FLATBUSH FEDERAL BANCORP INC - FORM 10-K - EX-13 - EXHIBIT 13

Attached files

file	filename
10-K - FORM 10K - FLATBUSH FEDERAL BANCORP INC	form10k-114374_fltb.htm
EX-31.1 - EXHIBIT 31.1 - FLATBUSH FEDERAL BANCORP INC	ex31_1.htm
EX-21 - EXHIBIT 21 - FLATBUSH FEDERAL BANCORP INC	ex21.htm
EX-31.2 - EXHIBIT 31.2 - FLATBUSH FEDERAL BANCORP INC	ex31_2.htm
EX-23 - EXHIBIT 23 - FLATBUSH FEDERAL BANCORP INC	ex23.htm
EX-32 - EXHIBIT 32 - FLATBUSH FEDERAL BANCORP INC	ex32.htm

EXHIBIT 13

ANNUAL REPORT TO STOCKHOLDERS

Dear Shareholder:

The banking industry continued to be in an uncertain economic environment in 2010. Throughout the year, there were continuing signs of economic turmoil despite our government's relief efforts to stimulate the economy. Although there were slight improvements in late 2010 in the unemployment rate and the real estate sector, market and consumer anxiety prevailed. Despite prolonged recessionary conditions and intense competition for weakened loan demand, Flatbush Federal was profitable in 2010. Through this challenging operating environment, Flatbush Federal remains committed to the prudent and conservative management of the Bank.

In 2010, Flatbush Federal's net income increased by $246,000 to $441,000 for the year ended December 31, 2010 from $195,000 for the year ended December 31, 2009. Total assets decreased by $9.0 million to $147.0 million from $156.0 million at December 31, 2009. Loans receivable decreased by $4.5 million to $106.5 million at December 31, 2010 from $111.0 million at December 31, 2009. Loan originations for 2010 totaled $6.9 million, as compared to $22.3 million originated in 2009. Intense competition for weakened loan demand coupled with prudent management of concentration levels of our loan portfolio accounted for this decrease. Total deposits increased by $1.9 million to $117.1 million at December 31, 2010 from $115.2 million at December 31, 2009. Borrowings from the Federal Home Loan Bank of New York decreased by $10.9 million to $12.0 million at December 31, 2010 from $22.9 million at December 31, 2009. Net interest margin increased to 4.18% in 2010 from 3.47% in 2009. Net interest spread increased to 4.04% in 2010 from 3.26% in 2009. Average cost of deposits decreased to 1.54% in 2010 from 2.19% in 2009.

The economic turmoil that continued into 2010 had an adverse impact on the Bank's loan portfolio. Our non-performing loans increased by $4.4 million to $8.4 million as of December 31, 2010 from $4.0 million as of December 31, 2009. Non-performing loans as a percentage of total assets increased to 5.74% as of December 31, 2010 from 2.57% as of December 31, 2009. Our allowance for loan losses increased by $821,000 to $1.6 million at December 31, 2010 from $828,000 at December 31, 2009. Flatbush Federal had core and tangible capital ratios of 11.45% and total risk-based ratio of 20.30% as of December 31, 2010. We continue to be classified as “well capitalized”.

During 2010, the Company entered into an agreement to sell its main office property and its two adjoining properties to a third party for $9,136,000. As part of the purchase price, the purchaser is obligated to subdivide one of the adjoining properties and build a branch building on a 3,100 square foot parcel for which Flatbush Federal will retain title. On March 24, 2011, the Company entered into an amendment to the agreement which further obligates the purchaser to build three additional floors of office space above the branch at a cost of $2,176,600. The Company anticipates the transfer to close during the second quarter of 2011, although there can be no assurance that the transfer will not be extended beyond that date as a result of delays in obtaining municipal approvals. The Company estimates a pre-tax gain in the range of $8.8 million to $9.0 million, which will be recorded during the quarter in which the transfer occurs.

In November 2010, the Company signed an agreement with FISERV, a data processing company, to serve as the Bank's core processor. The goal of this agreement is to enhance the Bank's technology infrastructure in its operations and regulatory compliance, promote efficiency and enhance its ability to design new product offerings, when applicable. Initial conversion efforts are ongoing and will be fully implemented by July 2011.

As we enter into another uncertain economic environment in 2011 with new challenges, the Board of Directors and Management remain committed to a strategy of sound financial management and excellent customer service for the long term growth of the Company.

On behalf of the Board of Directors, Management and staff, we thank you for your continued support.

Sincerely,

/s/ Jesus R. Adia

Jesus R. Adia

Chairman of the Board,

Chief Executive Officer and President

Selected Consolidated Financial Information and Other Data

The following information is derived from the audited consolidated financial statements of Flatbush Federal Bancorp, Inc. For additional information about Flatbush Federal Bancorp, Inc. and Flatbush Federal Savings and Loan Association, a more detailed presentation is made in the “Management’s Discussion and Analysis,” the Consolidated Financial Statements of Flatbush Federal Bancorp, Inc. and the related notes included in this Annual Report.

Selected Financial Condition Data:	At December 31,
(In thousands)	2010		2009

Total assets	$	147,019	$	155,979
Loans receivable, net (1)		106,478		110,988
Mortgage-backed securities (2)		21,780		28,340
Cash and cash equivalents		8,184		5,458
Deposits		117,074		115,168
Borrowings		12,043		22,851
Stockholders’ equity		15,754		15,233

(1) Net of allowance for loan losses and deferred loan fees.

(2) Mortgage-backed securities are classified as held to maturity.

	For the Years Ended
Selected Operating Data:	December 31,
(In thousands, except per share data)	2010		2009

Total interest income	$	7,962	$	8,250
Total interest expense		2,050		3,255
Net interest income		5,912		4,995
Provision for loan losses		821		649

Non-interest income		253		261
Non-interest expense		4,747		4,280
Income taxes		156		132
Net income	$	441	$	195

Net income per common share – basic and diluted	$	0.17	$	0.07

Selected Financial Ratios and Other Data:

	At or for the Years
	Ended December 31,
	2010			2009
Performance Ratios:

Return on average assets (1)		0.29	%		0.13	%
Return on average equity		2.81	%		1.29	%
Net yield on average interest-earning assets		5.63	%		5.73	%
Net yield on average interest-bearing liabilities		1.59	%		2.47	%
Net interest rate spread (2)		4.04	%		3.26	%
Net interest margin (3)		4.18	%		3.47	%
Average interest-earning assets to average interest-
bearing liabilities		1.10	x		1.09	x

Capital Ratios:
Average stockholders equity to average assets		10.26	%		9.72	%
Tier 1 core ratio (to adjusted total assets)		11.45	%		10.42	%
Total risk-based capital ratio		20.30	%		18.66	%

Asset Quality Ratios:
Allowance for loan losses to gross loans outstanding		1.51	%		0.72	%
Non-performing loans to total assets		5.74	%		2.57	%

Other Data:
Number of full-service offices		3			3

(1)	Ratio of net income to average total assets.

(2)	The difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(3)	Net interest income divided by average interest-earning assets.

Management’s Discussion and Analysis of Financial Condition

and Results of Operation

Flatbush Federal Bancorp, Inc. (the “Company”) is a federal corporation, which was organized in 2003 as part of the mutual holding company reorganization of Flatbush Federal Savings & Loan Association. The Company’s principal asset is its investment in Flatbush Federal Savings & Loan Association. The Company is a majority owned subsidiary of Flatbush Federal Bancorp, MHC, a federally chartered mutual holding company. At December 31, 2010, 1,484,208 shares of the Company’s common stock were held by its mutual holding company parent, and 1,252,699 shares were held by shareholders other than its mutual holding company parent. At December 31, 2010, Flatbush Federal Bancorp, Inc. had consolidated assets of $147.0 million, deposits of $117.1 million and stockholders’ equity of $15.8 million.

General

The results of operations depend primarily on the Company’s net interest income. Net interest income is the difference between the interest income earned on interest-earning assets, consisting primarily of loans, investment securities, mortgage-backed securities and other interest-earning assets (primarily cash and cash equivalents), and the interest paid on interest-bearing liabilities, consisting of NOW accounts, passbook and club accounts, savings accounts, time deposits and borrowings. The results of operations also are affected by provisions for loan losses, non-interest income and non-interest expense. Non-interest income currently consists primarily of fees and service charges, increases to the cash surrender value of bank owned life insurance and miscellaneous other income (consisting of fees for minimum balance requirements, dormant deposit accounts, fees charged to third parties for document requests and sale of money orders and travelers checks). Non-interest expense currently consists primarily of salaries and employee benefits, equipment, occupancy costs, data processing, deposit insurance premiums, other insurance premiums, and other operating expenses (consisting of legal fees, director compensation, postage, stationery, professional fees and other operational expenses). The Company’s results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

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. The Company considers allowance for loan losses, benefit plan assumptions and deferred income taxes to be critical accounting policies.

Allowance for Loan Losses. The allowance for loan losses is the estimated amount considered necessary to cover credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses which is charged against income. In determining the allowance for loan losses, management makes significant estimates and has identified this policy as one of the most critical for the Company.

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

The analysis has two components, specific and general allocations. Specific allocations are made for loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. The Company also analyzes historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes factors that are applied to the loan groups to determine the amount of the general allowance. Actual loan losses may be significantly more than the loan loss allowance established which could have a material negative effect on the Company’s financial results.

Pension Plan Assumptions. Our pension plan costs are calculated using actuarial concepts, as required under accounting for defined benefit pension and other post retirement plans. Pension expense and the determination of our projected pension liability are based upon two critical assumptions; the discount rate and the expected return on plan assets. We evaluate each of these critical assumptions annually. Other assumptions impact the determination of pension expense and the projected liability including the primary employee demographics, such as retirement patterns, employee turnover, mortality rates, and estimated employer compensation increases. These factors, along with the critical assumptions, are carefully reviewed by management each year in consultation with our pension plan consultants and actuaries. Further information about our pension plan assumptions, the plan’s funded status, and other plan information is included in Note 11 to Consolidated Financial Statements.

Deferred Income Taxes. The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company exercises significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets, including projections of future taxable income. These judgments are reviewed on a continual basis as regulatory and business factors change.

Comparison of Financial Condition at December 31, 2010 and 2009

The Company’s total assets at December 31, 2010 were $147.0 million compared to $156.0 million at December 31, 2009, a decrease of $9.0 million, or 5.7%. Loans receivable decreased $4.5 million, or 4.1%, to $106.5 million at December 31, 2010 from $111.0 million at December 31, 2009. Demand for one-to four-family residential mortgage loans decreased primarily due to the economic recession, high unemployment rate and declining real estate values. In addition, mortgage-backed securities decreased $6.5 million, or 23.0%, to $21.8 million at December 31, 2010 from $28.3 million as of December 31, 2009. Cash and cash equivalents increased $2.7 million, or 49.1%, to $8.2 million at December 31, 2010 from $5.5 million at December 31, 2009.

Total deposits increased $1.9 million, or 1.6%, to $117.1 million at December 31, 2010 from $115.2 million at December 31, 2009. Borrowings from the Federal Home Loan Bank of New York decreased $10.9 million, or 47.6%, to $12.0 million at December 31, 2010 from $22.9 million at December 31, 2009. The Company borrows from the Federal Home Loan Bank of New York to fund loan commitments, securities purchases and savings withdrawals.

Total stockholders’ equity increased $521,000, or 3.4%, to $15.8 million at December 31, 2010 from $15.2 million at December 31, 2009. The increase to stockholders’ equity reflects net income of $441,000, amortization of $25,000 of unearned ESOP shares, amortization of $41,000 of restricted stock awards for the Company’s Stock-Based Incentive Program (the “Plan”) and amortization of $41,000 of stock option awards. This was partially offset by an increase of $27,000 of accumulated other comprehensive loss.

On June 30, 2005, 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. This repurchase program was completed on December 7, 2007 with 50,000 shares repurchased. On August 30, 2007, the Company approved a second stock repurchase program and authorized the repurchase of up to an additional 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 December 31, 2010, a total of 12,750 shares have been acquired at a weighted average price of $4.44 per share pursuant to the second stock repurchase program.

Comparison of Operating Results for the Years Ended December 31, 2010 and 2009

General. Net income increased by $246,000, or 126.2%, to $441,000 for the year ended December 31, 2010 from $195,000 for the year ended December 31, 2009. Lower cost of deposits and borrowings, partially offset by lower yield on interest earning assets, caused the Company’s net interest margin to increase by 71 basis points from 3.47% in 2009 to 4.18% in 2010.

Interest Income. Interest income decreased by $288,000 or 3.5%, to $7.96 million for the year ended December 31, 2010 from $8.25 million for the year ended December 31, 2009. The decrease in interest income resulted from decreases of income of $391,000 from mortgage-backed securities, $11,000 from investments and $1,000 from other interest earning assets, partially offset by an increase of $115,000 from loans receivable. More generally, the decrease in interest income was attributable to a decrease of $2.5 million in the average balance of interest earning assets to $141.5 million for the year ended December 31, 2010 from $144.0 million for the year ended December 31, 2009 and a 10 basis point decrease in the average yield on interest earning assets.

Interest income on loans receivable increased $115,000 or 1.8%, to $6.5 million for the year ended December 31, 2010 from $6.4 million for the comparable period in 2009. The increase resulted from a higher average balance of $110.9 million for the year ended December 31, 2010, from an average balance of $104.5 million for the year ended December 31, 2009, partially offset by a lower average yield of 5.88% for the year ended December 31, 2010 from an average yield of 6.13% for the year ended December 31, 2009.

Interest income from mortgage-backed securities decreased $391,000, or 22.1%, to $1.4 million for the year ended December 31, 2010 from $1.8 million for the year ended December 31, 2009. This decrease reflects a $7.3 million decrease in the average balance of mortgage-backed securities to $23.9 million for the year ended December 31, 2010 from $31.2 million for the same period in 2009, partially offset by an increase in the average yield of 9 basis points to 5.77% for the year ended December 31, 2010 from 5.68% for the year ended December 31, 2009.

Interest income from investment securities decreased $11,000, or 15.9%, to $58,000 for the year ended December 31, 2010 from $69,000 for the year ended December 31, 2009. The decrease resulted from a decrease of $312,000 in the average balance in investment securities to $1.0 million for the year ended December 31, 2010 from an average balance of $1.3 million for the year ended December 31,

2009, partially offset by an increase of 57 basis points to 5.78% in the average yield for the year ended December 31, 2010 from an average yield of 5.21% for the year ended December 31, 2009.

Interest income on other interest-earning assets, primarily interest-earning deposits and federal funds sold, decreased $1,000, or 14.3%, to $6,000 for the year ended December 31, 2010 from $7,000 for the year ended December 31, 2009. The decrease was attributable to the decrease of $1.3 million in the average balance of interest earning deposits of $5.7 million for the year ended December 31, 2010 from $7.0 million for the year ended December 31, 2009.

Interest Expense. Total interest expense decreased $1.2 million, or 36.4%, to $2.1 million for the year ended December 31, 2010 from $3.3 million for the year ended December 31, 2009. The decrease in interest expense resulted from a decrease of 65 basis points in the average cost of deposits to 1.54% for the year ended December 31, 2010 from 2.19% for the year ended December 31, 2009, partially offset by a $4.9 million increase in the average balance of interest-bearing deposits to $112.6 million for the year ended December 31, 2010 from $107.7 million for the year ended December 31, 2009. In addition, the decrease in interest expense resulted from a decrease of $7.3 million in the average balance of Federal Home Loan Bank of New York advances to $16.7 million, with an average cost of 1.92%, for the year ended December 31, 2010, compared to $24.0 million and 3.74% for the year ended December 31, 2009. The average balance of certificates of deposit increased by $4.7 million to $78.0 million with an average cost of 2.06% in 2010, as compared with an average balance of $73.3 million with an average cost of 3.06% in 2009. The average balance for savings and club accounts increased by $213,000 to $34.2 million with an average cost of 0.37% in 2010, as compared to $34.0 million with an average cost of 0.34% in 2009. The average balance of interest-bearing demand deposits decreased by $75,000 to $358,000 with an average cost of 0.34% in 2010 from $433,000 with an average cost of 0.35% in 2009.

Net Interest Income. Net interest income increased $917,000, or 18.4%, to $5.9 million for 2010 from $5.0 million for 2009. The Company’s interest rate spread increased by 78 basis points to 4.04% in 2010 from 3.26% in 2009. Additionally, the Company’s interest margin increased by 71 basis points to 4.18% in 2010 from 3.47% in 2009.

Provision for Loan Losses. The Company establishes provisions for loan losses, which are charged to operations, at a level necessary 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, peer group information, and prevailing economic conditions. Prevailing national and local economic conditions are reflected in the continued high unemployment rate and depressed real estate values. 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 its evaluation of these factors, management made a provision of $821,000 for the year ended December 31, 2010, as compared to a provision of $649,000 for the year ended December 31, 2009. The increase in provision for loan loss during the year was primarily due to increased specific loan loss reserves of $164,000 on $2.0 million of construction loan participations, $207,000 on $2.1 million of commercial real estate loans and $60,000 on $1.5 million of one-to four-family residential loans. All of these loans were classified as substandard at December 31, 2010. The remaining $390,000 in the provision provided for an increased general allowance for loan loss considered appropriate due to the increase of non-performing loans and to address inherent losses that are probable and estimable in the loan portfolio. Management used the same methodology and generally similar assumptions in assessing the allowance for both years. The allowance for loan losses was $1.6 million, or 1.51% of total loans outstanding at December 31, 2010, as compared with $829,000, or 0.72% of total loans outstanding at

December 31, 2009. Non-performing loans to total assets increased by 317 basis points to 5.74% on December 31, 2010, from 2.57% on December 31, 2009. The level of the allowance is based on estimates, and the ultimate losses may vary from the estimates.

Management evaluates the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance. 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 Office of Thrift Supervision, as an integral part of its examination process, periodically reviews the allowance for loan losses. The Office of Thrift Supervision may require the Company to make adjustments to the allowance based on its judgments about information available to it at the time of its examination.

Non-Interest Income. Non-interest income decreased by $7,000, or 2.7%, to $254,000 in 2010 from $261,000 in 2009. This decrease was primarily due to decreases in BOLI investment income of $8,000.

Non-Interest Expense. Non-interest expense increased by $467,000, or 10.9% to $4.7 million in 2010 from $4.3 million in 2009. The increase was caused primarily by increases in salary and employee benefits to $2.4 million in 2010 from $1.9 million in 2009, director’s compensation to $186,000 in 2010 from $179,000 in 2009, net occupancy expense to $496,000 from $457,000, and other expense to $493,000 in 2010 from $471,000 in 2009; partially offset by decreases in professional fees to $340,000 in 2010 from $373,000 in 2009, equipment expenses to $477,000 in 2010 from $503,000 in 2009 and federal deposit insurance premiums to $206,000 in 2010 from $228,000 in 2009. Salary and employee benefits increased $480,000, or 24.9%, to $2.4 million for the year ended December 31, 2010, from $1.9 million for the same period in 2009. The increase to salary and employee benefits was primarily due to a pre-tax curtailment credit of $416,000, net of actuarial expense, recorded in 2009 resulting from the freezing of the defined benefit pension plan in 2009.

Income Tax Expense. The provision for income taxes increased $25,000 to $156,000 in 2010 from $132,000 in 2009. The increase in the income tax expense is primarily due to the increase in income before taxes of $271,000 to $597,000 in 2010 from $327,000 in 2009 and the decrease in the effective tax rate to 24.31% in 2010 from 40.26 % in 2009 due to amendments to the New York State and New York City’s tax law and ordinance conforming the bad debt deduction to the deduction allowed under the Federal income tax law.

Average Balance Sheet

The following table presents for the periods indicated the total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities, expressed both in dollars and rates. No tax equivalent adjustments were made. All average balances are monthly average balances. Non-accruing loans have been included in the table as loans carrying a zero yield. The amortization of loan fees is included in computing interest income; however, such fees are not material.

						Years Ended December 31,
	At December 31, 2010					2010								2009
	Outstanding Balance		Yield/Rate			Average Outstanding Balance		Interest Earned/ Paid			Yield/Rate			Average Outstanding Balance		Interest Earned/Paid			Yield/Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable(1)	$	106,478		5.67	%	$	110,909	$	6,518			5.88	%	$	104,528	$	6,403			6.13	%
Mortgage-backed securities		21,780		5.26	%		23,896		1,380			5.77	%		31,164		1,771			5.68	%
Investment securities(2) (3)		808		6.50	%		1,011		58			5.78	%		1,323		69			5.21	%
Other interest-earning assets		6,616		0.11	%		5,727		6			0.10	%		6,985		7			0.10	%
Total interest-earning assets		135,682		5.34	%		141,543		7,962			5.63	%		144,000		8,250			5.73	%

Non-interest earning assets		11,337					11,475								11,479

Total assets	$	147,019				$	153,018							$	155,479

Interest-bearing liabilities:
NOW accounts	$	319		0.30	%	$	358		1			0.34	%	$	433		2			0.35	%
Savings and club		34,691		0.33	%		34,245		126			0.37	%		34,032		116			0.34	%
Certificates of deposit		76,745		1.86	%		77,994		1,603			2.06	%		73,266		2,241			3.06	%
Total interest-bearing deposits..		111,754		1.38	%		112,596		1,730			1.54	%		107,731		2,359			2.19	%

Federal Home Loan Bank Advances		12,043		1.85	%		16,660		320			1.92	%		23,990		896			3.74	%

Total interest-bearing liabilities		123,797		1.43	%		129,256		2,051			1.59	%		131,721		3,255			2.47	%

Non-interest bearing liabilities:
Demand deposit		5,319					5,486								5,246
Other liabilities		2,149					2,583								3,404
Total non-interest-bearing liabilities		7,468					8,069								8,650
Total liabilities		131,265					137,325								140,371

Stockholders’ Equity		15,754					15,692								15,108
Total liabilities and equity	$	147,019				$	153,018							$	155,479
Net interest income								$	5,912							$	4,995
Interest rate spread(4)				3.91	%							4.04	%							3.26	%
Net interest-earning assets	$	11,885				$	12,286							$	12,279
Net interest margin(5)												4.18	%							3.47	%
Ratio of interest earning assets to interest bearing liabilities									1.10	x							1.09	x

(1)	Loans receivable are net of the allowance for loan losses.

(2)	None of the reported income is exempt from Federal income taxes.

(3)	Includes stock in Federal Home Loan Bank of New York which is reflected at the most recent quarterly dividend rate.

(4)	Net interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities.

(5)	Net interest margin represents net interest income as a percentage of interest earning assets.

Rate/Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to changes in outstanding balances and those due to the changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

	Years Ended December 31,
	2010 vs. 2009
	Increase/(Decrease)						Total
	Due to						Increase
	Volume			Rate			(Decrease)
	(Dollars in thousands)
Interest income:
Loans receivable	$	395		$	(280	)	$	115
Mortgage-backed securities		(413	)		22			(391	)
Investment securities		(17	)		6			(11	)
Other interest-earning assets		(1	)		-			(1	)

Total interest income		(36	)		(252	)		(288	)

Interest expense:
Demand deposits		-			(1	)		(1	)
Passbook and club accounts		-			10			10
Certificates of deposit		145			(783	)		(638	)
Federal Home Loan Bank advances...		(274	)		(302	)		(576	)

Total interest expense		(129	)		(1,076	)		(1,205	)

Net interest income	$	94		$	823		$	917

Management of Market Risk

General. The majority of the Company’s assets and liabilities are monetary in nature. Consequently, the most significant form of market risk is interest rate risk. The Company’s assets, consisting primarily of mortgage loans, have longer maturities than its liabilities, consisting primarily of deposits and borrowings. As a result, a principal part of the business strategy is to manage interest rate risk and reduce the exposure of net interest income to changes in market interest rates. Accordingly, the board of directors has established an Asset/Liability Management Committee which is responsible for evaluating the interest rate risk inherent in the assets and liabilities, for determining the level of risk that is appropriate given the business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors. Senior management monitors the level of interest rate risk on a regular basis and the Asset/Liability Management Committee, which consists of senior management operating under a policy adopted by the board of directors, meets as needed to review the asset/liability policies and interest rate risk position.

The Company has sought to manage its interest rate risk in order to minimize the exposure of earnings and capital to changes in interest rates. During the low interest rate environment that has existed in recent years, the Company has implemented the following strategies to manage its interest rate risk: (i)

maintaining a high level of liquid interest-earning assets invested in cash and cash equivalents; (ii) offering a variety of adjustable rate loan products, including one year adjustable rate mortgage loans and construction loans, and short-term fixed rate home equity loans. Cash and cash equivalents, deposits and borrowings from the Federal Home Loan Bank may be used to fund loan commitments, investments and other general corporate purposes. By investing in short-term, liquid instruments, management believes the Company is better positioned to react to increases in market interest rates. However, investments in shorter-term securities and cash and cash equivalents generally bear lower yields than longer term investments. Thus, during the recent sustained period of low interest rates, the strategy of investment in liquid instruments has resulted in lower levels of interest income than would have been obtained by investing in longer-term loans and investments.

Net Portfolio Value. The Office of Thrift Supervision requires the computation of amounts by which the net present value of an institution’s cash flow from assets, liabilities and off-balance sheet items (the institution’s net portfolio value or “NPV”) would change in the event of a range of assumed changes in market interest rates. The Office of Thrift Supervision provides all institutions that file a Consolidated Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report with an interest rate sensitivity report of net portfolio value. The Office of Thrift Supervision simulation model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. Historically, the Office of Thrift Supervision model estimated the economic value of each type of asset, liability and off-balance sheet contract under the assumption that the United States Treasury yield curve increases or decreases instantaneously by 100 to 300 basis points in 100 basis point increments. However, given the current low level of market interest rates, the Company did not receive a NPV calculation for an interest rate decrease of greater than 100 basis points. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below. The Office of Thrift Supervision provides the results of the interest rate sensitivity model, which is based on information provided to the Office of Thrift Supervision to estimate the sensitivity of the Company’s net portfolio value.

The table below sets forth, as of December 31, 2010 an interest rate sensitivity report of net portfolio value and the estimated changes in the net portfolio value that would result from the designated instantaneous changes in the United States Treasury yield curve.

	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	$	13,604	$	(9,423	)		(41	)%		9.33	%		-534	bp
+200	$	17,269	$	(5,757	)		(25	)%		11.52	%		-316	bp
+100	$	20,576	$	(2,451	)		(11	)%		13.38	%		-130	bp
+50	$	21,943	$	(1,084	)		(5	)%		14.11	%		-56	bp
0	$	23,026		-			-			14.68	%		-
-50	$	23,755	$	728			3	%		15.04	%		37	bp
-100	$	24,440	$	1,414			6	%		15.39	%		72	bp

The table above indicates that at December 31, 2010, in the event of a 100 basis point decrease in interest rates, the Company would experience a 6% increase in net portfolio value. In the event of a 100 basis point increase in interest rates, the Company would experience an 11% decrease in net portfolio value.

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 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.

Liquidity. The Company maintains liquid assets at levels considered adequate to meet its liquidity needs. The liquidity ratio averaged 6.84% for the year ended December 31, 2010. Liquidity levels are adjusted to fund deposit outflows, pay real estate taxes on mortgage loans, fund loan commitments and take advantage of investment opportunities. As appropriate, the Company also adjusts liquidity to meet asset and liability management objectives. At December 31, 2010, cash and cash equivalents totaled $8.2 million.

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

A significant portion of the Company’s liquidity consists of cash and cash equivalents, which are a product of management’s operating, investing and financing activities. At December 31, 2010, $8.2 million of assets were invested in cash and cash equivalents. The primary sources of cash are principal repayments on loans, proceeds from the calls and maturities of investment securities, principal repayments of mortgage-backed securities and increases in deposit accounts. As of December 31, 2010, there were no short-term investment securities.

Deposit flows are generally affected by the level of interest rates, the interest rates and products offered by local competitors, and other factors. Total deposits increased $1.9 million to $117.1 million at December 31, 2010 from $115.2 million as of December 31, 2009.

Liquidity management is both a daily and long-term function of business management. If the Company requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of New York which provides an additional source of funds. At December 31, 2010, the Company had $12.0 million in advances from the Federal Home Loan Bank of New York, and had an available borrowing limit of $49.0 million.

At December 31, 2010, the Company had outstanding commitments to originate loans of $2.2 million. At December 31, 2010, certificates of deposit scheduled to mature in less than one year totaled $61.7 million. Based on prior experience, management believes that a significant portion of such deposits will remain, although there can be no assurance that this will be the case. In the event a significant portion of deposits are not retained, management will have to utilize other funding sources, such as Federal Home Loan Bank of New York advances in order to maintain the Company’s level of assets.

Alternatively, management could reduce the level of liquid assets, such as cash and cash equivalents. In addition, the cost of such deposits may be significantly higher if market interest rates are higher at the time of renewal.

Contractual Obligations and Off-Balance Sheet Arrangements

The following table sets forth the Company’s contractual obligations at December 31, 2010. Amounts shown do not include anticipated contributions to the Company’s defined benefit plans.

	Payment Due by Period
Contractual Obligations	Total		Less than One year		More than One year to Three years		More than Three years to Five years		More than Five years
	(in thousands)


FHLB
Advances	$	12,043	$	10,962	$	1,081	$	-	$	-

Certificates of
Deposit		76,745		61,667		12,140		2,737		201

Lease Obligations		47		47		-		-		-


Total	$	88,835	$	72,676	$	13,221	$	2,737	$	201

In the normal course of business, the Bank enters into off-balance sheet arrangements consisting of commitments to fund loans. At December 31, 2010, these commitments totaled $2.4 million, which expire in three months or less. See Note 14 to the Consolidated Financial Statements for more information.

Impact of Inflation and Changing Prices

The consolidated financial statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company’s operations. Unlike industrial companies, the Company’s assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Flatbush Federal Bancorp, Inc.

Brooklyn, New York

We have audited the accompanying consolidated statements of financial condition of Flatbush Federal Bancorp, Inc. (the "Company") and Subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Flatbush Federal Bancorp, Inc., and Subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Clark, New Jersey

March 28, 2011

Flatbush Federal Bancorp, Inc. and Subsidiaries

Consolidated Statements of Financial Condition

	December 31,
	2010			2009
Assets
Cash and amounts due from depository institutions	$	1,568,479		$	1,846,911
Interest-earning deposits in other banks		1,065,862			1,861,116
Federal funds sold		5,550,000			1,750,000

Cash and Cash Equivalents		8,184,340			5,458,027

Mortgage-backed securities held to maturity, fair value of $23,084,343 in 2010 and $29,566,571 in 2009		21,779,811			28,340,092
Loans receivable, net of allowance for loan losses of $1,649,319 in 2010 and $828,534 in 2009		106,477,978			110,987,520
Premises and equipment		2,287,820			2,440,313
Federal Home Loan Bank of New York stock		807,900			1,274,900
Accrued interest receivable		607,089			657,552
Bank owned life insurance		4,371,605			4,219,982
Other assets		2,502,199			2,601,027

Total Assets	$	147,018,742		$	155,979,413

Liabilities and Stockholders’ Equity

Liabilities
Deposits:
Non-interest bearing	$	5,319,364		$	5,862,496
Interest bearing		111,754,193			109,305,224
Total Deposits		117,073,557			115,167,720
Advances from Federal Home Loan Bank of New York		12,042,583			22,851,481
Advance payments by borrowers for taxes and insurance		333,023			292,581
Other liabilities		1,816,062			2,434,678

Total Liabilities		131,265,225			140,746,460

Commitments and Contingencies		-			-

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		12,653,326			12,581,519
Retained earnings		5,791,170			5,349,941
Unearned employees’ stock ownership plan (ESOP) shares		(443,983	)		(478,857	)
Treasury stock, 62,750 shares, at cost		(446,534	)		(446,534	)
Accumulated other comprehensive loss		(1,828,460	)		(1,801,114	)

Total Stockholders’ Equity		15,753,517			15,232,953

Total Liabilities and Stockholders’ Equity	$	147,018,742		$	155,979,413

See notes to consolidated financial statements.

Flatbush Federal Bancorp, Inc. and Subsidiaries

Consolidated Statements of Income

	Years Ended December 31,
	2010		2009
Interest Income
Loans, including fees	$	6,518,077	$	6,403,000
Investment securities		58,471		69,003
Mortgage-backed securities held to maturity		1,379,515		1,770,514
Other interest-earning assets		5,716		6,982

Total Interest Income		7,961,779		8,249,499

Interest Expense
Deposits		1,730,343		2,358,423
Borrowings		319,712		896,211

Total Interest Expense		2,050,055		3,254,634

Net Interest Income		5,911,724		4,994,865

Provision for Loan Losses		821,476		649,398

Net Interest Income after Provision for Loan Losses		5,090,248		4,345,467

Non-Interest Income
Fees and service charges		99,431		97,943
Bank owned life insurance		151,623		159,567
Other		2,682		3,548

Total Non-Interest Income		253,736		261,058

Non-Interest Expense
Salaries and employee benefits		2,409,953		1,930,166
Net occupancy expense of premises		496,257		457,004
Equipment		477,069		502,863
Directors’ compensation		185,605		179,217
Professional fees		340,045		372,626
Insurance premiums		139,164		139,356
Federal deposit insurance premiums		205,826		227,984
Other		492,587		470,659

Total Non-Interest Expense		4,746,506		4,279,874

Income before Income Taxes		597,478		326,652

Income Taxes		156,249		131,523

Net Income	$	441,229	$	195,129

Net Income per Common Share
Basic and diluted	$	0.17	$	0.07

Weighted Average Number of Shares Outstanding
Basic and diluted		2,666,861		2,661,744

See notes to consolidated financial statements.

Flatbush Federal Bancorp, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

Years Ended December 31, 2010 and 2009

	Common Stock		Paid-In Capital			Retained Earnings		Unearned ESOP Shares			Treasury Stock			Accumulated Other Comprehensive Loss			Total
Balance December 31, 2008	$	27,998	$	12,514,942		$	5,154,812	$	(531,731	)	$	(442,984	)	$	(2,106,853	)	$	14,634,184

Comprehensive Income:
Net income		-		-			195,129		-			-			-			195,129
Benefit Plans, net of deferred income taxes of ($220,032)		-		-			-		-			-			305,739			305,739
Comprehensive income																		500,868
Purchase of 1,000 shares of treasury stock		-		-			-		-			(3,550	)		-			(3,550	)
Amortization of MRP		-		40,584			-		-			-			-			40,584
Stock Option expense		-		41,643			-		-			-			-			41,643
ESOP shares committed to be released		-		(15,650	)		-		34,874			-			-			19,224
Balance December 31, 2009		27,998		12,581,519			5,349,941		(478,857	)		(446,534	)		(1,801,114	)		15,232,953

Comprehensive Income:
Net income		-		-			441,229		-			-			-			441,229
Benefit Plans, net of deferred income taxes of $19,680		-		-			-		-			-			(27,346	)		(27,346	)
Comprehensive income		-		-			-		-			-			-			413,883
Amortization of MRP		-		40,584			-		-			-			-			40,584
Stock Option expense		-		41,412			-		-			-			-			41,412
ESOP shares committed to be released		-		(10,189	)		-		34,874			-			-			24,685

Balance December 31, 2010	$	27,998	$	12,653,326		$	5,791,170	$	(443,983	)	$	(446,534	)	$	(1,828,460	)	$	15,753,517

See notes to consolidated financial statements.

Flatbush Federal Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

	Years Ended December 31,
	2010			2009
Cash Flows from Operating Activities
Net income	$	441,229		$	195,129
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization of premises and equipment		171,870			182,690
Net (accretion) of premiums, discounts and deferred loan fees and costs		(166,560	)		(146,951	)
Deferred income tax (benefit) expense		(382,660	)		90,838
Provision for loan losses		821,476			649,398
ESOP shares committed to be released		24,685			19,224
MRP amortization		40,584			40,584
Stock option expense		41,412			41,643
Decrease (increase) in accrued interest receivable		50,463			(40,317	)
Increase in cash surrender value of bank owned life insurance		(151,623	)		(159,567	)
Decrease (increase) in other assets		501,169			(922,353	)
Decrease in other liabilities		(665,642	)		(1,022,954	)

Net Cash Provided by (Used in) Operating Activities		726,403			(1,072,636	)

Cash Flows from Investing Activities
Principal repayments on mortgage-backed securities held to maturity		7,943,767			5,598,393
Purchase of mortgage-backed securities held to maturity		(1,250,010	)		(906,261	)
Purchase of loan participation interests		(1,996,402	)		(3,299,549	)
Net change in loans receivable		5,717,552			(10,055,691	)
Additions to premises and equipment		(19,377	)		(6,256	)
Redemption of Federal Home Loan Bank of New York stock		467,000			246,700

Net Cash Provided by (Used in) Investing Activities		10,862,530			(8,422,664	)

Cash Flows from Financing Activities
Net increase in deposits		1,905,837			13,492,008
Repayment of advances from Federal Home Loan Bank of New York		(2,808,898	)		(17,241,403	)
Net change to short-term borrowings		(8,000,000	)		11,500,000
Increase (decrease) in advance payments by borrowers for taxes and insurance		40,442			(472,216	)
Purchase of treasury stock		-			(3,550	)

Net Cash (Used in) Provided by Financing Activities		(8,862,619	)		7,274,839

Net Increase (Decrease) in Cash and Cash Equivalents		2,726,313			(2,220,461	)

Cash and Cash Equivalents – Beginning		5,458,027			7,678,488

Cash and Cash Equivalents – Ending	$	8,184,340		$	5,458,027
Supplementary Cash Flows Information
Interest paid	$	2,071,098		$	3,347,512
Income taxes, net of refunds	$	121,110		$	278,059

See notes to consolidated financial statements.

Note 1 - Summary of Significant Accounting Policies

Nature of Operations and Basis of Financial Statement Presentation

The consolidated financial statements include accounts of Flatbush Bancorp Inc. (the “Company”), Flatbush Federal Savings and Loan Association (the “Association”) and the Association’s subsidiary, Flatbush REIT, Inc. (the “REIT”), a corporation principally engaged in investing in loans secured by real estate. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany accounts and transactions have been eliminated in consolidation. At both December 31, 2010 and 2009, 54.23%, of the Company’s common stock was owned by Flatbush Federal MHC, a mutual holding company.

The Company’s primary business is the ownership and operation of the Association. The Association’s principal business consists of attracting retail deposits from the general public in the areas surrounding its various locations in Brooklyn, New York and investing those deposits, together with funds generated from operations and borrowings, primarily in one-to four-family residential mortgage loans, real estate construction loans and various securities. One-to four-family residential real estate in the Association’s market areas is characterized by a large number of attached and semi-detached homes, including a number of two- and three-family homes and cooperative apartments. Revenues are derived principally from interest on loans and securities, loan origination and servicing fees, and service charges and fees collected on deposit accounts. The primary sources of funds are deposits, principal and interest payments on loans and securities, and borrowings.

The Association’s lending area is concentrated in the neighborhoods surrounding the Association’s office locations in Brooklyn, New York. Most of the deposit customers are residents of the greater New York metropolitan area.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, the determination of the projected pension liabilities and the amount of deferred taxes which are more likely than not to be realized. Management believes that the allowance for loan losses and projected pension liability are adequate and that all deferred taxes are more likely than not to be realized. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the market area. The determination of the projected pension liability and related pension expense is based upon assumptions regarding the discount rate and expected return on plan assets, as well as employee demographics, such as retirement patterns, employee turnover, mortality rates and estimated employee compensation increases. The assessment of the amount of deferred tax assets more likely than not to be realized is based upon projected future taxable income, which is subject to continual revisions for updated information.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Association’s allowance for loan losses. Such agencies may require the Association to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

Note 1 - Summary of Significant Accounting Policies (Continued)

The Company follows the Financial Accounting Standards Board (“FASB”) guidance on subsequent events, which establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued. The guidance sets forth the period after the balance sheet date during which management of the reporting entity, should evaluate events or transactions that may occur for potential recognition in the financial statements, identifies the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosure that should be made about events or transactions that occur after the balance sheet date. In preparing these consolidated financial statements, the Company evaluated the events that occurred between January 1, 2011 and the date these consolidated financial statements were issued.

Cash and Cash Equivalents

Cash and cash equivalents include cash and amounts due from depository institutions, interest-bearing deposits in other banks, term deposits with original maturities of three months or less, and federal funds sold. Generally, federal funds are sold for one-day periods.

Investments and Mortgage-Backed Securities

Investments in debt securities that the Association has the positive intent and ability to hold to maturity are classified as held to maturity securities and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized holding gains and losses included in earnings. Debt and equity securities not classified as trading securities nor as held to maturity securities are classified as available for sale securities and reported at fair value, with unrealized holding gains or losses, net of deferred income taxes, reported in the accumulated other comprehensive loss component of stockholders’ equity. The Company has no securities classified as available for sale or trading securities.

Premiums and discounts on all securities are amortized/accreted using the interest method. Interest income on securities, which includes amortization of premiums and accretion of discounts, is recognized in the consolidated financial statements when earned. The adjusted cost basis of an identified security sold or called is used for determining security gains and losses recognized in the consolidated statements of income.

Individual securities are considered impaired when the fair value of such security is less than its amortized cost. The Company evaluates all securities with unrealized losses quarterly to determine if such impairments are temporary or “other-than-temporary” in accordance with applicable accounting guidance. The Company accounts for temporary impairments based upon security classification as either available for sale or held to maturity. Temporary impairments on available for sale securities are recognized on a tax-effected basis, through other comprehensive income (loss) with offsetting entries adjusting the carrying value of the securities and the balance of deferred income taxes. Temporary impairments of held to maturity securities are not recognized in the consolidated financial statements; however information concerning the amount and duration of impairments on held to maturity securities is disclosed in the notes to the consolidated financial statements.

Other-than-temporary impairments on securities that the Company has decided to sell or will more likely than not be required to sell prior to the full recovery of their fair value to a level

Note 1 - Summary of Significant Accounting Policies (Continued)

to, or exceeding amortized cost are recognized in earnings. Otherwise, the other-than-temporary impairment is bifurcated into credit related and noncredit-related components. The credit related impairment generally represents the amount by which the present value of the cash flows expected to be collected on a debt security falls below its amortized cost. The noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. Credit related other-than-temporary impairments are recognized in earnings while noncredit-related other-than-temporary impairments are recognized, net of deferred income taxes, in other comprehensive income (loss).

Federal Home Loan Bank of New York Stock

Federal Home Loan Bank of New York (“FHLB”) stock, which represents a required investment in the common stock of a correspondent bank, is carried at cost.

Management evaluates the FHLB stock for impairment in accordance with guidance on accounting by certain entities 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 December 31, 2010.

Loans Receivable

Loans receivable are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan origination fees and costs. The Association defers loan origination fees and certain direct loan origination costs and accretes/amortizes such amounts as an adjustment of yield over the contractual lives of the related loans.

Interest is recognized by use of the accrual method. An allowance for uncollectible interest on loans is maintained based on management’s evaluation of collectibility. The allowance is established by a charge to interest income. Income is subsequently recognized only to the extent that cash payments are received until, in management’s judgment, the borrower’s ability to make periodic interest and principal payments is probable, in which case the loan is returned to an accrual status.

Allowance for Loan Losses

An allowance for loan losses is maintained at a level necessary to absorb loan losses which are both probable and reasonably estimable. Management, in determining the allowance for loan losses, considers the losses inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with general economic and real estate market conditions. The Association utilizes a two tier approach: (1) identification of impaired loans and establishment of specific loss allowances on such loans; and (2) establishment of general valuation allowances on the remainder of its loan

Note 1 - Summary of Significant Accounting Policies (Continued)

portfolio. The Association maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, types of collateral and financial condition of the borrowers. Specific loan loss allowances are established for identified loans based on a review of such information. A loan evaluated for impairment is deemed to be impaired when, based on current information and events, it is probable that the Association will be unable to collect all amounts due according to the contractual terms of the loan agreement. All loans identified as impaired are evaluated independently. The Association does not aggregate such loans for evaluation purposes. Loan impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. General loan loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions and management’s judgment.

The allowance is increased through provisions charged against current earnings and recoveries of previously charged off loans. Loans which are determined to be uncollectible are charged against the allowance. Although management believes that specific and general loan loss allowances are established to absorb losses which are both probable and reasonably estimable, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may be necessary.

Payments received on impaired loans are applied to principal.

Concentration of Risk

The Association’s lending activities are concentrated in loans secured by real estate located in the State of New York.

Advertising

Advertising expense, which totaled $16,000 and $17,000, during the years ended December 31, 2010 and 2009, respectively, is recorded as incurred and included in other non-interest expenses.

Premises and Equipment

Premises and equipment are comprised of land, at cost, and building, building improvements, leasehold improvements and furniture, fixtures and equipment, at cost, less accumulated depreciation and amortization computed on the straight-line method over the following estimated useful lives:

		Years
Building and improvements		5 – 50
Leasehold improvements		Shorter of term of lease or useful life
Furniture, fixtures and equipment		5 – 10

Note 1 - Summary of Significant Accounting Policies (Continued)

Significant renewals and betterments are charged to the premises and equipment account. Maintenance and repairs are charged to expense in the year incurred. Rental income is netted against occupancy expense in the consolidated statements of income.

Bank Owned Life Insurance (BOLI)

The Company has an investment in BOLI to help offset the rising cost of employee benefits. BOLI is accounted for using the cash surrender value method and is recorded at its realizable value. The income from BOLI is recorded as other non-interest income.

Income Taxes

The Company and the Association file consolidated federal, state and city income tax returns. Income taxes are allocated to the Company and the Association based upon the contribution of their respective income or loss to the consolidated return. The REIT files a separate federal, state and city income tax return and pays its own taxes.

Federal, state and city income taxes have been provided on the basis of reported income. The amounts reflected on the tax return differ from these provisions due principally to temporary differences in the reporting of certain items for financial reporting and income tax reporting purposes. The tax effect of these temporary differences is accounted as deferred taxes applicable to future periods. Deferred income tax expense or benefit is determined by recognizing deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. The realization of deferred tax assets is assessed and a valuation allowance provided, when necessary, for that portion of the asset which is not likely to be realized.

The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements in accordance with accounting guidance which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the Company’s evaluation, no significant income tax uncertainties have been identified. Therefore, the Company recognized no adjustment for unrecognized income tax benefits for the years ended December 31, 2010 and 2009. Our policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Consolidated Statements of Income. The amount of interest and penalties for the years ended December 31, 2010 and 2009 was immaterial. The tax years subject to examination by the taxing authorities are the years ended December 31, 2009, 2008 and 2007.

Benefit Plans

The Company has a non-contributory defined benefit pension plan covering all eligible employees. The benefits are based on years of service and employees’ compensation. The benefit plan is funded in conformance with funding requirements of applicable government regulations. The Company also has an unfunded Postretirement Benefit Plan, a Supplemental Retirement Plan for executives and a Directors Retirement plan. Prior service costs for these plans generally are amortized over the estimated remaining service periods of participants.

Note 1 - Summary of Significant Accounting Policies (Continued)

The Company uses the corridor approach in the valuation of the defined benefit plan and other plans. The corridor approach defers all actuarial gains and losses resulting from variances between actual results and economic estimates or actuarial assumptions. For the defined benefit pension plan, these unrecognized gains and losses are amortized when net gains and losses exceed 10% of the greater of the market-related value of plan assets or the projected benefit obligation at the beginning of the year.

Stock-Based Compensation Plans

The Company has two stock-related compensation plans, including stock options and restricted stock plans, which are described in Note 11 to the Company’s Consolidated Financial Statements. The Company expenses the fair value of all share-based compensation granted over its requisite service periods.

Options vest over an eight-year service period. Upon exercise of vested options, management expects to draw on treasury stock as the source of shares. The fair values relating to all options granted were estimated using the Black-Scholes option pricing model. Expected volatilities are based on historical volatility of our stock and other factors, such as implied market volatility. The Company used historical exercise dates based on the age at grant of the option holder to estimate the options’ expected term, which represent the period of time that the options granted are expected to be outstanding. The Company anticipated the future option holding periods to be similar to the historical option holding periods. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield was based on the Company’s history and expectations of dividend payouts. The Company recognizes compensation expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the requisite service period of the awards. There were no options granted during the years ended December 31, 2010 and 2009.

Interest-Rate Risk

The Association is principally engaged in the business of attracting deposits from the general public and using these deposits, together with other funds, to make loans secured by real estate and, to a lesser extent, to purchase investment and mortgage-backed securities. The potential for interest-rate risk exists as a result of the generally shorter duration of interest-sensitive liabilities compared to the generally longer duration of interest-sensitive assets. In a rising rate environment, liabilities will reprice faster than assets, thereby reducing net interest income. For this reason, management regularly monitors the maturity structure of the Association’s interest-earning assets and interest-bearing liabilities in order to measure its level of interest-rate risk and to plan for future volatility.

Net Income per Common Share

Basic net income per common share was computed by dividing net income 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 common share calculations, if dilutive, using the treasury stock method. During the years ended December 31, 2010 and 2009, all outstanding stock options were anti-dilutive.

Transfer of Financial Assets

Transfer of financial assets, including loan participation sales, are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be

Note 1 - Summary of Significant Accounting Policies (Continued)

surrendered when (1) the assets have been isolated from the Association, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Association does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Association has entered into off-balance sheet financial instruments consisting of commitments to extend credit. Such financial instruments are recorded in the consolidated statements of financial condition when they are funded.

Comprehensive Income

Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrecognized net loss or gain, unrecognized past service cost or unrecognized past transition obligation on defined benefit plans and post retirement plans, are reported as a separate component of the equity section of the consolidated statements of financial condition, such items, along with net income are components of comprehensive income.

Reclassification

Certain amounts as of and for the year ended December 31, 2009 have been reclassified to conform to the current year’s presentation. These reclassifications had no impact on net income.

Note 2 - Mortgage-Backed Securities Held to Maturity

	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

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

	December 31, 2009
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Government National Mortgage Association	$	2,587,153	$	101,800	$	7,233	$	2,681,720
Federal National Mortgage Association		20,126,402		997,964		-		21,124,366
Federal Home Loan Mortgage Corporation		5,626,537		151,058		17,110		5,760,485

	$	28,340,092	$	1,250,822	$	24,343	$	29,566,571

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
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

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

Note 2 - 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, 2009:
Government National Mortgage Association	$	359,809	$	7,233	$	-	$	-	$	359,809	$	7,233
Federal Home Loan Mortgage Corporation		1,041,073		14,952		319,344		2,158		1,360,417		17,110

	$	1,400,882	$	22,185	$	319,344	$	2,158	$	1,720,226	$	24,343

The amortized cost and estimated fair value of mortgage-backed securities at December 31, 2010, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers generally have the right to prepay obligations.

	Amortized Cost		Estimated Fair Value
Due within one year	$	88,614	$	90,405
Due after one year through five years		29,982		31,220
Due after five years through ten years		167,731		175,621
Due after ten years		21,493,484		22,787,096
	$	21,779,811	$	23,084,343

When the fair value of security is below its amortized cost, and depending on the length of time the condition exists, 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 Company has the intent to sell the securities prior to recovery and/or maturity and (ii) whether it is more likely than not that the Company will have to sell the 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 Company’s consolidated financial statements.

Management does not believe that any of the individual unrealized losses at December 31, 2010 and 2009, represent other-than-temporary impairment. The unrealized losses reported on securities at December 31, 2010 relate to one Federal National Mortgage Association and four Federal Home Loan Mortgage Corporation mortgage-backed securities. These unrealized losses are due to changes in interest rates. The Company does not intend to sell these securities and it is not more-likely-than-not that

Note 2 - Mortgage-Backed Securities Held to Maturity (Continued)

the Company would be required to sell these securities prior to full recovery of fair value to a level which equals or exceeds amortized cost.

All mortgage-backed securities are U.S. Government Agencies backed and collateralized by residential mortgages.

There were no sales of mortgage-backed securities held to maturity during the years ended December 31, 2010 and 2009.

At December 31, 2010 and 2009, mortgage-backed securities with amortized cost of approximately $10,702,000 and $14,617,000, respectively, and fair value of $11,265,000, and $15,318,000, respectively, were pledged to Federal Home Loan Bank of New York to secure borrowings.

Note 3 - Loans Receivable

	December 31,
	2010		2009
Real estate mortgage:
One-to four-family	$	71,830,671	$	79,344,083
Multi family		5,889,520		4,424,871
Commercial		22,974,795		20,783,401

		100,694,986		104,552,355

Real estate construction		7,791,750		9,965,229
Land loan		393,266		399,325
Unsecured Business Loan		20,000		20,000

Consumer:
Home equity loans		112,744		139,280
Passbook or certificate		38,730		37,558
Credit cards		47,326		43,277
		198,800		220,115

Total Loans		109,098,802		115,157,024

Loans in process		894,569		3,230,950
Allowance for loan losses		1,649,319		828,534
Deferred loan fees, net		76,936		110,020

		2,620,824		4,169,504

	$	106,477,978	$	110,987,520

Note 3 - Loans Receivable (Continued)

The following is an analysis of the allowance for loan losses:

	Years Ended December 31,
	2010			2009
Balance, beginning	$	828,534		$	190,630
Provision charged to operations		821,476			649,398
Mortgage participation program		422			467
Charge-offs		(1,113	)		(11,961	)

Balance, ending	$	1,649,319		$	828,534

Note 3 - Loans Receivable (Continued)

The following table summarizes the primary segments of the allowance for loan losses (“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	$	8,205	$	22,975	$	5,890	$	71,830	$	47	$	113	$	39	$	109,099
Ending balance: individually evaluated for impairment	$	2,040	$	3,156	$	-	$	3,801	$	4	$	-	$	-	$	9,001
Ending balance: collectively evaluated for impairment	$	6,165	$	19,819	$	5,890	$	68,029	$	43	$	113	$	39	$	100,098

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 3 - 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.

Note 3 - 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 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)
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

December 31, 2009:
Total impaired loans	$	1,456	$	463	$	1,165	$	2,621	$	2,621

Impaired loans which did not have a specific allocation of the allowance for loan losses totaled $3,334,000 at December 31, 2010. During the years ended December 31, 2010 and 2009, the average investment in impaired loans, all with the exception of one commercial real estate loan are on nonaccrual, was $5,523,000 and $524,000, respectively. No interest income was collected on these loans during the time of impairment.

At December 31, 2010, 100% of impaired loan balances were measured for impairment based on the fair value of the loan’s collateral.

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”.

Note 3 - Loans Receivable (Continued)

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.

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 December 31, 2010.

	Pass		Special Mention		Substandard		Doubtful		Total
	(Dollars in thousands)

Construction and land	$	3,790	$	2,355	$	2,040	$	-	$	8,185
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	$	96,677	$	3,421	$	9,001	$	-	$	109,099

Note 3 - 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 December 31, 2010:

	Current		30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Non- Accrual		Total Loans Receivable
	(Dollars in thousands)
December 31, 2010:
Construction and land	$	6,144	$	-	$	-	$	2,041	$	2,041	$	2,041	$	8,185
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	$	98,595	$	1,912	$	149	$	8,443	$	10,504	$	8,443	$	109,099

At December 31, 2010 and 2009, nonaccrual loans for which the accrual of interest had been discontinued totaled approximately $8.4 million and $4.1 million, respectively. Interest income on such loans is recognized only when actually collected. During the years ended December 31, 2010 and 2009, the Association recognized interest income of approximately $0 and $17,000, respectively on these loans subsequent to their non-accrual status. Interest income that would have been recorded, had the loans been on the accrual status, would have amounted to $530,000 and $152,000 for the years ended December 31, 2010 and 2009, respectively.

The Association has granted loans to its directors and officers and to their associates. Related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectibility. The aggregate dollar amount of these loans was $804,000 and $831,000 at December 31, 2010 and 2009, respectively. During the year December 31, 2010, no new related party loans were made.

Note 4 - Loan Servicing

The Association originated loans held for sale and sold them, with servicing retained, to the FHLB under the Mortgage Partnership Finance Program. The conditions for sale include a credit enhancement liability

Note 4 - Loan Servicing (Continued)

as determined at the time of sale. The FHLB pays the Association a fee for credit enhancement as the loans are paid down. At December 31, 2010 and 2009, the contingent liability for credit enhancement amounted to $84,000, which is not recorded in the consolidated financial statements. The total loans serviced under this program amounted to approximately $398,000 and $440,000 at December 31, 2010 and 2009, respectively, which amounts are also not included in the consolidated financial statements. In accordance with guidelines for regulatory capital computations, the contingent liability has been subtracted to compute regulatory capital (see Note 9). No loans were sold to the FHLB during the years ended December 31, 2010 and 2009.

Custodial escrow balances maintained in connection with loans serviced under this program amounted to approximately $1,064 and $345 at December 31, 2010 and 2009, respectively, and are included in the consolidated statements of financial condition as demand deposits.

Note 5 - Premises and Equipment

	December 31,
	2010			2009
Land	$	919,753		$	919,753

Buildings and improvements		2,368,327			2,368,327
Accumulated depreciation		(1,146,718	)		(1,050,403	)

		1,221,609			1,317,924

Leasehold improvements		203,518			203,518
Accumulated amortization		(115,192	)		(99,125	)

		88,326			104,393

Furniture, fixtures and equipment		500,164			480,787
Accumulated depreciation		(442,032	)		(382,544	)

		58,132			98,243

	$	2,287,820		$	2,440,313

Note 6 - Accrued Interest Receivable

	December 31,
	2010		2009
Loans	$	511,517	$	531,411
Mortgage-backed securities held to maturity		95,572		126,141

	$	607,089	$	657,552

Note 7 – Deposits

	December 31,
	2010					2009
	Amount		Weighted Average Rate			Amount		Weighted Average Rate
Demand deposits:
Non-interest bearing	$	5,319,364		0.00	%	$	5,862,496		0.00	%
NOW		318,607		0.30	%		414,577		0.30	%
		5,637,971					6,277,073

Passbook and club accounts		34,690,578		0.33	%		34,118,157		0.34	%
Certificates of deposit		76,745,008		1.86	%		74,772,490		2.47	%

	$	117,073,557		1.32	%	$	115,167,720		1.71	%

The scheduled maturities of certificates of deposit are as follows (in thousands):

	At December 31,
	2010
Year Ending December 31,
2011	$	61,667
2012		9,688
2013		2,452
2014		1,109
2015		1,628
Thereafter		201

	$	76,745

Certificates of deposit with balances of $100,000 or more totaled approximately $33,844,000 and $29,013,000 at December 31, 2010 and 2009, respectively. Deposits in excess of $250,000 are generally not insured by FDIC.

Note 7 - Deposits (Continued)

Interest expense on deposits is summarized as follows:

	Years Ended December 31,
	2010		2009
Demand	$	1,230	$	1,520
Passbook and club		125,710		115,628
Certificates of deposit		1,603,403		2,241,275

	$	1,730,343	$	2,358,423

Note 8 - Advances from Federal Home Loan Bank of New York

	December 31,
	2010					2009
			Weighted					Weighted
			Average					Average
	Amount		Rate			Amount		Rate
Amortizing Loans:
Principal repayment in
Years ended December 31,
2010	$	-		-	%	$	1,808,897		4.85	%
2011		1,461,007		4.80			1,461,008		4.80
2012		1,034,954		4.78			1,034,954		4.78
2013		46,622		5.25			46,622		5.25
Total amortizing loans		2,542,583		4.80	%		4,351,481		4.82	%

Term loans:
Due within one year		9,500,000		1.13	%		16,500,000		0.60	%
After one year, but within two years		-		-			2,000,000		3.66
Total Term Loans		9,500,000		1.13	%		18,500,000		0.93	%

Total Advances	$	12,042,583		1.90	%	$	22,851,481		1.67	%

The carrying value of collateral pledged for the above advances was as follows (in thousands):

	December 31,
	2010		2009
Loans receivable	$	50,566	$	72,253
Mortgage-backed securities		10,702		14,617

	$	61,268	$	86,870

Note 9 - Regulatory Capital

The Association is subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Association. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Association must meet specific capital guidelines that involve quantitative measures of Association’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Association’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Association to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to adjusted total assets (as defined). The following tables present a reconciliation of capital per GAAP and regulatory capital and information as to the Association’s capital levels at the dates presented:

	December 31,
	2010			2009
	(In Thousands)
GAAP capital	$	14,881		$	14,327
Accumulated other comprehensive loss		1,829			1,801
Tier 1 (Core) capital		16,710			16,128
General valuation allowance		751			364
Low-level recourse adjustment		(84	)		(84	)

Total Regulatory Capital	$	17,377		$	16,408

Actual

For Capital Adequacy Purposes

To be Well Capitalized under Prompt Corrective Action Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in Thousands)

December 31, 2010:

Total capital (to risk-weighted assets)

17,377

20.30

³6,847

³8.00

³8,558

³10.00

Tier 1 capital (to risk-weighted assets) (1)

16,626

19.43

³ -

³5,135

³ 6.00

Core (Tier 1) capital (to adjusted total assets)

16,710

11.45

³5,836

³4.00

³7,295

³5.00

Tangible capital (to adjusted total assets)

16,710

11.45

³2,188

³1.50

³ -

December 31, 2009:

Total capital (to risk-weighted assets)

16,408

18.66

³7,036

³8.00

³8,795

³10.00

Tier 1 capital (to risk-weighted assets) (1)

16,044

18.24

³ -

³5,277

³ 6.00

Core (Tier 1) capital (to adjusted total assets)

16,128

10.42

³6,192

³4.00

³7,739

³5.00

Tangible capital (to adjusted total assets)

16,128

10.42

³2,322

³1.50

³ -

(1) Net of contingent liability credit enhancement of $84,000.

Note 9 - Regulatory Capital (Continued)

As of February 22, 2010, the most recent notification from the Office of Thrift Supervision (“OTS”), the Association was categorized as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions existing, or events which have occurred since this notification that management believes have changed the Association’s category.

Note 10 – Stock Repurchase Program

In July 2005, the Company's Board of Directors authorized a repurchase program of its common stock for up to 50,000 shares which was completed. On August 30, 2007, the Company approved a second stock repurchase program and authorized the repurchase of up to 50,000 shares of the Company’s outstanding shares of common stock. As of December 31, 2010 and 2009, the Company had repurchased 62,750 shares of common stock.

Note 11 - Benefit Plans

Pension Plan

The Association maintains a defined benefit pension plan (the “Plan”) covering all employees who have met the Plan’s eligibility requirements. The Association’s policy is to fund the Plan annually with the minimum contribution deductible for Federal income tax purposes.

The following table sets forth the Plan’s funded status:

	December 31,
	2010			2009
Change in benefit obligation:
Benefit obligation - beginning	$	5,235,702		$	5,307,892
Service cost		-			18,391
Interest cost		305,372			310,375
Actuarial loss		394,924			7,004
Benefits Payments		(288,169	)		(281,284	)
Curtailment		-			(125,204	)
Settlements		-			(1,472	)

Benefit obligation - ending	$	5,647,829		$	5,235,702

Change in plan assets:
Fair value of assets - beginning	$	4,838,494		$	3,165,533
Actual return on plan assets		570,989			955,717
Annuity Payments		(288,169	)		(281,284	)
Settlements		-			(1,472	)
Contributions		500,000			1,000,000

Fair value of assets - ending	$	5,621,314		$	4,838,494

Note 11 - Benefit Plans (Continued)

Pension Plan (Continued)

	December 31,
	2010			2009
Reconciliation of funded status:
Accumulated benefit obligation	$	(5,647,829	)	$	(5,235,702	)

Projected benefit obligation		(5,647,829	)		(5,235,702	)
Fair value of assets		5,621,314			4,838,494

Funded status	$	(26,515	)	$	(397,208	)

Valuation assumptions:
Discount rate		5.54	%		6.00	%
Rate of return on long-term assets		9.00	%		9.00	%

	Years Ended December 31,
	2010			2009
Net periodic pension expense:
Service cost	$	-		$	18,391
Interest cost		305,372			310,375
Expected return on assets		(424,680	)		(325,683	)
Amortization of unrecognized net loss		229,604			266,922
Amortization of unrecognized past service liability		-			(15,799	)
Special Curtailment (credit)		-			(507,058	)

Total Net Periodic Pension Expense (Benefit) Included in Salaries and Employee Benefits	$	110,296		$	(252,852	)
Valuation assumptions:
Discount rate		5.54	%		6.00	%
Rate of return on long-term assets		9.00	%		9.00	%
Rate of compensation increase		N/A			3.00	%

The Association does not expect to make a contribution during 2011.

The Plan has invested in following categories of investments:

	December 31,
	2010			2009
Equity/mutual funds		64.98	%		63.19	%
Fixed income		35.02			36.81

		100.00	%		100.00	%

Note 11 - Benefit Plans (Continued)

Pension Plan (Continued)

The long-term investment objective is to allocate the Plan’s assets to a range of approximately 65% equities, and 35% bond funds to achieve an optimal risk/reward profile. Based on an analysis of the current market environment, the Company projects a 4% return from fixed income and a 7% return from equities, for an overall expected return of approximately 6%. The long-term rate of return on assets assumption is set based on historical returns earned by equities and fixed income securities, adjusted to reflect expectations of future returns as applied to the Plan’s actual target allocation of asset classes. Equities and fixed income securities are assumed to earn real rates of return in the ranges of 5 - 9% and 2 - 6%, respectively. Additionally, the long-term inflation rate is projected to be 3%. When these overall return expectations are applied to a typical plan’s target allocation, the result is an expected return of 7% to 11%.

The fair values of the Company’s pension plan assets at December 31, 2010, by asset category (see Note 16 for the definitions of Levels), are as follows:

	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Asset Category:
Mutual funds – Equity:
Large-Cap Value (a)	$	507,220	$	507,220	$	-	$	-
Small-Cap Core (b)		673,134		673,134		-		-
		1,180,354		1,180,354		-		-
Common/Collective Trusts – Equity:
Large-Cap Core (c)		578,123		-		578,123		-
Large-Cap Value (d)		293,325		-		293,325		-
Large-Cap Growth (e)		829,019		-		829,019		-
International Growth (f)		772,022		-		772,022		-
		2,472,489		-		2,472,489		-
Common/Collective Trusts – Fixed Income:
Market Duration Fixed (g)		1,968,471		-		1,968,471		-

	$	5,621,314	$	1,180,354	$	4,440,960	$	-

(a)

This category consists of investments whose sector and industry exposures are maintained within a narrow band around Russell 1000 index. The portfolio holds approximately 150 stocks.

This category contains stocks whose sector weightings are maintained within a narrow band around those of the Russell 2000 index. The portfolio will typically hold more than 150 stocks.

(c)

This fund tracks the performance of the S&P 500 Index by purchasing the securities represented in the Index in approximately the same weightings as the Index.

(d)

This category contains large-cap stocks with above-average yield. The portfolio typically holds between 60 and 70 stocks.

(e)

This category consists of a portfolio of between 45 and 65 stocks that will typically overweight technology and health care.

(f)

This category consists of a broadly diversified portfolio of non-U.S. domiciled stocks. The portfolio will typically hold more than 200 stocks with 0%-35% invested in emerging markets securities.

(g)

This category consists of an index fund that tracks the Barclays Capital U.S. Aggregate Bond index. The fund invests in Treasury, agency, corporate, mortgage-backed and asset-backed securities.

Note 11 - Benefit Plans (Continued)

Pension Plan (Continued)

Expected benefit payments under the Plan are as follows:

Year Ended December 31,
2011	$	289,711
2012		289,916
2013		292,679
2014		306,549
2015		323,384
2016-2020		1,873,380

At December 31, 2010, unrecognized net loss amounted to $2,916,670, which is included in accumulated other comprehensive loss. At December 31, 2009, unrecognized net loss amounted to $2,897,659 and was included in accumulated other comprehensive loss. For the year ending December 31, 2011, $242,712 of net loss is expected to be amortized in pension expense.

On February 26, 2009, the Company froze its defined benefit pension plan effective March 31, 2009. The freezing of the Plan is consistent with ongoing cost reduction strategies and shift focus on future savings of retirement benefit expense. The changes included a discontinuation of accrual of future service cost in the defined benefit pension plan and fully preserving retirement benefits that employees will have earned as of March 31, 2009. As a result of freezing the plan, the Company recorded a one-time pre-tax curtailment credit of approximately $416,000, net of actuarial expense, in the first quarter of 2009.

Postretirement Benefits

The Association provides certain health care and life insurance benefits to employees retired as of January 1, 1995. The following tables set forth the Plan’s funded status and the components of net postretirement benefit cost:

	December 31,
	2010			2009
Changes in benefit obligations:
Benefit obligation - beginning	$	237,867		$	247,528
Interest cost		13,584			14,172
Unrecognized net loss (gain) amortization		6,187			(3,533	)
Benefits paid		(20,594	)		(20,300	)

Benefit obligation - ending	$	237,044		$	237,867

Reconciliation of funded status:
Accumulated benefit obligation	$	(237,044	)	$	(237,867	)
Postretirement benefit obligation	$	(237,044	)	$	(237,867	)

Note 11 - Benefit Plans (Continued)

Postretirement Benefits (Continued)

Valuation assumptions:
Discount rate	6.00	%	6.00	%
Current medical trend	9.00	%	9.00	%
Ultimate medical trend	5.00	%	5.00	%

	Years Ended December 31,
	2010		2009
Net periodic expense:
Unrecognized net loss amortization	$	4,732	$	5,252
Interest cost		13,584		14,172
Unrecognized past service liability		3,824		3,824

Net postretirement benefit cost included in salaries and employee benefits	$	22,140	$	23,248

The Plan is unfunded. It is estimated that contributions of approximately $24,000 will be made during the year ending December 31, 2011. Expected benefit payments under the Plan are as follows:

Year Ended December 31,
2011	$	23,632
2012		24,452
2013		24,966
2014		25,123
2015		24,882
2016-2020		108,927

At and for both the years ended December 31, 2010 and 2009, a medical cost trend rate of 9.0%, was estimated. Increasing the assumed medical cost trend by one percent in each year would increase the accumulated postretirement benefit obligation as of December 31, 2010 and 2009, by $14,000 and $15,000, respectively. The aggregate of the service and interest components of net periodic postretirement benefit cost for the years ended December 31, 2010 and 2009 were not affected.

At December 31, 2010, unrecognized prior service cost and unrecognized net loss amounted to $27,516 and $70,424, respectively, and were included in accumulated other comprehensive loss. At December 31, 2009, unrecognized prior service cost and unrecognized net loss amounted to $31,340 and $68,969, respectively, and were included in accumulated other comprehensive loss. For the year ended December 31, 2011, $5,180 of net loss and $3,824 of prior service cost are expected to be amortized in post-retirement benefit expense.

Note 11 - Benefit Plans (Continued)

Supplemental Employee Retirement Plan (“SERP”)

	December 31,
	2010			2009
Changes in benefit obligations:
Benefit obligation - beginning	$	742,790		$	781,155
Service cost		11,448			10,736
Interest cost		41,776			44,080
Actuarial loss(gain)		37,630			(181	)
Benefits paid		(93,000	)		(93,000	)

Benefit obligation - ending	$	740,644		$	742,790

Reconciliation of funded status:
Accumulated benefit obligation	$	(678,084	)	$	(689,711	)
Projected benefit obligation	$	(740,644	)	$	(742,790	)
Market value of assets		-			-
Funded status	$	(740,644	)	$	(742,790	)

	Years Ended December 31,
	2010		2009
Net periodic expense:
Service cost	$	11,448	$	10,736
Interest cost		41,776		44,080
Unrecognized past service liability		11,776		11,776
Net SERP cost included in salaries and employee benefits	$	65,000	$	66,592

The Plan is unfunded. It is estimated that contributions of approximately $93,000 will be made during the year ending December 31, 2011. Expected benefit payments under the Plan are as follows:

Year Ended December 31,
2011	$	93,000
2012		91,071
2013		93,192
2014		95,826
2015		99,606
2016-2020		134,027

At December 31, 2010, unrecognized prior service cost and unrecognized net loss amounted to $81,624 and $51,680, respectively, and were included in accumulated other comprehensive loss. At December 31, 2009, unrecognized prior service cost and unrecognized net loss of $93,400 and $14,050, respectively, were included in accumulated other comprehensive loss. For the year ended December 31, 2011, $11,776 of prior service cost is expected to be amortized in SERP expense.

Note 11 - Benefit Plans (Continued)

Retirement Plan for Directors

	December 31,
	2010			2009
Changes in benefit obligations:
Benefit obligation – beginning	$	210,030		$	223,756
Service cost		7,248			6,640
Interest cost		11,768			12,592
Actuarial loss (gains)		7,042			(5,958	)
Benefits paid		(27,000	)		(27,000	)

Benefit obligation - ending	$	209,088		$	210,030

Reconciliation of funded status:
Accumulated benefit obligation	$	(166,620	)	$	(171,905	)
Projected benefit obligation	$	(209,088	)	$	(210,030	)
Market value of assets		-			-
Funded status	$	(209,088	)	$	(210,030	)

	Year Ended December 31,
	2010			2009
Net periodic expense:
Service cost	$	7,248		$	6,640
Interest cost		11,768			12,592
Unrecognized (gain)		(3,000	)		(2,564	)
Unrecognized past service liability		5,512			5,512

Net cost included in directors’ compensation	$	21,528		$	22,180

The Plan is unfunded. It is estimated that contributions of approximately $15,000 will be made during the year ending December 31, 2011. Expected benefit payments under the Plan are as follows:

Year Ended December 31,
2011	$	15,111
2012		3,293
2013		4,929
2014		17,603
2015		17,998
2016-2020		69,849

Note 11 - Benefit Plans (Continued)

Retirement Plan for Directors (Continued)

At December 31, 2010, unrecognized prior service cost and unrecognized net gain amounted to $47,787 and $51,685, respectively, and are included in accumulated other comprehensive loss. At December 31, 2009, unrecognized prior service cost and unrecognized net gain of $53,299 and $61,727, respectively, were included in accumulated other comprehensive loss. For the year ended December 31, 2011, $5,512 of prior service cost and $2,360 of net gain are expected to be amortized in expense.

ESOP

The Company has established an ESOP for all eligible employees. The ESOP used $696,160 of proceeds from a term loan from the Company to purchase 105,294 shares (adjusted for the February, 2005 and March, 2006 stock dividends) of Company common stock in the initial offering. The term loan from the Company to the ESOP is payable over 20 years. Interest on the term loan is payable monthly, commencing on November 1, 2003, at the rate of 5.5% per annum. The Association intends to make discretionary contributions to the ESOP which will be equal to principal and interest payments required from the ESOP on the term loan. Shares purchased with the loan proceeds are initially pledged as collateral for the term loan and are held in a suspense account for future allocation among participants. Contributions to the ESOP and shares released from the suspense account will be allocated among the participants on the basis of compensation, as described by the ESOP, in the year of allocation. During the years ended December 31, 2010 and 2009, the Association made cash contributions of $57,000 to the ESOP, of which $28,000 and $26,000, respectively, was applied to loan principal. At December 31, 2010 and 2009, the loan had an outstanding balance of $524,000 and $552,000, respectively.

The ESOP shares pledged as collateral are reported as unearned ESOP shares in the consolidated statements of financial condition. As shares are committed to be released from collateral, the Company records compensation expense equal to the current market price of the shares, and the shares become outstanding for net income per common share computations. Dividends on allocated ESOP shares are recorded as a reduction of stockholders’ equity. Contributions equivalent to dividends on unallocated ESOP shares are recorded as a reduction of debt. ESOP compensation expense was $25,000 and $19,000 for the years ended December 31, 2010 and 2009, respectively, which is included in salary and employee benefits.

The ESOP shares are summarized as follows:

	December 31,
	2010		2009
Unearned shares		67,123		72,388
Shares committed to be released		-		-
Shares released		29,967		24,852
Shares distributed		8,204		8,054
		105,294		105,294

Fair value of unearned shares	$	402,738	$	289,552

Note 11 - Benefit Plans (Continued)

Restricted Stock Awards

Restricted Stock Awards under the Stock-Based Incentive Plan are granted in the form of Company common stock, and vest over a period of eight years (12.5% annually from the date of grant). The Restricted Stock Awards become fully vested upon the death or disability of the holder. At December 31, 2010, there were no shares remaining available for future restricted stock awards.

The following is a summary of the status of the Company’s non-vested restricted shares for the years ended December 31, 2010 and 2009:

	Restricted Shares		Weighted Average Grant Date Fair Value

Non-vested as of December 31, 2008		15,198	$	9.71
Vesting		3,800		9.71
Non-vested as of December 31, 2009		11,398		9.71
Vesting		3,800		9.71
Non-vested as of December 31, 2010		7,598	$	9.71

No shares were granted or forfeited during the years ended December 31, 2010 and 2009. During both the years ended December 31, 2010 and 2009, the Company recorded $41,000 of stock-based compensation expense and the income tax benefit attributed to this expense was $17,000 during each year. Expected future compensation expense relating to the 7,598 nonvested restricted share awards as of December 31, 2010 is $81,000 over a weighted average period of 2 years.

Stock Options

Stock Options granted under the Stock-Based Incentive Plan may be either options that qualify as incentive stock options as defined in Section 422 of the Internal Revenue Code of 1986, as amended, or non-statutory options. Options granted will vest and will be exercisable on a cumulative basis in equal installments at the rate of 12.5% per year commencing one year after the grant date. All options granted will be exercisable in the event the optionee terminates his employment due to death or disability. The options expire ten years from the date of grant. At December 31, 2010, there were 57,357 shares available for future option grants.

Note 11 - Benefit Plans (Continued)

A summary of stock option activity follows:

	Number of Stock Options		Weighted Average Exercise price

Balance at December 31, 2008		82,879	$	9.71
Granted		-
Exercised		-
Forfeited		501		9.71
Balance at December 31, 2009		82,378		9.71
Granted		-
Exercised		-
Forfeited		-		9.71
Balance at December 31, 2010		82,378		9.71
Exercisable at December 31, 2010		65,277	$	9.71

During both the years ended December 31, 2010 and 2009, the Company recorded $41,000 and $42,000, respectively, for stock option expense and the tax benefit attributed to non-qualified stock option expense was $3,000 in each year.

Expected future compensation expense relating to the 17,101 nonvested options outstanding as of December 31, 2010 is $69,262 over a weighted-average period of 2 years.

At December 31, 2010 and 2009, the intrinsic value of stock options outstanding and stock options exercisable amounted to $0 and the weighted average remaining contractual term was 4 and 5 years, respectively. At and for the years ended December 31, 2010 and 2009, there was no dilutive effect of stock options.

Note 12 - Income Taxes

The Association qualifies as a savings and loan association under the provisions of the Internal Revenue Code and, therefore, was permitted, prior to January 1, 1996, to deduct from Federal taxable income an allowance for bad debts based on eight percent of taxable income before such deduction, less certain adjustments, subject to certain limitations. Beginning January 1, 1996, the Association, for Federal income tax purposes, must calculate its tax bad debt deduction using either the experience or the specific charge off method. Retained earnings at December 31, 2010, include approximately $3,368,000 of such bad debt deductions for which income taxes have not been provided. During 2010, amendments of the New York State and New York City’s tax law and ordinance conformed the bad debt deduction to the deduction allowed under the Federal income tax law for taxable years beginning on or after January 1, 2010.

Note 12 - Income Taxes (Continued)

The components of income taxes are summarized as follows:

	Years Ended December 31,
	2010			2009
Current income tax expense:
Federal	$	435,949		$	-
State and city		102,960			40,685

		538,909			40,685

Deferred income tax (benefit) expense:
Federal		(220,694	)		31,155
State and city		(161,966	)		59,683

		(382,660	)		90,838

	$	156,249		$	131,523

The following table presents a reconciliation between reported income taxes and the income taxes which would be computed by applying the applicable Federal income tax rate of 34% to consolidated income before income taxes:

	Years Ended December 31,
	2010			2009
Federal income tax expense	$	203,143		$	111,061
(Decreases) increases in income taxes resulting from:
New York State and City taxes, net of federal income tax effect		(7,950	)		66,243
BOLI income and other non-taxable items		(38,944	)		(45,781	)

Income Tax Expense	$	156,249		$	131,523
Effective Income Tax Rate		26.15	%		40.26	%

Note 12 - Income Taxes (Continued)

The income tax effects of existing temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities are as follows:

	December 31,
	2010		2009
Deferred income tax assets:
Allowance for loan losses	$	963,193	$	352,727
Depreciation		134,011		97,385
Deferred compensation		309,342		325,746
Benefit plans		346,695		463,249
Other		46,904		58,650
Net operating losses		-		100,048
		1,800,145		1,397,805
Deferred income tax liabilities		-		-

Net Deferred Income Tax Asset Included in Other Assets	$	1,800,145	$	1,397,805

The net operating losses will expire through 2029.

Note 13 – Comprehensive Income

The components of accumulated other comprehensive loss included in stockholders’ equity are as follows:

	December 31,
	2010			2009
Pension plan:
Unrecognized net loss	$	(2,916,670	)	$	(2,897,659	)

Postretirement benefits:
Unrecognized net loss		(70,424	)		(68,969	)
Unrecognized prior service cost		(27,516	)		(31,340	)

SERP:
Unrecognized net loss		(51,680	)		(14,050	)
Unrecognized prior service cost		(81,624	)		(93,400	)

Retirement Plan for Directors:
Unrecognized net gain		51,685			61,727
Prior service cost		(47,787	)		(53,299	)

Accumulated comprehensive loss before taxes		(3,144,016	)		(3,096,990	)
Tax Effect		1,315,556			1,295,876

Accumulated other comprehensive loss	$	(1,828,460	)	$	(1,801,114	)

Note 13 – Comprehensive Income (Continued)

The components of other comprehensive income (loss) and related tax effect is presented in the following table:

	Years Ended December 31,
	2010			2009
Pension plan:
Net (loss) gain	$	(19,011	)	$	1,015,156
Prior service (credit)		-			(522,857	)

Postretirement benefits:
Net (loss) gain		(1,455	)		8,785
Prior service cost		3,824			3,824
Transition obligation		-			-

SERP:
Net (loss) gain		(37,630	)		181
Prior service cost		11,776			11,776

Retirement Plan for Directors:
Net (loss) gain		(10,042	)		3,394
Prior service cost		5,512			5,512

Other comprehensive (loss) income before taxes		(47,026	)		525,771

Tax effect		19,680			(220,032	)

Other comprehensive (loss) income	$	(27,346	)	$	305,739

Note 14 - Commitments

The Association is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. The contract or notional amounts of those instruments reflect the extent of involvement the Association has in particular classes of financial instruments.

The Association’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Association uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Note 14 - Commitments (Continued)

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The total commitment amounts do not necessarily represent future cash requirements. The Association evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Association upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but primarily includes residential and income-producing real estate.

The Association has outstanding various commitments to originate or purchase loans as follows:

	December 31,
	2010		2009
Mortgage loans	$	2,244,000	$	5,315,000
Secured credit cards		131,000		130,000

	$	2,375,000	$	5,445,000

At December 31, 2010, the outstanding mortgage loan commitments included $1,644,000 for fixed interest rates ranging from 4.25% to 5.75% and $600,000 for adjustable interest rates at 5.50%.

At December 31, 2009, the outstanding mortgage loan commitments included $592,000 for fixed interest rates at 6.35% and $4,723,000 for adjustable interest rates at 6.87%.

Rentals, including related expenses, under long-term operating leases for certain branch offices amounted to approximately $118,000 and $116,000 for the years ended December 31, 2010 and 2009, respectively. At December 31, 2010, the minimum rental commitments under all noncancellable leases with initial or remaining terms of more than one year are as follows:

Year Ended December 31,		Amount
2011		$	47,400

The Company and the Association also have, in the normal course of business, commitments for services and supplies. Management does not anticipate losses on any of these transactions.

Note 15 - Contingencies

The Company and the Association are parties to litigation which arises primarily in the ordinary course of business. In the opinion of management, the ultimate disposition of such litigation should not have a material effect on the consolidated financial position or operations of the Company.

Note 16 - Fair Value Measurements and Fair Values of Financial Instruments

Management uses its best judgment in estimating the fair value of the Association’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Association could have realized in a sales transaction on the dates indicated. The estimated fair value

Note 16 - Fair Value Measurements and Fair Values of Financial Instruments (Continued)

amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amount reported at each year-end.

FASB’s guidance on fair value measurement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance does not require any new fair value measurements. The definition of fair value retains the exchange price notion in earlier definitions of fair value. The guidance clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability. The definition focuses on the price that would be received to sell the asset or paid to transfer the liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price). The guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement.

The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy 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’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The Company had no assets which are required to be measured on a recurring basis at December 31, 2010 and 2009.

Note 16 - Fair Value Measurements and Fair Values of Financial Instruments (Continued)

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
December 31, 2010	$	4,769	$	-	$	-	$	4,769
December 31, 2009	$	993	$	-	$	-	$	993

The Company had no liabilities which are required to be measured on a recurring or non-recurring basis at December 31, 2010 and 2009.

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 the Association’s financial instruments at December 31, 2010 and 2009:

Cash and Cash Equivalents (Carried at Cost)

The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets’ fair values.

Securities

The fair value of securities held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or 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. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, management’s best estimate is used. Management’s best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) were used to support fair value of certain Level 3 investments if applicable.

Note 16 - Fair Value Measurements and Fair Values of Financial Instruments (Continued)

Loan Receivable (Carried at Cost)

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.

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.

Accrued Interest Receivable

The carrying amounts reported in the balance sheet for accrued interest receivable approximate those assets’ fair values.

Federal Home Loan Bank of New York (FHLB) Stock (Carried at Cost)

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

Deposit Liabilities (Carried at Cost)

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.

Short-Term Borrowings (Carried at Cost)

The carrying amounts of short-term borrowings approximate their fair values.

Long-Term Borrowings (Carried at Cost)

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. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Note 16 - Fair Value Measurements and Fair Values of Financial Instruments (Continued)

Accrued Interest Payable

The carrying amounts reported in the balance sheet for accrued interest payable approximate the assets’ fair values.

Off-Balance Sheet Financial Instruments (Disclosed at Cost)

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 December 31, 2010 and 2009, the fair value of commitments to extend credit were not considered to be material.

The estimated fair values of the Association’s financial instruments were as follows at December 31, 2010 and 2009.

	December 31,
	2010				2009
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	8,184	$	8,184	$	5,458	$	5,458
Mortgage-backed securities held to maturity		21,780		23,084		28,340		29,567
FHLB stock		808		808		1,275		1,275
Loans receivable		106,478		112,166		110,988		115,692
Accrued interest receivable		607		607		658		658

Financial liabilities:
Deposits		117,074		118,460		115,168		116,709
Advances from FHLB		12,043		12,209		22,851		23,352
Accrued interest payable		28		28		49		49

Note 17 - Parent Only Financial Information

The Company operates its wholly owned subsidiary, the Association. The earnings of the Association are recognized by the Company under the equity method of accounting. The following are the condensed financial statements for the Company (Parent Company only) as of and for the years ended December 31, 2010 and 2009.

CONDENSED STATEMENTS OF FINANCIAL CONDITION

	December 31,
	2010		2009
Assets
Cash and cash equivalents	$	227,008	$	266,985
Investment in the Association		14,881,231		14,327,102
ESOP loan receivable		523,959		551,628
Other assets		125,530		94,603

Total Assets	$	15,757,728	$	15,240,318

Liabilities and Stockholders’ Equity
Liabilities
Other liabilities	$	4,211	$	7,365
Stockholders’ equity		15,753,517		15,232,953

Total Liabilities and Stockholders’ Equity	$	15,757,728	$	15,240,318

CONDENSED STATEMENTS OF INCOME

	Years Ended December 31,
	2010			2009
Interest income	$	31,765		$	34,510
Dividends from Association		-			300,000
Undistributed earnings (distribution in excess of earnings) of Association		474,794			(64,538	)

		506,559			269,972

Non-interest expenses		93,507			103,850

Income before Income Taxes		413,052			166,122

Income tax benefit		(28,177	)		(29,007	)

Net Income	$	441,229		$	195,129

Note 17 - Parent Only Financial Information (Continued)

CONDENSED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2010			2009
Cash Flows from Operating Activities
Net income	$	441,229		$	195,129
Undistributed earnings (distribution in excess of earnings) of Association		(474,794	)		64,538
Increase in other assets		(30,927	)		(80,256	)
(Decrease) increase in other liabilities		(3,154	)		5,015

Net Cash (Used in) Provided by Operating Activities		(67,646	)		184,426

Cash Flows from Investing Activities
Repayments ESOP loan receivable		27,669			26,200
Cash Flows from Financing Activities
Purchase of treasury stock		-			(3,550	)

Net (Decrease) Increase in Cash and Cash Equivalents		(39,977	)		207,076

Cash and Cash Equivalents - Beginning		266,985			59,909

Cash and Cash Equivalents - Ending	$	227,008		$	266,985

Note 18 - Quarterly Financial Data (Unaudited)

	Year Ended December 31, 2010
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(In Thousands, Except Per Share Data)
Interest income	$	2,087	$	2,004	$	1,988	$	1,883
Interest expense		557		531		499		463

Net Interest Income		1,530		1,473		1,489		1,420

Provision for loan losses		154		134		100		433

Net Interest Income after Provision for Loan Losses		1,376		1,339		1,389		987

Non-interest income		63		65		64		61
Non-interest expenses		1,212		1,194		1,171		1,170

Income (loss) before Income Tax Expense (Benefit)		227		210		282		(122	)

Income tax expense (benefit)		87		64		32		(27	)

Net Income (loss)	$	140	$	146	$	250	$	(95	)

Net income (loss) per common share, basic and diluted	$	0.05	$	0.05	$	0.09	$	(0.04	)

Note 18 - Quarterly Financial Data (Unaudited) (Continued)

	Year Ended December 31, 2009
	First Quarter		Second Quarter			Third Quarter		Fourth Quarter
	(In Thousands, Except Per Share Data)
Interest income	$	2,014	$	2,051		$	2,132	$	2,053
Interest expense		858		857			840		700

Net Interest Income		1,156		1,194			1,292		1,353

Provision for loan losses		-		22			52		575

Net Interest Income after Provision for Loan Losses		1,156		1,172			1,240		778

Non-interest income		65		68			67		61
Non-interest expenses		682		1,268			1,176		1,154

Income (loss) before Income Tax		539		(28	)		131		(315	)
Expense (Benefit)
Income tax expense (benefit)		215		(34	)		46		(95	)

Net Income (loss)	$	324	$	6		$	85	$	(220	)

Net income (loss) per common share, basic and diluted	$	0.12	$	0.003		$	0.03	$	(0.08	)

Note 19 - Recent Accounting Pronouncements

The following is a summary of recently issued authoritative pronouncements that could have an impact on the accounting, reporting, and/or disclosure of the consolidated financial information of the Company.

Accounting Standard Update (“ASU”) 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now require that a reporting entity disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and present separately information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable inputs. In addition, ASU 2010-06 clarifies the requirements of the following existing disclosures:

Note 19 - Recent Accounting Pronouncements (Continued)

a) For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities; and

b) A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements.

ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this guidance did not have a material impact on the consolidated financial statements.

ASU 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, will help investors assess the credit risk of a company’s receivables portfolio and the adequacy of its allowance for credit losses held against the portfolios by expanding credit risk disclosures.

This ASU requires more information about the credit quality of financing receivables in the disclosures to financial statements, such as aging information and credit quality indicators. Both new and existing disclosures must be disaggregated by portfolio segment or class. The disaggregation of information is based on how a company develops its allowance for credit losses and how it manages its credit exposure.

The amendments in this ASU apply to all public and nonpublic entities with financing receivables. Financing receivables include loans and trade accounts receivable. However, short-term trade accounts receivable, receivables measured at fair value or lower of cost or fair value, and debt securities are exempt from these disclosure amendments.

For public companies, the amendments that require disclosures as of the end of a reporting period are effective for periods ending on or after December 15, 2010. The amendments that require disclosures about activity that occurs during a reporting period are effective for periods beginning on or after December 15, 2010. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements.

ASU 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No 2010-20. The amendments in this Update temporarily delay the effective date of the disclosures about troubled debt restructurings in Update 2010-20 for public entities. Under the existing effective date in Update 2010-20, public-entity creditors would have provided disclosures about troubled debt restructurings for periods beginning on or after December 15, 2010. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011.The deferral in this amendment is effective upon issuance.

Note 20 – 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 leased by Flatbush Federal to a White Castle franchise.

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.

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”).

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.

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 second 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.

Directors and Executive Officers

Directors

Jesus R. Adia

Chairman of the Board,

President and Chief Executive Officer,

Flatbush Federal Bancorp, Inc. and

Flatbush Federal Savings and Loan Association

D. John Antoniello

President of Anbro Supply Company, an

industrial supply company

Patricia Ann McKinley Scanlan

Marketing Professional for a Long Island-based newspaper

New York State real estate agent

Alfred S. Pantaleone

Retired, formerly Deputy Executive Director of

the New York City Board of Elections

Charles J. Vorbach

President of John L. Vorbach Co., Inc., an insurance

brokerage and consulting business

Michael J. Lincks

Certified Public Accountant and a private investor

Executive Officers

Jesus R. Adia

President and Chief Executive Officer

John S. Lotardo

Executive Vice President and Chief Financial Officer

Shareholder Information

Annual Meeting

The Annual Meeting of Shareholders will be held at 2146 Nostrand Avenue, Brooklyn, NY 11210 on April 28, 2011 at 11:00 a.m.

Stock Listing

Over-the-Counter Bulletin Board under the symbol “FLTB”

Special Counsel

Luse Gorman Pomerenk & Schick, P.C.

5335 Wisconsin Avenue, NW, Suite 780

Washington, D.C. 20015

Independent Auditors

ParenteBeard LLC

100 Walnut Avenue, Suite 200

Clark, NJ 07066

Transfer Agent and Registrar

Registrar and Transfer Company

10 Commerce Drive

Cranford, NJ 07016

(800) 368-5948

Please contact our transfer agent directly for assistance in changing your address, elimination of duplicate mailing, transferring stock, or replacing lost, stolen or destroyed stock certificates.

Annual Report on Form 10-K

A copy of the Company’s Form 10-K for the fiscal year ended December 31, 2010 as filed with the Securities and Exchange Commission is available without charge to shareholders by written request to the Company. It may also be accessed on our website at: www.flatbush.com

Market Information

The Company’s Common Stock is traded on the Over-the-Counter Bulletin Board under the symbol “FLTB.”

The following table sets forth the range of the high and low bid prices of the Company’s Common Stock since December 31, 2008, and is based upon information provided on the Yahoo Finance website. The Company declared 10% stock dividends on February 23, 2006 and March 22, 2005.

	Prices of Common Stock
	High		Low
Calendar Quarter Ended

December 31, 2010	$	6.00	$	5.15
September 30, 2010	$	6.97	$	4.20
June 30, 2010	$	5.25	$	4.11
March 31, 2010	$	4.55	$	3.70
December 31, 2009	$	4.01	$	3.63
September 30, 2009	$	4.05	$	3.56
June 30, 2009	$	4.02	$	3.16
March 31, 2009	$	4.07	$	2.80

As of December 31, 2010, the Company had 474 stockholders of record.

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FLATBUSH FEDERAL BANCORP INC Reports