net interest income, while a positive gap within shorter maturities would result in an increase in net interest income, and during a period of falling interest rates, a negative gap within shorter maturities would result in an increase in net interest income while a positive gap within shorter maturities would result in a decrease in net interest income.

The Association’s current investment strategy is to maintain an overall securities portfolio that provides a source of liquidity and that contributes to the Association’s overall profitability and asset mix within given quality and maturity considerations.

Net Portfolio Value

The Association’s interest rate sensitivity is monitored by management through the use of the Federal banking model which estimates the change in the Association’s net portfolio value (“NPV”) over a range of interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The Federal banking regulator produces its analysis based upon data submitted on the Association’s quarterly Thrift Financial Reports. The following table sets forth the Association’s NPV as of September 30, 2011, the most recent date the Association’s NPV was calculated by the Federal banking regulator.

		Net Portfolio Value								Net Portfolio Value as a Percentage of Present Value of Assets
Change in Interest Rates (basis points)		Estimated NPV		Amount of Change			Percent of Change			NPV Ratio			Change in Basis Points
		(Dollars in Thousands)

	+300	$	15,103	$	(6,571	)		(30	%)		10.43	%		(369	)
	+200		18,305		(3,369	)		(16	%)		12.32	%		(181	)
	+100		20,562		(1,112	)		(5	%)		13.56	%		(56	)
	+ 50		21,196		(478	)		(2	%)		13.89	%		(24	)
	0		21,674		—			—			14.13	%		—
	- 50		21,879		205			1	%		14.22	%		9
	-100		21,879		205			1	%		14.21	%		8

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in net portfolio value require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net portfolio value table presented assumes that the composition of interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the net portfolio value table provides an indication of the Association’s interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on its net interest income and will differ from actual results.

ITEM 3. Quantitative and Qualitative Disclosure About Market Risk

As a smaller reporting company, the Company is not required to provide the information required of this item.

ITEM 4. Flatbush Federal Bancorp, Inc. and Subsidiaries Controls and Procedures

(a)	Evaluation of disclosure 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 September 30, 2011 (the “Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective in timely alerting them in a timely manner to material information relating to us (or our consolidated subsidiary) required to be included in our periodic SEC filings.

(b)	Changes in Internal Controls over Financial Reporting.

There were no 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.

See the Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

As of September 30, 2011, the Company was not involved in any legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which, in the aggregate, involve amounts that management believes are immaterial to the Company’s consolidated financial condition, results of operations and cash flows.

ITEM 1A.Risk Factors

A smaller reporting company is not required to provide the information required of this item.

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

On August 30, 2007, the Company approved a stock repurchase program and authorized the repurchase of up to 50,000 shares of the Company’s outstanding shares of common stock. Stock repurchases will be made from time to time and may be effected through open market purchases, block trades and in privately negotiated transactions. Repurchased stock will be held as treasury stock and will be available for general corporate purposes. As of September 30, 2011, 12,750 total shares have been repurchased by the Company under this repurchase program. During the quarter ended September 30, 2011, no shares were repurchased. These total repurchased shares do not include the stock dividend shares of 1,340 which, along with the repurchased shares, are held as treasury stock.

Company Purchases of Common Stock
Period	Total number of shares purchased	Average price paid per share	Total number of shares purchased as part of publicly announced plans or programs	Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
July 1, 2011 through July 31, 2011	-	$ -	-	37,250
August 1, 2011 through August 31, 2011	-	-	-	37,250
September 1, 2011 through September 30, 2011	-	-	-	37,250

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. (Removed and Reserved)

ITEM 5. Other Information

None

ITEM 6. Exhibits

The following Exhibits are filed as part of this report.

3.1

Federal Stock Charter of Flatbush Federal Bancorp, Inc.*

3.2

Bylaws of Flatbush Federal Bancorp, Inc.*

4.0

Form of common stock certificate of Flatbush Federal Bancorp, Inc.*

11.0

Computation of earnings per share.

31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (filed herewith).

32.1

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

The following Exhibits are being furnished ** as part of this report:

101. INS		XBRL Instance Document. **
101.SCH		XBRL Taxonomy Extension Schema Document.**
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.**
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.**
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.**
101.DEF		XBRL Taxonomy Extension Definitions Linkbase Document.**

*Incorporated by reference to the Registration Statement on Form SB-2 of Flatbush Federal Bancorp, Inc. (file no. 333-106557), originally filed with the Securities and Exchange Commission on June 27, 2003.

**These interactive data files are being furnished as part of this Quarterly Report, and, in accordance with Rule 402 of Regulation S-T, shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.

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.

		FLATBUSH FEDERAL BANCORP, INC.


Date:	November 14, 2011		By: /s/Jesus R. Adia
			Jesus R. Adia President and Chief Executive Officer


Date:	November 14, 2011		By: /s/ John S. Lotardo
			John S. Lotardo Executive Vice President and Chief Financial Officer