SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-QSB
(Mark One)

|X|               QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                  EXCHANGE ACT OF 1934

                  For the quarterly period ended September 30, 1998

                                       OR

|_|               TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                  EXCHANGE ACT OF 1934

                  For the transition period from            to           .
                                                 ----------    ----------

                           Commission File No. 0-25149


                            Ridgewood Financial, Inc.
--------------------------------------------------------------------------------
        (Exact name of Small Business Issuer as Specified in Its Charter)


         New Jersey                                           22-3616280    
--------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation             (I.R.S. Employer
 or Organization)                                         Identification No.)


               55 North Broad Street, Ridgewood, New Jersey 07450 
--------------------------------------------------------------------------------
                    (Address of Principal Executive Offices)


                                 (201) 445-7887
--------------------------------------------------------------------------------
                 Issuer's Telephone Number, Including Area Code

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

                             YES                  NO      X     
                                 ------                 ------
    Number of shares of Common Stock outstanding as of December 21, 1998: -0-

Transitional Small Business Disclosure Format (check one)

                             YES                  NO      X     
                                 ------                 ------



<PAGE>



                            RIDGEWOOD FINANCIAL, INC.

                                    Contents
                                    --------

                                                                         Page(s)
                                                                         -------
PART I - FINANCIAL INFORMATION

     Item 1.  Financial Statements........................................... 3

     Item 2.  Management's Discussion and Analysis or Plan of Operation...... 9

PART II - OTHER INFORMATION

     Item 1.  Legal Proceedings..............................................13

     Item 2.  Changes in Securities and Use of Proceeds......................13

     Item 3.  Defaults upon Senior Securities................................13

     Item 4.  Submission of Matters to a Vote of Security Holders............13

     Item 5.  Other Information..............................................13

     Item 6.  Exhibits and Reports on Form 8-K...............................13

     Signatures..............................................................14


<PAGE>



                          PART I. FINANCIAL INFORMATION

                          Item 1. Financial Statements

                      Ridgewood Savings Bank of New Jersey
                        Statements of Financial Condition
                    September 30, 1998 and December 31, 1997
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                    September 30,     December
                                                                                        1998            1997
                                                                                       -------        -------
              Assets                                                                (unaudited)                   
<S>                                                                                  <C>            <C>     
Cash and due from banks                                                               $  1,724          2,198
Federal funds sold                                                                      17,200         13,200  
                                                                                       -------        -------
            Cash and cash equivalents                                                   18,924         15,398
                                                                                                    
Investment securities:                                                                              
     Held to maturity                                                                    1,870          9,666
     Available for sale                                                                 10,092         26,954
Mortgage-backed securities:                                                                         
     Held to maturity                                                                   12,060         14,356
     Available for sale                                                                 96,165         50,099
Loans held for sale                                                                         --            750      
                                                                                                               
Loans receivable, net                                                                  105,499        105,715
Accrued interest receivable                                                              1,379          1,609
Premises and equipment, net                                                              2,186          2,253
Federal Home Loan Bank ("FHLB") stock, at cost                                           1,949          1,949
Other assets                                                                               392            316
                                                                                       -------        -------
                  Total assets                                                        $250,516        229,065
                                                                                       =======        =======  
                                                                                                    
      Liabilities and Equity                                                                        
                                                                                                    
Deposits                                                                              $198,386        193,889
Borrowed funds                                                                          32,895         16,282
Advances from borrowers for taxes and insurance                                            827            902
Accounts payable and other liabilities                                                     629            798
                                                                                       -------        -------  
                                                                                                    
                  Total liabilities                                                    232,737        211,871
                                                                                             
Retained earnings                                                                       17,634         16,966
Accumulated other comprehensive income                                                     145            228
                                                                                       -------        -------  
                  Total equity                                                          17,779         17,194
                                                                                       -------        -------  
                                                                                                    
                Total liabilities and equity                                          $250,516        229,065
                                                                                       =======        =======  
</TABLE>

   See accompanying notes to financial statements

                                       -3-

<PAGE>

                      RIDGEWOOD SAVINGS BANK OF NEW JERSEY
                         Condensed Statements of Income
                           September 30, 1998 and 1997
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                     Three months                     Nine months
                                                                        ended                            ended
                                                                     September 30,                    September 30,
                                                              ---------------------------   --------------------------------
                                                                 1998             1997            1998              1997
                                                                 ----             ----            ----              ----

                                                                     (unaudited)                     (unaudited)

<S>                                                            <C>             <C>             <C>             <C>    
Interest income:
Loans receivable                                               $  2,104           2,215           6,254           6,597  
Investment securities                                               170             796             856           2,713
Mortgage-backed securities                                        1,591             788           4,270           2,085
Other                                                               287             165             799             431
                                                               --------          ------          ------          ------
                                                                                                                
     Total interest income                                        4,152           3,964          12,179          11,826
                                                                                                                
Interest expense:                                                                                               
Deposits                                                          2,445           2,311           7,237           6,600
Borrowed funds                                                      361             286             881           1,044
                                                               --------          ------          ------          ------
                                                                                                                
     Total interest expense                                       2,806           2,597           8,118           7,644
                                                               --------          ------          ------          ------
                                                                                                               
     Net interest income                                          1,346           1,367           4,061           4,182
                                                                                                                
Provision for loan losses                                            36               3             168               9
                                                               --------          ------          ------          ------
                                                                                                                
     Net interest income after                                                                                  
          provision for loan losses                               1,310           1,364           3,893           4,173
                                                                                                                
Noninterest income:                                                                                             
Fees and service charges                                             38              33             105              80
Gain on sale of securities                                           --              12              24              12
Gain on sale of loans                                                --              --              21               3
Other                                                                 1               1               7              14
                                                               --------          ------          ------          ------
                                                                                                                
     Total noninterest income                                        39              46             157             109
                                                                                                                
Noninterest expenses:                                                                                           
Salaries and benefits                                               563             501           1,599           1,443
Occupancy and equipment                                             359             265             914             766
Advertising and promotion                                            36              34             112             102
SAIF deposit insurance premium                                       30              27              89              81
Other expenses                                                      121             110             364             330
                                                               --------          ------          ------          ------
                                                                                                                
     Total noninterest expenses                                   1,109             937           3,078           2,722
                                                               --------          ------          ------          ------
                                                                                                                
     Income before income taxes                                     240             473             972           1,560
                                                                                                                
Income taxes                                                         59             187             304             612
                                                               --------          ------          ------          ------
                                                                                                                
     Net income                                                $    181             286             668             948
                                                               ========          ======          ======          ======

</TABLE>
                                                           
   See accompanying notes to financial statements   


                                       -4-

<PAGE>



                      Ridgewood Savings Bank of New Jersey
                            Statements of Cash Flows
              For the Nine months Ended September 30, 1998 and 1997
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                           September 30,
                                                                        -------------------
                                                                          1998       1997 
                                                                        --------    -------
Cash flows from operating Activities:                                         (unaudited)
<S>                                                                     <C>        <C>  
       Net Income                                                        $   668        948
       Adjustments to reconcile net income to net cash provided
       by operating activities:
       Depreciation                                                          150        148
       Amortization of loan fees                                             (60)       (58)
       Premiums and discounts on mortgage-backed and
         investment securities                                               751        109
       Proceeds from loan sales                                              771        360
       Loans originated for resale                                          --         (324)
       Gain on sale of loans                                                 (21)        (3)
       Loss on fixed asset disposal                                           77       --
       Gain on sale of securities-available for sale                         (24)       (12)
       Provision for loan losses                                             168          9
       Deferred income tax expense                                           138        526
       Decrease in accrued interest receivable                               230        495
       Increase in other assets, net                                        (170)      (471)
       Decrease in other liabilities                                        (169)      (961)
                                                                         -------    -------
       Net cash provided by operating activities                           2,509        766
                                                                         -------    -------
Cash flows from investing Activities:
       Net decrease in first mortgage loans                                  843      2,959
       Net increase in consumer loans                                       (717)    (2,194)
       Purchases of mortgage-backed securities available for sale        (64,982)   (22,042)
       Principal collected on mortgage-backed securities                  20,178      5,214
       Proceeds from sales of mortgage-backed                                 
         securities available for sale                                      --        3,051
       Purchases of investment securities available for sale              (5,649)    (1,503)
       Proceeds from sales of investment securities available for sale    10,522     10,148
       Maturities of investment securities available for sale             12,200       --
       Maturities of investment securities held to maturity                7,476      2,500
       Principal  collected on investment securities                         289        401
       Purchases of premises & equipment                                    (160)      (122)
       Proceeds from collection of loan fees                                 (18)       (26)
                                                                         -------    -------
       Net cash used in investing activities                             (20,018)    (1,614)

Cash flows from financing Activities:
       Net increase in passbook,
         NOW and money market accounts                                     2,647      5,702
       Net increase  in certificates of deposit                            1,850      9,110
       Proceeds from borrowed funds                                       30,225     32,600
       Repayment of borrowed funds                                       (13,612)   (43,156)
       Net increase in advances from borrowers
         for taxes and insurance                                             (75)       (58)
                                                                         -------    -------
       Net cash provided by financing activities                          21,035      4,198

       Net increase in cash and cash equivalents                           3,526      3,350

Cash and cash equivalents at beginning of period                          15,398      6,364
                                                                         -------    -------
Cash and cash equivalents at end of period                                18,924      9,714
                                                                         -------    -------
Supplemental disclosures of cash flow information - cash payments for:
       Interest on deposits and borrowed funds                             8,177      7,842
       Income taxes                                                          484        285
</TABLE>
       See accompanying notes to financial statements

                                       -5-
<PAGE>

                      RIDGEWOOD SAVINGS BANK OF NEW JERSEY

                          Notes to Financial Statements
                                   (Unaudited)

1.       Basis of Preparation
         --------------------
         The financial statements included herein are for Ridgewood Savings Bank
         of New Jersey (the "Bank").  As described  further in Note 2, Ridgewood
         Financial,  Inc. had no  operations  or assets during the quarter ended
         September 30, 1998.  Upon completion of the  transactions  described in
         Note 2,  the  Bank  will be a  wholly  owned  subsidiary  of  Ridgewood
         Financial, Inc.

         The  accompanying  unaudited  financial  statements  were  prepared  in
         accordance  with  instructions  for Form  10-QSB and  therefore  do not
         include all  disclosure  necessary for a complete  presentation  of the
         statements of financial condition,  statements of income and statements
         of  cash  flow  in  conformity  with  generally   accepted   accounting
         principles.  However,  all  adjustments  which are,  in the  opinion of
         management,   necessary  for  the  fair  presentation  of  the  interim
         financial statements have been included.  All such adjustments are of a
         normal recurring  nature.  The statements of income are not necessarily
         indicative of the results which may be expected for the entire year.

         Certain information and footnote  disclosures  normally included in the
         financial  statements  prepared in accordance  with generally  accepted
         accounting  principles  have been condensed or omitted  pursuant to the
         rules and regulations of the Securities and Exchange Commission.  It is
         suggested that these condensed unaudited  financial  statements be read
         in conjunction with the audited financial  statements and notes thereto
         for  the  Bank for the year  ended  December 31, 1997 (included  in the
         prospectus  of  Ridgewood Financial, Inc. dated  November 12, 1998  and
         filed  with the  Securities  and  Exchange  Commission  on November 20,
         1998).

2.       Plan of Reorganization and Stock Issuance
         -----------------------------------------

         On June 22,  1998,  the  Bank's  Board  of  Directors  approved  a plan
         ("Plan")  to  reorganize  and  convert  from a  state-chartered  mutual
         savings bank to a state-chartered stock savings bank, to create a stock
         holding  company  (Ridgewood  Financial,  Inc.)  under the control of a
         mutual holding company (Ridgewood Financial, MHC) and to offer stock of
         Ridgewood  Financial,  Inc.,  subject  to  ratification  by the  Bank's
         members.  The Plan  was  subject  to  approval  by  federal  and  state
         regulatory agencies and included the filing of a registration statement
         with the SEC.  These  transactions  were not completed by September 30,
         1998.  Actual  conversion,  reorganization  and offering  costs will be
         accounted for as a reduction in gross proceeds.

         The Plan calls for the common  stock of the Bank to be purchased by the
         stock  holding  company and, of the common  stock of the stock  holding
         company  to be  issued,  47%  will  be sold to  various  parties  in an
         offering  at a price of $7.00  per  share and 53% will be issued to the
         mutual holding company.

         The  stockholders of the stock holding company will be asked to approve
         a proposed stock option plan and a proposed  restricted stock plan at a
         meeting of the  stockholders  after the  conversion.  Shares  issued to
         directors and employees  under these plans may be from  authorized  but
         unissued  shares of common  stock or they may be  purchased in the open
         market.  In the event that  options or shares  are issued  under  these
         plans,  such  issuances  will be  included  in the  earnings  per share
         calculation;  thus,  the  interests of existing  stockholders  would be
         diluted.

                                      -6-

<PAGE>




         The stock holding company will not be permitted to pay dividends on its
         capital  stock if its  stockholders'  equity would be reduced below the
         amount required for the liquidation account discussed below. The income
         of the stock  holding  company  may depend,  in part,  on the amount of
         dividends the stock holding company receives from the Bank.

         The Bank may not declare or pay a cash  dividend if the effect  thereof
         would  cause its net  worth to be  reduced  below  either  the  amounts
         required for the liquidation  account discussed below or the regulatory
         capital requirements imposed by regulation.

         At the  time  of the  reorganization  and  conversion,  the  Bank  will
         establish a  liquidation  account  (which is a memorandum  account that
         does  not  appear  on the  balance  sheet)  in an  amount  equal to its
         retained  income as reflected in the latest  balance  sheet used in the
         final conversion prospectus. The liquidation account will be maintained
         for the benefit of eligible  account  holders who  continue to maintain
         their  deposit  accounts  in the  Bank  after  the  reorganization  and
         conversion.  In the event of a  complete  liquidation  of the Bank (and
         only in such an event),  eligible  depositors  who continue to maintain
         accounts  would  be  entitled  to  receive  a  distribution   from  the
         liquidation  account before any liquidation may be made with respect to
         common stock.

(3)  Investment Securities

     The following is a summary of maturities of the investment securities as of
     September 30, 1998 and December 31, 1997 (in thousands):

<TABLE>
<CAPTION>
                                                            September 30, 1998                        December 31, 1997
                                                    ----------------------------------------- --------------------------------------
                                                                 (Unaudited)
                                                     Securities held to  Securities available  Securities held  Securities available
                                                         maturity              for sale          to maturity          for sale
                                                   -------------------  ------------------   ------------------ --------------------
                                                   Amortized    Fair    Amortized   Fair     Amortized   Fair    Amortized   Fair
                                                      cost      value      cost     value      cost      value     cost      value
                                                      ----      -----      ----     -----      ----      -----     ----      -----
<S>                                                 <C>        <C>       <C>      <C>        <C>       <C>       <C>      <C>
Amounts maturing in:
     Equity securities                              $    --        --         8        27        --        --         8        22
     One year or less                                   497       497       500       500       920       916       500       498
     After one year through
        five years                                       52        52       808       813     1,219     1,238        --        -- 
                                                                                                                                    
     After five years through
        ten years                                       716       738       379       388     3,807     3,842    23,197    23,193
     After ten years                                    605       606     8,053     8,364     3,720     3,728     3,091     3,241
                                                    -------   -------   -------   -------   -------   -------   -------   -------   
                                                                                                                                    
                                                    $ 1,870     1,893     9,748    10,092     9,666     9,724    26,796    26,954
                                                    =======   =======   =======   =======   =======   =======   =======   =======   
</TABLE>
                                                                            
                                                                         

     Expected  maturities  will  differ  from  contractual   maturities  because
     borrowers may have the right to call or prepay  obligations with or without
     call or prepayment penalties.

                                      -7-
<PAGE>
(4)  Mortgage-backed Securities

     The following is a summary of maturities of the mortgage-backed  securities
     as of September 30, 1998 and December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
                                                          September 30, 1998                        December 31, 1997
                                       ------------------------------------------------- -------------------------------------------
                                                         (Unaudited)
                                        Securities held to          Securities available    Securities held     Securities available
                                            maturity                     for sale             to maturity            for sale  
                                       ----------------------    ----------------------- --------------------  ---------------------
                                        Amortized       Fair      Amortized     Fair      Amortized     Fair     Amortized     Fair
                                           cost        value         cost       value        cost      value       cost       value
                                           ----        -----         ----       -----        ----      -----       ----       -----
<S>                                     <C>            <C>          <C>         <C>         <C>        <C>         <C>        <C>   
Amounts maturing in:
     After one year through
        five years                      $    954          956        9,557       9,634           -          -       7,549      7,593
     After five years through
        ten years                            673          690       24,502      24,778         963        955      10,546     10,598
     After ten years                      10,433       10,605       62,222      61,753      13,393     13,567      31,807     31,908
                                        --------       ------       ------      ------     -------     ------     -------     ------
                                        $ 12,060       12,251       96,281      96,165      14,356     14,522      49,902     50,099
                                        ========       ======       ======      ======      ======     ======     =======     ======
</TABLE>
     Expected  maturities  will  differ  from  contractual   maturities  because
     borrowers may have the right to call or prepay  obligations with or without
     call or prepayment penalties.

(5)  Borrowed Funds

     Borrowed  funds at September 30, 1998 and December 31, 1997 are  summarized
     as follows (in thousands):

                                      September 30,             December 31,
                                           1998                     1997
                                           ----                     ----
                                       (Unaudited)
     Advances from the FHLB             $32,895                  $16,282   
                                         ======                   ======   

     Pursuant to collateral  agreements  with the FHLB,  advances are secured by
     all stock in the FHLB and  qualifying  first  mortgage  loans.  Advances at
     September 30, 1998 and December 31, 1997 have maturity dates as follows (in
     thousands):

                              September 30,            December 31,
                                  1998                     1997
                                  ----                     ----
                               (Unaudited)
          1998                   $    325               $ 15,525
          2000                      2,500                    150
          2001                      2,000                      -
          2002                      4,000                      -
          2003                      5,500                      -
          2005                      2,000                      -
          2006                        570                    607
          2008                     16,000                      -
                                  -------                -------
                                 $ 32,895               $ 16,282
                                  =======                =======
                
     The interest rates on advances ranged from 5.05% to 6.76% and from 5.30% to
     6.85% at September 30, 1998 and December 31, 1997, respectively.

(6)  Comprehensive Income

     Effective  January 1, 1998, the Bank adopted the provisions of Statement of
     Financial  Accounting Standards No. 130, "Reporting  Comprehensive  Income"
     (Statement No. 130). Statement No. 130 establishes  standards for reporting
     and display of  comprehensive  income and its  components  in a full set of
     general   purpose   financial   statements.   Under   Statement   No.  130,
     comprehensive  income is divided  into net  income and other  comprehensive
     income.  Other  comprehensive  income  includes  items  previously recorded
     directly  in  equity,  such as  unrealized  gains or losses  on  securities
     available for sale.  Comparative  financial statements provided for earlier
     periods have been reclassified to reflect the application of the provisions
     of Statement No. 130. For the Bank,  comprehensive  income is determined by
     adding  unrealized holding gains or losses during the period to net income.
     Comprehensive  income  totalled  $567,000 and $1.1 million for the quarters
     ended  September  30, 1998 and 1997,  respectively,  and  $540,000 and $1.7
     million  for  the  nine  months   ended   September   30,  1998  and  1997,
     respectively.
                                      -8-
<PAGE>


                  Item 2. Management's Discussion and Analysis
                             of Recent Developments

Comparison of Financial Condition at September 30, 1998 and December 31, 1997

         Total assets  increased by $21.4  million or 9.3% to $250.5  million at
September 30, 1998 from $229.1  million at December 31, 1997.  This increase was
primarily due to an increase in available for sale  mortgage-backed  securities,
offset by decreases in investment securities,  held to maturity  mortgage-backed
securities,  and loans held for sale. Cash and cash  equivalents  increased $3.5
million to $18.9  million at  September  30, 1998  compared to $15.4  million at
December 31, 1997.  Available for sale  mortgage-backed  securities increased by
$46.1  million to $96.2  million at September  30, 1998,  from $50.1  million at
December  31,  1997,  as  new  purchases  and  reinvestment  of  prepayments  of
mortgage-backed  securities were classified as available for sale. Between these
dates, total investment securities decreased by $24.6 million from $36.6 million
to $12.0 million at September 30, 1998 as a result of sales and  redemptions  of
callable securities.

         The Bank's deposits increased by $4.5 million or 2.3% from December 31,
1997 to $198.4 million at September 30, 1998, due primarily to continued deposit
growth at both of its new branches  opened in 1996.  Borrowings  increased $16.6
million to $32.9  million at September  30, 1998 from $16.3  million at December
31,  1997  as the  Bank  used  borrowings  to  lengthen  the  maturities  of its
liabilities to reduce  interest rate risk and to generate  additional  income as
part of its leveraging strategy.

         Total equity increased  $586,000 to $17.8 million at September 30, 1998
due to net income of  $668,000  offset by  approximately  $82,000 of  unrealized
depreciation on securities available for sale, net of taxes.

         After September 30, 1998, the Bank made an offer to purchase a building
in Ridgewood,  New Jersey for  approximately  $4.0  million.  The offer has been
accepted but is subject to certain  conditions.  If all  conditions are met, the
Bank may acquire the property by December 31, 1998.  The Bank expects to use the
property as an additional branch office and to house administrative  operations.
The Bank has estimated that the  acquisition  and  refurbishment  costs for this
purpose could total approximately $6.0 million. These costs could be funded with
cash and cash equivalents  without  reducing  liquidity below the level the Bank
feels is appropriate.

Comparison  of Operating  Results for the Three Months Ended  September 30, 1998
and September 30, 1997

         Net Income.  Net income  decreased  $105,000 to $181,000  for the three
months ended  September  30, 1998 as compared to $286,000 for the same period in
1997.  Net  income  decreased  primarily  due to a  decrease  of  $21,000 in net
interest income, an increase in the provision for loan losses of $33,000, and an
increase in noninterest expenses of $172,000.

         Net Interest  Income.  Net interest income  decreased by  approximately
$21,000 or 1.5% to $1.3 million for the three months ended  September  30, 1998,
as  compared to the same three  months in 1997.  The  decrease  in net  interest
income was primarily  due to a decline in the average yield on interest  earning
assets and an  increase in interest  expense due to higher  average  balances of
deposits and borrowings. In addition, market conditions and competitive pressure
on the pricing of loans and deposits has resulted

                                      -9-

<PAGE>



in  a  smaller  interest  rate  spread.  Market  conditions  and/or  competitive
pressures in the future may further  reduce the spread  between asset yields and
the cost of funds.

         Provision for Loan Losses.  The provision for loan losses  increased by
$33,000 to $36,000 for the three months ended September 30, 1998 from $3,000 for
the same three months of 1997. The increase was recognized in order to raise the
allowance for loan losses  primarily as a result of  management's  review of the
risk  inherent  in the  loan  portfolio  based in part on a  comparison  of loss
experience  at  the  Bank  and  loss  experience  and  reserve  levels  at  peer
institutions.  In  addition,  the  allowance  was  increased  as a result of the
changing  composition  of the loan  portfolio  from single  family  mortgages to
commercial real estate and consumer loans.

         Noninterest  income.  Noninterest income decreased by $7,000 to $39,000
for the three months ended  September 30, 1998, from $46,000 for the same period
in 1997.

         Noninterest  expenses.  Noninterest  expenses  increased by $172,000 to
$1.1 million for the three months ended September 30, 1998 from $937,000 for the
same three months in 1997. The increase was due to higher  salaries and benefits
expenses  for the three  months  ended  September  30,  1998  resulting  from an
increase in staff, increases in medical insurance rates, recognition of expenses
for new benefit plans for senior executives and the Board of Directors,  as well
as normal  salary and merit  increases.  In  addition,  $75,000  was  charged to
earnings due to  replacement of all personal  computers  which did not meet year
2000 compliance tests.

Comparison of Operating Results for the Nine Months Ended September 30, 1998 and
September 30, 1997

         Net Income.  Net income  decreased  $280,000  to $668,000  for the nine
months ended  September  30, 1998 as compared to $948,000 for the same period in
1997. Net income  decreased due to a decline of $121,000 in net interest income,
an increase of $159,000 in loan loss provisions,  and an increase in noninterest
expense of $356,000.

         Net Interest  Income.  Net interest income  decreased by  approximately
$121,000 or 2.9% to $4.1 million for the nine months ended  September  30, 1998.
The decrease was  primarily  due to a decrease in the average  yield of interest
earning assets and an increase in average  balances of deposits and  borrowings,
partially  offset by a modest  decline in the average  cost of  interest-bearing
liabilities.  However, market conditions and competitive pressure on the pricing
of loans and  deposits has resulted in a smaller  interest  rate spread.  Market
conditions  and/or  competitive  pressure in the future may  further  reduce the
spread between asset yields and the cost of funds.

         Provision  for Loan Losses.  The  provision  for loan losses  increased
$159,000 for the nine months ended September 30, 1998, as compared to $9,000 for
the same nine months in 1997,  thereby  increasing the allowance for loan losses
to $786,000 at September 30, 1998.

         Noninterest income. Noninterest income increased by $48,000 to $157,000
for the nine months ended  September 30, 1998, from $109,000 for the nine months
ended  September  30,  1997.  These  increases  resulted  from  higher ATM fees,
increases  in  service  fees on  deposit  accounts,  gains on sales of loans and
securities, and higher loan servicing income.


                                      -10-

<PAGE>



         Noninterest  expenses.  Noninterest  expenses  increased by $356,000 to
$3.1 million for the nine months ended September 30, 1998, from $2.7 million for
the nine months ended  September  30, 1997.  This  resulted  from an increase of
$148,000 in salaries  and  benefit  costs,  and an increase of $199,000 in other
noninterest  expenses.  Included in the increase in  noninterest  expenses was a
charge of $75,000 for replacement of personal  computers which did not meet year
2000  compliance  tests.  In addition,  computer  service  expense  increased by
$45,000,  resulting from an increase in account volumes and including $15,000 in
year 2000 compliance costs.  Further,  consultants fees increased by $26,000 due
to increased use of consultants as well as costs  associated  with the strategic
planning.

         Income  Taxes.  Income  taxes  decreased by  approximately  $308,000 to
$304,000 for the nine months ended  September  30, 1998, as compared to $612,000
for the same nine months in 1997. The decrease was primarily due to the decrease
in income before taxes as discussed  above, as well as an increase in tax exempt
income.

Year 2000 Evaluation

         Rapid  and  accurate  data   processing  is  essential  to  the  Bank's
operations.  Many  computer  programs  that can only  distinguish  the final two
digits of the year  entered (a common  programming  practice in prior years) are
expected  to read  entries  for the year  2000 as the  year  1900 or as zero and
incorrectly attempt to compute payment, interest, delinquency and other data. We
have  been  evaluating  both  information   technology  (computer  systems)  and
non-information technology systems (e.g., vault timers, electronic door lock and
heating, ventilation and air conditioning controls). We have examined all of our
non-information  technology  systems and have either received  certifications of
year  2000  compliance  for  systems  controlled  by third  party  providers  or
determined  that the systems  should not be impacted by the year 2000. We expect
to further  test the systems we control and receive  third party  certification,
where  appropriate,  that they will  continue to function.  We do not expect any
material costs to address our  non-information  technology  systems and have not
had any  material  costs  to  date.  We have  determined  that  the  information
technology  systems  we use have  substantially  more  year  2000  risk than the
non-information  technology  systems we use. We have  evaluated our  information
technology systems risk in three areas: (1) our own computers,  (2) computers of
others used by our  borrowers,  and (3)  computers of others who provide us with
data processing.

         Our own computers.  We expect to spend  approximately  $200,000 through
December 31, 1998 to upgrade our computer  system.  We expect to capitalize this
cost. This upgrade is expected to eliminate the year 2000 risk in our computers.
We do not expect to have material costs to address this risk area after December
31, 1998. At September 30, 1998,  approximately  half of the estimated  $200,000
had been capitalized.  In addition to this $200,000,  we expensed  approximately
$75,000 between July 1, 1998 and September 30, 1998 for  non-compliant  computer
equipment.

         Computers of others used by our  borrowers.  We have  evaluated most of
our  borrowers  and do not  believe  that the year 2000  problem  should,  on an
aggregate  basis,  impact their ability to make payments to the Bank. We believe
that most of our residential borrowers are not dependent on their home computers
for income and that none of our  commercial  borrowers  are so large that a year
2000 problem  would render them unable to collect  revenue or rent and, in turn,
continue to make loan payments to the Bank.  As a result,  we have not contacted
residential  borrowers  concerning  this issue and do not consider this issue in
our  residential  loan  underwriting  process.  We  have  begun  contacting  our
commercial  borrowers with loans of $250,000 or more and considering  this issue
during commercial loan

                                     -11-

<PAGE>



underwriting.  At  September  30, 1998 these loans  constituted  $9.2 million or
86.2% of our $10.6  million  commercial  loan  portfolio.  We do not  expect any
material costs to address this risk area.

         Computers of others who provide us with data  processing.  This risk is
primarily focused on one third party service bureau that provides  virtually all
of the Bank's data  processing.  This service  bureau is not year 2000 compliant
but has advised us that it expects to be compliant before the year 2000. If this
problem  is not  solved  before  the  year  2000,  we  would  likely  experience
significant  delays,  mistakes or failures.  These delays,  mistakes or failures
could  have a  significant  impact on our  financial  condition  and  results of
operations.

         Contingency  Plan.  We are  monitoring  our service  bureau to evaluate
whether  our data  processing  system  will  fail.  We are being  provided  with
periodic updates on the status of testing and upgrades being made by the service
bureau.  If our service  bureau fails,  we will attempt to locate an alternative
service  bureau that is year 2000  compliant.  If we are  unsuccessful,  we will
enter deposit and loan  transactions  by hand in our general  ledger and compute
loan  payments  and deposit  balances and  interest  with our existing  computer
system.  We can do this  because  of our  relatively  small  number  of loan and
deposit accounts and our internal  bookkeeping  system. Our computer systems are
independently  able to generate labels and mailings for all of our customers and
we  periodically  test this  system and print and store this  material.  If this
labor intensive approach is necessary,  management and our employees will become
much less  efficient.  However,  we believe  that we would be able to operate in
this  manner   indefinitely,   until  our  existing  service  bureau,  or  their
replacement,  is able to again  provide data  processing  services.  If very few
financial  institution  service  bureaus were  operating  in the year 2000,  our
replacement costs, assuming we could negotiate an agreement, could be material.

Liquidity and Capital Resources

     Management is not aware of any known trends,  events or uncertainties  that
will have or are  reasonably  likely  to have a  material  effect on the  Bank's
liquidity,  capital  or  operations  nor  is  management  aware  of any  current
recommendation by regulatory authorities,  which if implemented, would have such
an effect. At September 30, 1998, the Bank met all applicable regulatory capital
requirements.

                                      -12-

<PAGE>



                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings
         -----------------

                  Not applicable.

Item 2.  Changes in Securities and Use of Proceeds
         -----------------------------------------

                  Not applicable.

Item 3.  Defaults Upon Senior Securities
         -------------------------------

                  Not applicable.

Item 4.  Submission of Matters to a Vote of Security Holders
         ---------------------------------------------------

                  Not applicable.

Item 5.  Other Information
         -----------------

                  Not applicable.

Item 6.  Exhibits and Reports on Form 8-K
         --------------------------------

         (a)      None.

         (b)      No  reports on Form 8-K were filed  during the  quarter  ended
                  September 30, 1998.


                                     -13-

<PAGE>



                                   SIGNATURES


         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                            RIDGEWOOD FINANCIAL, INC.



Date: December 28, 1998          By:      /s/Susan E. Naruk
                                          --------------------------------------
                                          Susan E. Naruk
                                          President and Chief Executive Officer
                                          (Principal Executive Officer)
                                          (Duly Authorized Officer)



Date: December 28, 1998          By:      /s/John Scognamiglio          
                                          --------------------------------------
                                          John Scognamiglio
                                          Senior Vice President and
                                             Chief Financial Officer
                                          (Principal Financial Officer and Chief
                                          Accounting Officer)