UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

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

                For the quarterly period ended December 31, 1998

                                       or

[  ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
          EXCHANGE ACT OF 1934

For the transition period from __________________ to _________________

                         Commission File Number 1-13793


                     NORTHEAST PENNSYLVANIA FINANCIAL CORP.

             (Exact name of registrant as specified in its charter)



            DELAWARE                                       06-1504091

 (State or other jurisdiction                           (I.R.S. Employer  
of incorporation or organization)                      Identification No.)

12 E. BROAD STREET, HAZLETON, PENNSYLVANIA                   18201
------------------------------------------                   -----

(Address of principal executive offices)                   (Zip Code)


                                 (570) 459-3700


              (Registrant's telephone number, including area code)


                                 Not Applicable

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



     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.                     Yes X No __


                      APPLICABLE ONLY TO CORPORATE ISSUERS.

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest  practicable  date: The Registrant had
6,308,950 shares of Common Stock outstanding as of February 9, 1999.



<PAGE>




                                                 TABLE OF CONTENTS

Item
No.
                                                                          Page
                                                                          Number
PART I - CONSOLIDATED FINANCIAL INFORMATION

Item 1   CONSOLIDATED FINANCIAL STATEMENTS

         Consolidated Statements of Financial Condition at
         December 31, 1998 (unaudited) and September 30, 1998...............  1

         Consolidated Statements of Operations for the Three Months Ended
         December 31, 1998 and 1997 (unaudited)...........................  2-3

         Consolidated Statements of Cash Flows for the Three Months Ended
         December 31, 1998 and 1997(unaudited)..............................4-5

         Notes to Consolidated Financial Statements (unaudited).........   6-11


Item 2   Management's Discussion and Analysis of Financial Condition
         and Results of Operations....................................... 12-22

Item 3   Quantitative and Qualitative Disclosures about Market Risk......... 23

Part II - OTHER INFORMATION

1         Legal Proceedings................................................  24

2         Changes in Securities and Use of Proceeds......................... 24

3         Defaults Upon Senior Securities................................... 24

4         Submission of Matters to a Vote of Security Holders............... 24

5         Other Information................................................  24

6         Exhibits and Reports on Form 8 - K............................  24-25

Signatures                                                                   26





<PAGE>

                     Northeast Pennsylvania Financial Corp.
                 Consolidated Statements of Financial Condition

                 December 31, 1998 (unaudited) and September 30, 1998 
                (in thousands, except share and per share data)

                                                     December 31,  September 30,
                                                          1998           1998
                    Assets                             (unaudited)


Cash and cash equivalents                               $   9,099     $   3,053
Securities available-for-sale                             188,743       189,094
Securities held-to-maturity (estimated fair
  value of $25,239 at December 1998
  and $32,072 at September 1998)                           25,364        31,770
Loans (less allowance for loan losses of
  $2,286 for December 1998 and $2,273
  for September 1998)                                     284,264       282,706
Accrued interest receivable                                 3,715         3,998
Assets acquired through foreclosure                            49           112
Property and equipment, net                                 8,782         8,648
Other assets                                                3,040         2,887
                                                         --------     ---------
     Total assets                                       $ 523,056     $ 522,268
                                                        =========     =========

              Liabilities and Equity

Deposits                                                $ 321,178     $ 324,005
Federal Home Loan Bank advances                           111,994       106,498
Other borrowings                                              518           825
Advances from borrowers for taxes and insurance             1,237           717
Accrued interest payable                                      826         1,028
Other liabilities                                           2,104         1,761
                                                        ---------     ---------

     Total liabilities                                  $ 437,857     $ 434,834
                                                        =========     =========

Preferred stock ($.01 par value;
  2,000,000 authorized shares;
  0 shares issued)                                           --            --
Common stock ($.01 par value;
  16,000,000 authorized shares;
  6,427,350 shares issued)                                     64            64
Additional paid-in capital                                 62,115        62,083
Common stock acquired by stock benefit plans               (7,940)       (4,799)
Retained earnings - substantially restricted               28,386        27,208
Accumulated other comprehensive income                      2,574         2,878
                                                            -----       -------

     Total equity                                       $  85,199     $  87,434
                                                        ---------      --------

            Total liabilities and equity                $ 523,056     $ 522,268
                                                        =========     =========




                                       1
<PAGE>
                     Northeast Pennsylvania Financial Corp.
                      Consolidated Statements of Operations
        For the Three Months Ended December 31, 1998 and 1997 (unaudited)
                                 (in thousands)

                                                                  For the 
                                                            Three months ended
                                                                December 31,

Interest Income:                                               1998       1997
                                                               ----       ----
  Loans                                                     $ 5,742     $ 5,269
  Mortgage-related securities                                 1,205         711
  Investment securities:
     Taxable                                                  1,364         807
     Non-taxable                                                657         127
                                                            -------       -----
     Total interest income                                    8,968       6,914


Interest Expense:
  Deposits                                                    3,317       3,231
  Federal Home Loan Bank advances and other                   1,319         478
                                                            -------      ------
     Total interest expense                                   4,636       3,709

Net interest income                                           4,332       3,205

Provision for loan losses                                        47         267
                                                            -------       -----

Net interest income after provision for loan losses           4,285       2,938

Non-interest Income:
  Service charges and other fees                                347         178
   Gain (loss) on sale of:
     Real estate owned                                          (16)        (35)
     Loans                                                       19           7
   Available-for-sale securities                                 34           8
     Other                                                       --           2
                                                            -------    --------
      Total non-interest income                                 384         160

Non-interest Expense:
  Salaries and net employee benefits                          1,718       1,225
  Occupancy costs                                               419         373
  Federal deposit insurance premiums                             72          72
  Data processing                                               125          74
  Professional fees                                             223          46
  Federal Home Loan Bank service charges                        101          76
  Charitable contributions                                        8         125
  Other                                                         438         275
                                                            -------      ------
     Total non-interest expense                               3,104       2,266

Income before income taxes                                    1,565         832

Income taxes                                                    387         275
                                                            -------      ------

Net income                                                  $ 1,178     $   557
                                                            =======     =======





                                       2
<PAGE>






                     Northeast Pennsylvania Financial Corp.
                      Consolidated Statements of Operations
        For the Three Months Ended December 31, 1998 and 1997 (unaudited)
                                 (in thousands)

                                                     For the Three months ended
                                                            December 31, 1998

                                                               1998         1997
                                                               ----         ----
Other  comprehensive  income (loss), net of tax 
 Unrealized gains (losses) on
 securities:
  Unrealized holding gains (losses)
   arising during the period                                  $(326)       $ 404
  Less: Reclassification adjustment
   for gains included in net income                              22            5
                                                              -----        -----
Other comprehensive income (loss)                              (304)         399
Comprehensive income                                          $ 874        $ 956
                                                              =====        =====

Earnings per share - basic                                    $0.20          N/A
                                                              =====        =====
Earnings per share - diluted                                  $0.19          N/A
                                                              =====        =====




                                       3
<PAGE>

                     Northeast Pennsylvania Financial Corp.
                      Consolidated Statement of Cash Flows
        For the Three Months ended December 31, 1998 and 1997 (unaudited)
                                 (in thousands)


                                                      For the Three Months Ended
                                                              December 31,

Operating Activities:                                        1998           1997
                                                             ----           ----

Net Income                                                 $  1,178    $    557
Adjustments to reconcile net income to
 net cash provided by operating activities:
  Provision (Recovery) for REO loss                               3         (30)
  Provision for loan losses                                      47         267
  Depreciation                                                  198         141
  Deferred income tax (benefit) provision                       142         (35)
ESOP expense                                                    203          --
  Amortization and accretion on:
     Held-to-maturity securities                                 17          10
     Available-for-sale securities                               90          19
  Amortization of deferred loan fees                           (111)        (58)
(Gain) loss on sale of:
     Real estate loans acquired through foreclosure              16          35
     Loans                                                      (19)         (7)
     Available-for-sale securities                              (34)         (8)
  Gain on disposal of property and equipment                     --          (2)
  Changes in assets and liabilities:
   Increase (decrease) in accrued interest receivable           283        (205)
   Increase in other assets                                    (110)       (293)
   Decrease in accrued interest payable                        (202)       (207)
   Increase  (decrease) in accrued income taxes payable        (215)        311
   Increase (decrease) in other liabilities                     558        (334)
                                                           --------       ------

      Net cash provided by operating activities               2,044         161

Investing Activities:
Loan origination and principal payments on loans             (5,058)     (3,770)
Proceeds from sale of:
  Available-for-sale securities                               1,305          --
  Real estate acquired through foreclosure and
     repossessed assets                                         102          57
  Loans                                                       3,525         484
Proceeds from repayments of available-for-sale
  securities                                                 28,612       8,575
Proceeds from repayments of held-to-maturity securities      15,953       5,479
Proceeds from disposal of fixed assets                         --             2
Purchase of:
  Available-for-sale securities                             (29,836)    (20,429)
  Held-to-maturity securities                                (9,564)    (15,104)
  Office properties and equipment                              (332)       (192)
  Federal Home Loan Bank stock                                 (275)       (422)
                                                           --------      ------

Net cash provided by (used in) investing activities           4,432     (25,320)









                                       4


<PAGE>

                                                           For the Three Months 
                                                            Ended December 31,



                                                               1998        1997
                                                               ----        ----
                                                                 (unaudited)

Financing Activities:
  Net decrease in deposit accounts                           (2,827)    (10,004)
  Net increase in Federal Home Loan Bank
    short-term advances                                       5,500      11,000
  Borrowings of Federal Home Loan Bank
    long-term advances                                           --      15,000
  Repayments of Federal Home Loan Bank
    long-term advances                                           (4)         (4)
  Net increase in advances from borrowers for taxes
    and insurance                                               520         367
 Net increase (decrease) in other borrowings                   (307)        123
 Purchase of common stock for stock incentive plan           (3,312)         --
                                                            --------     -------

  Net cash provided by (used in) financing activities          (430)     16,482

Increase (decrease) in cash and cash equivalents              6,046      (8,677)

Cash and cash equivalents, beginning of year                  3,053      13,214
                                                           --------     -------

Cash and cash equivalents, end of year                     $  9,099    $  4,537
                                                           ========    ========

Supplemental  disclosures of cash flow information:
 Cash paid during the period for:
     Interest                                              $  4,838    $  3,916
                                                           ========    ========
     Income taxes                                          $    451          --
                                                           ========    ========
Net change in unrealized gains (losses) on securities
available-for-sale, net of tax                             $   (304)   $    399
                                                           ========    ========

Supplemental disclosure - non-cash and financing
  information:
  Transfer from loans to real estate owned                 $     58    $     44
                                                           ========    ========
  ESOP shares committed to be released                     $    171          --
                                                           ========    ========






                                       5

<PAGE>


Northeast Pennsylvania Financial Corp.
Notes to Consolidated Financial Statements (unaudited)

1.   Summary of Significant Accounting Policies

Basis of Financial Statements Presentation

The accompanying  consolidated  financial statements were prepared in accordance
with  instructions  to Form 10-Q, and therefore,  do not include  information or
footnotes necessary for a complete  presentation of financial position,  results
of operations and cash flows in conformity  with generally  accepted  accounting
principles.  However, all normal recurring  adjustments which, in the opinion of
management,  are necessary for a fair presentation of the financial  statements,
have been included.  These  financial  statements  should be read in conjunction
with the audited  financial  statements  and the notes  thereto  included in the
Company's Annual Report for the period ended September 30, 1998. The results for
the three months ended December 31, 1998 are not  necessarily  indicative of the
results that may be expected for the year ended September 30, 1999.
        
Business

Northeast  Pennsylvania  Financial  Corp. (the "Company") is the holding company
for First Federal Bank. The Company's principal subsidiary,  First Federal Bank,
serves the greater Hazleton area, Mountaintop, Bloomsburg, Lehighton, and all of
Schuylkill County, through ten office locations.  The Bank provides a wide range
of banking  services  to  individual  and  corporate  customers.  The Company is
subject to competition  from other  financial  institutions  and other companies
that provide  financial  services.  The Company is subject to the regulations of
certain federal agencies and undergoes periodic examinations by those regulatory
authorities.

Principles of Consolidation and Presentation

The  accompanying  financial  statements of the Company  include the accounts of
FIDACO, Inc., Abstractors,  Inc., and First Federal Bank. First Federal Bank and
Abstractors,  Inc.  are  wholly-owned  subsidiaries  of  Northeast  Pennsylvania
Financial  Corp.  FIDACO,  Inc. is an inactive  subsidiary of First Federal Bank
with the only major asset being an investment in Hazleton Community  Development
Corporation.  Abstractors,  Inc.  is a  title  insurance  agency.  All  material
inter-company  balances and transactions  have been eliminated in consolidation.
Prior  period  amounts are  reclassified,  when  necessary,  to conform with the
current year's presentation.

Earnings per Share

Earnings per share,  basic and diluted,  were $0.20 and $0.19,  respectively for
the three months ended  December 31, 1998.  Due to the Bank's recent  conversion
and formation of the Company,  earnings per share figures for prior year periods
are not applicable.

                                       6
<PAGE>


The  following  table  presents  the   reconciliation   of  the  numerators  and
denominators of the basic and diluted EPS computations.


                                                             Three Months Ended
                                                              Dec. 31,  Dec. 31,
                                                                1998       1997

Net Income                                                $     1,178        --
                                                                =====       ===


Basic:
Weighted average shares outstanding                         6,427,350        --
Less:  Unallocated/unearned shares held
  by stock benefit plans                                     (600,818)       --
Plus:  ESOP shares released or
committed to be released
                                                               42,849        --
                                                            ---------        ---
                                                            5,869,381        --
                                                            =========        ===

Earnings per share  - basic                               $      0.20        N/A
                                                            =========        ===




                                                              Dec. 31,  Dec. 31,
                                                                1998       1997
Diluted:

Net Income                                                    $1,178          --
                                                              ======          ==


Basic weighted shares outstanding                          5,869,381 
Dilutive Instruments:
 Dilutive effect of outstanding stock 
  options using treasury method
                                                               2,573          --
 Dilutive effect of stock awards                             174,821          --
                                                             -------         ---
                                                           6,046,775          --
                                                           =========         ===

Earnings per share - diluted                                   $0.19         N/A
                                                               =====         ===



2.       Recent Accounting Pronouncements

In September 1997, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standard  ("SFAS")  No.  130,  "Reporting   Comprehensive
Income." This statement  establishes  standards for the reporting and display of
comprehensive  income  and  its  components  in a full  set  of  general-purpose
financial statements.  SFAS No. 130 requires that all items that are required to
be recognized as components of  comprehensive  income be reported in a financial
statement  that is  displayed  with  the  same  prominence  as  other  financial
statements.  The statement does not require a specific format for that financial
statement but requires that an enterprise  display an amount  representing total
comprehensive income for the period in that financial statement. SFAS No. 130 is
                                        7
<PAGE>

effective for fiscal years  beginning  after  December 15, 1997. The Company has
adopted SFAS 130 in the current quarter and has made appropriate  disclosures in
the applicable consolidated financial statements.

In September 1997, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standard  No.  131,  "Disclosures  About  Segments  of an
Enterprise and Related  Information." SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual  financial  statements  and  requires  that those  enterprises  report
selected  information  about  operating  segments in interim  financial  reports
issued to shareholders.  It also establishes  standards for related  disclosures
about products and services, geographic areas, and major customers. SFAS No. 131
is effective for financial  statements for fiscal years beginning after December
15,  1997.  Management  has not  yet  determined  the  impact,  if any,  of this
statement on the Company.  This statement  requires  changes in disclosures  and
would not affect the financial condition or operating results of the Company.

In February 1998, the FASB issued SFAS No. 132,  "Employer's  Disclosures  About
Pensions and Other Post Retirement  Benefits." This Statement revises employers'
disclosures about pension and other  post-retirement  benefit plans. It does not
change the  measurement  or  recognition  of those plans.  It  standardizes  the
disclosure  requirements for pensions and other post-retirement  benefits to the
extent practicable,  requires  additional  information on changes in the benefit
obligations  and fair  values  of plan  assets  that will  facilitate  financial
analysis,  and eliminates certain  disclosures that are no longer useful as they
were when "FASB Statements No. 87, Employers'  Accounting for Pensions,  No. 88,
Employers'  Accounting  for  Settlements  and  Curtailments  of Defined  Benefit
Pension Plans and for Termination  Benefits,  and No. 106, Employers' Accounting
for  Post-retirement  Benefits Other Than Pensions," were issued. This statement
requires changes in disclosures and would not affect the financial  condition or
operating  results of the Company.  This  Statement is effective  for the fiscal
years beginning after December 15, 1997.

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
"Accounting for Derivative  Instruments and Hedging  Activities." This statement
establishes  accounting  and  reporting  standards for  derivative  instruments,
including   certain   derivative   instruments   embedded  in  other  contracts,
(collectively  referred  to as  derivatives)  and  for  hedging  activities.  It
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value.  The  accounting  for  changes in the fair value of a  derivative
depends on the intended use of the derivative and the resulting designation.  If
certain conditions are met, a derivative may be specifically designated as (a) a
hedge of the  exposure  to changes in the fair  value of a  recognized  asset or
liability or an  unrecognized  firm  commitment,  (b) a hedge of the exposure to
variable  cash  flows of a  forecasted  transaction,  or (c) a hedge of  certain
foreign currency exposures.  This Statement is effective for all fiscal quarters
of fiscal years  beginning after June 15, 1999.  Earlier  adoption is permitted.
The Company adopted SFAS 133 in its fiscal fourth quarter of 1998,including  its
                                       8
<PAGE>

provision for the reclassification of investments,  resulting in a $56.2 million
transfer of securities from held-to-maturity to available-for-sale.

In  October  1998,  the  FASB  issued   Statement  No.  134,   "Accounting   for
Mortgage-backed  Securities  Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage  Banking  Enterprise.  This Statement  requires that
after the  securitization of a mortgage loan held for sale, an entity engaged in
mortgage banking  activities  classify any retained  mortgage-backed  securities
based on the ability and intent to sell or hold those investments, except that a
mortgage   banking   enterprise   must   classify   as  trading   any   retained
mortgage-backed  securities  that  it  commits  to sell  before  or  during  the
securitization process. This Statement is effective for the first fiscal quarter
beginning after January 30, 1999 with earlier adoption permitted. This Statement
provides a one-time  opportunity  for an enterprise to reclassify,  based on the
ability and intent on the date of adoption  of this  Statement,  mortgage-backed
securities  and other  beneficial  interests  retained after  securitization  of
mortgage  loans held for sale from the trading  category,  except for those with
commitments in place. The Company has not yet determined the impact,  if any, of
this  Statement,  including,  if  applicable,  its  provisions for the potential
reclassifications  of certain  investment  securities,  on  earnings,  financial
condition or equity.

3.   Conversion to Stock Form of Ownership

The Company is a business  corporation formed at the direction of the Bank under
the laws of Delaware on December  16,  1997.  On March 31,  1998,:  (i) the bank
converted from a federally  chartered  mutual savings and loan  association to a
federally  chartered  stock  savings  bank;  (ii)  the  Bank  issued  all of its
outstanding capital stock to the Company;  and (iii) the Company consummated its
initial public  offering of common stock,  par value $.01 per share (the "Common
Stock"),  by selling at a price of $10.00 per share,  5,437,062 shares of Common
Stock to certain  eligible  account  holders of the Bank who had  subscribed for
such shares (collectively,  the "Conversion"),  by selling 514,188 shares to the
Bank's  Employee  Stock  Ownership  Plan  and  related  trust  ("ESOP")  and  by
contributing  476,100  shares of Common  Stock to The First  Federal  Charitable
Foundation (the "Foundation").  The Conversion resulted in net proceeds of $52.1
million,  after  expenses of $2.2  million.  Net  proceeds  of $25 million  were
invested in the Bank to  increase  the Bank's  tangible  capital to 13.3% of the
Bank's total  adjusted  assets.  The Company also  established  the  Foundation,
dedicated  to the  communities  served  by the  Bank.  In  connection  with  the
Conversion,  the common stock  contributed by the Company to the Foundation at a
value of $4.8 million was charged to expense.

Prior to the initial public offering and as a part of the subscription offering,
in order to grant  priority  to  eligible  depositors,  the Bank  established  a
liquidation  account  at the time of the  conversion  in an amount  equal to the
equity of the Bank as of the date of its latest  balance  sheet date,  September
30,  1997,  contained  in the  final  Prospectus  used in  connection  with  the
Conversion.  In the unlikely event of a complete  liquidation of the Bank,  (and
only in such an event), eligible depositors who continue to maintain accounts at
the Bank  shall be  entitled  to  receive a  distribution  from the  liquidation
account.  The total amount of the  liquidation  account  which  decreases if the
                                       9
<PAGE>

balances of  eligible  deposits  decreases  at the annual  determination  dates,
approximated $28.5 million at March 31, 1998.


The Company may not declare nor pay  dividends on its stock if such  declaration
and payment would violate statutory or regulatory requirements.

In addition to the  16,000,000  authorized  shares of common stock,  the Company
authorized  2,000,000  shares of  preferred  stock with a par value of $0.01 per
share (the "Preferred Stock"). The Board of Directors is authorized,  subject to
any  limitations  by law, to provide for the issuance of the shares of preferred
stock in  series,  to  establish  from  time to time the  number of shares to be
included in each such series, and to fix the designation,  powers,  preferences,
and rights of the shares of each such series and any qualifications, limitations
or  restriction  thereof.  As of  December  31,  1998,  there  were no shares of
preferred stock issued.


                                       10

<PAGE>

4.       Loans

Loans are summarized as follows:                     December 31,  September 30,
                                                         1998            1998
                                                      (unaudited)
Real Estate loans:
  One-to four-family                                  $ 174,873       $ 176,924
  Multiple family and commercial                         12,759          11,938
  Construction                                            3,571           3,759
                                                       ---------      ---------
Total real estate loans                                 191,203         192,621
                                                       ---------      ---------

Consumer Loans:
  Home equity loans and lines of credit                  54,522          52,244
  Automobile                                             23,908          24,589
  Education                                               2,328           2,351
  Unsecured lines of credit                               1,618           1,589
  Other                                                   3,298           3,423
                                                      ---------       ---------
Total consumer loans                                     85,674          84,196
                                                      ---------       ---------
Commercial loans                                         11,260           9,742
                                                      ---------       ---------
Total loans                                             288,137         286,559
                                                      ---------       ---------
  Less:
     Allowance for loan losses                           (2,286)         (2,273)
     Deferred loan origination fees                      (1,587)         (1,580)
                                                      ---------       ---------
Total loans, net                                      $ 284,264       $ 282,706
                                                      =========       =========


                                                   For the three   For the year
                                                   months ended        ended
                                                   December 31,    September 30,
                                                       1998            1998    
                                                   

Balance, beginning of period                             2,273            1,272
Charge-offs                                                (35)             (76)
Recoveries                                                   1               18
Provision for loan losses                                   47            1,059
                                                       -------          -------
Balance, end of period                                 $ 2,286          $ 2,273
                                                       =======          =======



5.       Deposits
<TABLE>


         Deposits consist of the following major classifications (in thousands):
<CAPTION>

                                                                     December 31, 1998             September 30, 1998

                                                                                 Percent                          Percent 
                                                                  Amount         of Total         Amount          of Total
<S>                                                             <C>                <C>           <C>                <C> 

Savings accounts (passbook, statement, clubs)                   $ 68,766           21.4%         $ 69,956           21.6%
Money market accounts                                             18,254            5.7%           16,368            5.0%
Certificates of deposit less than $100,000                       165,067           51.4%          163,318           50.5%
Certificates of deposit greater than $100,000(1)                  25,033            7.8%           32,750           10.1%
NOW Accounts                                                      32,177           10.0%           31,182            9.6%
Non-interest bearing deposits                                     11,881            3.7%           10,431            3.2%
                                                                --------          -----          --------        --------
Total deposits at end of period                                 $321,178            100%         $324,005            100%
                                                                ========         =======         ========        ========

<FN>
         (1) Deposit balances in excess of $100,000 are not federally insured.

</FN>
</TABLE>
                                       11

<PAGE>

Item 2    MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL 
          CONDITION AND RESULTS OF OPERATIONS

In  addition  to  historical   information,   this  10-Q  may  include   certain
forward-looking  statements  based  on  current  management  expectations.   The
Company's   actual  results  could  differ   materially  from  those  management
expectations.  Factors  that could  cause  future  results to vary from  current
management  expectations  include,  but are not  limited  to,  general  economic
conditions,  legislative and regulatory changes, monetary and fiscal policies of
the  federal  government,  changes in tax  policies,  rates and  regulations  of
federal,  state and local tax  authorities,  changes in interest rates,  deposit
flows,  the cost of  funds,  demand  for loan  products,  demand  for  financial
services, competition,  changes in the quality or composition of the Bank's loan
and  investment  portfolios,  changes  in  accounting  principles,  policies  or
guidelines,  avoidance of any adverse effect as a result of the Year 2000 issue,
and  other  economic,   competitive,   governmental  and  technological  factors
affecting  the Company's  operations,  markets,  products,  services and prices.
Further  description of the risks and uncertainties to the business are included
in detail in Section B, Management  Strategy;  Section C, Management of Interest
Rate Risk and Market  Risk  Analysis;  and  Section  G,  Liquidity  and  Capital
Resources.

A.   General

The  Company is the holding  company  for First  Federal  Bank (the  "Bank"),  a
federally chartered capital stock savings bank regulated by the Office of Thrift
Supervision ("OTS"). The Bank's results of operations are dependent primarily on
net interest  income,  which is the difference  between the income earned on its
loan and investment portfolios and its cost of funds, consisting of the interest
paid on deposits and borrowings.  Results of operations are also affected by the
Bank's provision for loan losses,  loan and security sales,  service charges and
other fee income,  and non-interest  expense.  The Bank's  non-interest  expense
principally consists of compensation and employee benefits, office occupancy and
equipment expense,  professional fees, federal deposit insurance premiums,  data
processing,   and  advertising  and  business  promotion  expenses.  Results  of
operations are also  significantly  affected by general economic and competitive
conditions,  particularly  changes in interest  rates,  government  policies and
actions of regulatory authorities.

B.   Management Strategy

Since  fiscal  year  1993,  the  Bank's  operating  strategy  has been that of a
community-based  bank, offering a wide variety of savings products to its retail
customers, while concentrating on residential and construction lending and, to a
lesser  extent,  consumer  lending and small  business and municipal  commercial
lending. In order to promote long-term financial strength and profitability, the
Bank's operating  strategy has focused on: (i) maintaining  strong asset quality
by originating  one-to  four-family  loans in its market area;  (ii)  increasing
profitability  by emphasizing  higher  yielding  consumer and commercial  loans;
(iii) managing its interest rate risk by emphasizing  shorter-term,  fixed-rate,
one-to four-family loans, in addition to consumer and commercial loans; limiting
its retention of  newly-originated  longer-term  fixed-rate  one-to  four-family
loans; soliciting longer-term deposits;  utilizing longer-term advances from the
Federal Home Loan Bank of Pittsburgh  ("FHLB");  and investing in investment and
                                       12
<PAGE>

mortgage-related securities having shorter estimated durations; (iv) meeting the
banking needs of its customers  through expanded  products and improved delivery
systems by taking  advantage of  technological  advances;  and (v) maintaining a
strong regulatory capital position.

The Bank has attempted to diversify and expand its loan products to better serve
its  customer  base by  placing a  greater  emphasis  on  consumer  lending  and
commercial lending,  primarily to small businesses and municipalities.  The Bank
has a signed  letter  of  intent  to  purchase  approximately  $5.4  million  of
adjustable  rate  mortgages,  with a five year fixed  rate,  adjusting  annually
thereafter, with an expected yield to the Bank of 6.375%. The acquisition of the
mortgages is expected to be completed in the second fiscal quarter.  The Bank is
selling longer-term,  fixed-rate one-to four-family loans which it originates in
excess  of  its  retention  policy  for  such  loans  in the  secondary  market.
Previously, as a result of its policy to limit its retention of newly originated
longer-term,   fixed-rate  one-to   four-family  loans  to  25%  of  total  loan
origination  during  a fiscal  year,  periodically  the  Bank  had to limit  its
origination  of such loans.  The Bank is also  evaluating  the  offering of loan
products  which  it has  historically  not  offered,  such as  nonconforming  or
subprime  one-to  four-family  loans. In the event the Bank originates such loan
products, it currently intends to hold such loans in its portfolio.

C.    Management of Interest Rate Risk and Market Risk Analysis

The  principal  objective  of the Bank's  interest  rate risk  management  is to
evaluate the interest  rate risk  included in certain  balance  sheet  accounts,
determine  the level of risk  appropriate  given the Bank's  business  strategy,
operating  environment,  capital  and  liquidity  requirements  and  performance
objectives, and manage the risk consistent with the Board of Directors' approved
guidelines.  Through such management, the Bank seeks to reduce the vulnerability
of its  operations  to changes in interest  rates.  The Board of  Directors  has
established an Asset  Liability  Committee  ("ALCO"),  which is responsible  for
reviewing  asset/liability  policies and interest rate risk  position.  The ALCO
meets on a quarterly  basis,  reports  trends and interest rate risk position to
the Finance  Committee of the Board of Directors.  It then reviews with them its
activities  and  strategies,  the effect of those  strategies  on the Bank's net
interest margin,  the market value of the portfolio,  and the effect the changes
in interest  rates will have on the Bank's  portfolio and exposure  limits.  The
extent of the  movement of interest  rates is an  uncertainty  that could have a
negative impact on the earnings of the Bank.

In recent  years,  the Bank has  utilized  the  following  strategies  to manage
interest rate risk: (i)  emphasizing the origination and retention of fixed-rate
mortgages   having   terms  of  maturity  of  not  more  than   fifteen   years,
adjustable-rate  and  shorter-term  loans,  commercial loans and consumer loans;
(ii) limiting the  origination of all greater than 15-year  fixed-rate  mortgage
loans to no more  than 25% of the  total  originations  in a given  year;  (iii)
selling,  in the secondary  market,  fixed-rate  mortgage loans  originated with
terms greater than 15 years,  which exceeds the first 25% of originations in the
given year,  while  retaining  the  servicing  rights,  and;  (iv)  investing in
shorter-term and, to a lesser extent, adjustable-rate securities which generally
bear  lower  yields,  compared  to  longer-term  investments,  but which  better
position the Bank for increases in market interest rates.

Management   believes   that   reducing  its  exposure  to  interest  rate  risk
fluctuations  will  enhance  long-term   profitability.   However,   the  Bank's
strategies may adversely  impact net interest income due to lower initial yields
on some of these investments in comparison to longer-term fixed-rate investments
and whole loans. To promote a higher yield on its investment securities while at
                                       13
<PAGE>

the same time addressing the Bank's interest rate risk management policies,  the
Bank  has  invested  a  significant  portion  of  its  portfolio  of  investment
securities in  longer-term  (more than five years)  federal  agency  obligations
which have call  features.  Given the rates of such  securities in comparison to
current market interest rates, the Bank anticipates the substantial  majority of
such securities will be called prior to their contractual maturity.  However, if
changes in interest  rates exceed ranges  anticipated  by the Bank in estimating
the anticipated life of such callable  securities,  the Bank would be subject to
increased interest rate or reinvestment risk,  depending on the direction of the
change in market interest rates.

D.    Gap Analysis.

The matching of assets and  liabilities  may be analyzed by examining the extent
to which such  assets and  liabilities  are  "interest  rate  sensitive"  and by
monitoring a bank's  interest rate  sensitivity  "gap." An asset or liability is
said to be  interest  rate  sensitive  within a specific  time period if it will
mature or reprice within that time period.  The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning assets maturing
or repricing  within a specific  time period and the amount of  interest-bearing
liabilities  maturing or repricing within a period. A gap is considered positive
when the amount of interest rate sensitive assets exceeds the amount of interest
rate  sensitive  liabilities.  A gap is  considered  negative when the amount of
interest  rate  sensitive  liabilities  exceeds  the  amount  of  interest  rate
sensitive  assets.  Accordingly,  during a period of rising  interest  rates, an
institution  with a negative gap position would be in a worse position to invest
in higher  yielding  assets as compared to an  institution  with a positive  gap
position  which,  consequently,  may result in the cost of its  interest-bearing
liabilities  increasing  at a rate  faster  than its  yield on  interest-earning
assets than if it had a positive gap. During a period of falling interest rates,
an   institution   with  a  negative  gap  position   would  tend  to  have  its
interest-earning  liabilities  repricing  downward  at a  faster  rate  than its
interest-earning assets as compared to an institution with a positive gap which,
consequently,  may tend to  positively  affect  the  growth of its net  interest
income.  At December 31, 1998, the Bank's cumulative one year gap was a negative
2.0% of  total  assets  compared  to a  negative  7.8% at  September  30,  1998.
September's  interest  rate  sensitivity  gap  reflects  the  impact of the Bank
prefunding  investments  which it had determined had a high  likelihood of being
called in the first fiscal quarter of 1999.  These  investments were funded with
short term FHLB advances.  December's interest rate sensitivity gap reflects the
repayment of short term borrowings with proceeds of called securities.

Certain shortcomings are inherent in gap analysis. For example, although certain
assets and liabilities may have similar maturities or periods to repricing, they
may react in different  degrees to changes in market interest  rates.  Also, the
interest  rates on certain  types of assets and  liabilities  may  fluctuate  in
advance of changes in market interest rates, while interest rates on other types
may lag behind changes in market rates.  Additionally,  certain assets,  such as
adjustable  rate  loans,  generally  have  features  which  restrict  changes in
interest  rates  both on a  short-term  basis  and over  the life of the  asset.
Further,  in the  event of  changes  in  interest  rates,  prepayment  and early
withdrawal  levels would likely deviate  significantly  from prior  projections.
Finally,  the ability of many borrowers to service their  adjustable-rate  loans
may decrease in the event of an interest rate increase.

                                       14


<PAGE>
E.       Net Portfolio Value

The Bank's  interest  rate  sensitivity  is primarily  monitored  by  management
through  the use of a  model  which  estimates  the  change  in the  Bank's  net
portfolio value ("NPV") over a range of interest rate  scenarios.  Such analyses
are prepared by a third party for the Bank. NPV is the present value of expected
cash flows from assets,  liabilities,  and off-balance sheet contracts.  The NPV
ratio, under any interest rate scenario,  is defined as the NPV in that scenario
divided by the market value of assets in the same  scenario.  The model  assumes
estimated loan prepayment  rates,  reinvestment  rates, and deposit decay rates.
The OTS also produces a similar  analysis  using its own model,  based upon data
submitted on the Bank's quarterly Thrift Financial Reports, the results of which
may vary from the Bank's  model  primarily  due to  differences  in  assumptions
utilized,  including  estimated loan prepayment  rates,  reinvestment  rates and
deposit  decay  rates.  The  following  table  sets  forth the  Bank's NPV as of
December 31, 1998.

<TABLE>
<CAPTION>
                                                                                               
   
                                                                                    NPV as % of Portfolio   
Change in                                Net PortfolioValue                            Value of Assets          
Interest Rates     --------------------------------------------------------   -------------------------------
In Basis Points                                                                    NPV      
(Rate Shock)       Amount            $ Change               % Change              Ratio            Change (1)
-------------------------------------------------------------------------------------------------------------
                                                   (Dollars in thousands)
<S>                <C>                 <C>                   <C>                  <C>                <C> 

  300              36,795             (28,322)               (43.49%)              7.85%             (502)
  200              47,042             (18,075)               (27.76%)              9.77%             (310)
  100              56,894              (8,223)               (12.63%)             11.51%             (136)
 Static            65,117                   0                  0.00%              12.87%                0
 -100              71,010               5,893                  9.05%              13.75%               88
 -200              75,550              10,433                 16.02%              14.35%              148
 -300              81,518              16,401                 25.19%              15.14%              227


<FN>
 
(1) Expressed in basis  points
</FN>
</TABLE>


As is the case with gap  analysis,  certain  shortcomings  are  inherent  in the
methodology used in the NPV interest rate risk measurements. Modeling changes in
NPV requires the making of certain  assumptions which may or may not reflect the
manner in which actual  yields and costs  respond to changes in market  interest
rates.  In this regard,  NPV assumes that the composition of the Bank's interest
sensitive  assets and liabilities  existing at the beginning of a period remains
constant  over the period  being  measured  and also  assumes  that a particular
change  in  interest  rates  is  reflected  uniformly  across  the  yield  curve
regardless  of the  duration  to maturity or  repricing  of specific  assets and
liabilities.  Accordingly,  NPV measurements provide an indication of the Bank's
interest rate risk exposure at a particular point in time, such measurements are
not  intended to and do not provide a precise  forecast of the effect of changes
in market  interest rates on the Bank's net interest income and will differ from
actual results.

                                       15


<PAGE>


F.   Non-Performing Assets

The following  table presents  information  regarding the Bank's  non-performing
assets at the dates indicated:

                                             December 31,     September 30,
                                                 1998             1998
                                                 ----             ----

Non-performing loans:
 Non-accrual loans                               $1,306         $1,239
Real estate owned and other repossessed assets       49            112
                                                 ------         ------
     Total non-performing assets                 $1,355         $1,351
                                                 ======         ======

       Total non-performing loans as a
         percentage of total loans                 0.46%          0.44%
       Total non-performing assets as a
         percentage of total assets                0.26%          0.26%


G.   Liquidity and Capital Resources

The Bank's  primary  sources of funds on a long-term  and  short-term  basis are
deposits,   principal  and  interest  payments  on  loans,  mortgage-backed  and
investment  securities,  and FHLB advances. The Bank uses the funds generated to
support its lending and  investment  activities as well as any other demands for
liquidity such as deposit outflows.  While maturities and scheduled amortization
of loans are predictable sources of funds,  deposit flows,  mortgage prepayments
and the exercise of call  features are greatly  influenced  by general  interest
rates,  economic conditions and competition.  The Bank has continued to maintain
the  required  levels  of liquid  assets as  defined  by OTS  regulations.  This
requirement  of the  OTS,  which  may be  varied  at the  direction  of the  OTS
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term  borrowings.  The Bank's current  required  liquidity
ratio is 4.0%. At December 31, 1998 and 1997, the Bank's  liquidity  ratios were
8.97% and 4.52%, respectively.

At  December  31,  1998,  the  Bank  exceeded  all  of  its  regulatory  capital
requirements with a tangible capital level of $56.1 million,  or 11.3%, of total
adjusted  assets,  which is above the required level of $ 7.4 million,  or 1.5%;
core capital level of $56.1 million or 11.3% of total adjusted assets,  which is
above the required  level of $14.8 million,  or 3.0%; and risk-based  capital of
$58.4  million or 23.3% of  risk-weighted  assets,  which is above the  required
level of $20.0 million, or 8.0%.

The Bank's most liquid assets are cash and cash  equivalents  and its investment
and mortgage-related securities  available-for-sale.  The levels of these assets
are  dependent  on  the  Bank's  operating,  financing,  lending  and  investing
activities  during  any  given  period.  At  December  31,  1998,  cash and cash
equivalents and investment and  mortgage-related  securities  available-for-sale
totaled $197.8 million, or 37.8%, of total assets.

The Bank has other sources of liquidity if a need for  additional  funds arises,
including  FHLB  advances.  At December 31, 1998, the Bank had $112.0 million in
advances  outstanding  from the FHLB,  and had an additional  overall  borrowing
capacity from the FHLB of $240.1 million.  Depending on market  conditions,  the
pricing of deposit products and FHLB advances,  the Bank may continue to rely on
FHLB borrowings to fund asset growth.

At December 31, 1998,  the Bank had  commitments to originate and purchase loans
and unused outstanding lines of credit and undisbursed  proceeds of construction
                                       16
<PAGE>

mortgages  totaling  $38.4  million.  The  Bank  anticipates  that it will  have
sufficient  funds  available to meet these  commitments.  Certificate  accounts,
including Individual Retirement Account ("IRA") accounts, which are scheduled to
mature in less than one year from December 31, 1998, totaled $132.3 million. The
Bank expects that substantially all of the maturing certificate  accounts,  with
the exception of jumbo certificates of deposit,  will be retained by the Bank at
maturity. At December 31, 1998, the Bank had $21.7 million in jumbo certificates
which will be evaluated at maturity.

To improve its customer  delivery systems and expand its services,  the Bank has
been investing in new computer hardware and software during late fiscal 1998 and
may expand branch facilities.  The Bank's Columbia Mall branch is in the process
of  relocating  to a new  location  in Scott  Township.  It is  anticipated  the
relocation will occur in January 1999. The Bank  anticipates  that during fiscal
1998 and 1999, it will have incurred capital  expenditures of approximately $2.4
million to fund such  plans.  These  anticipated  capital  expenditures  will be
funded from the Bank's  general  corporate  funds,  including  proceeds from the
Conversion and its FHLB advances.

The initial impact of the  Conversion on the liquidity and capital  resources of
the Bank was significant as it substantially  increased the liquid assets of the
Bank and the capital  base on which the Bank  operates.  Additionally,  the Bank
invested  the  substantial  majority  of  its  conversion  proceeds  in  readily
marketable  investment  grade  securities  which, if liquidity needs  developed,
could  be sold  by the  Bank  to  provide  additional  liquidity.  Further,  the
additional  capital  resulting from the offerings  increased the capital base of
the Bank.  At  December  31,  1998,  the Bank had total  equity,  determined  in
accordance with generally accepted accounting  principles,  of $58.6 million, or
11.8%,  of total  assets,  which  approximated  the Bank's  regulatory  tangible
capital at that date of 11.3% of assets. An institution with a ratio of tangible
capital  to total  assets of  greater  than or equal to 5% is  considered  to be
"well-capitalized" pursuant to OTS regulations.

H.   Year 2000 Disclosure

The following  section contains  forward-looking  statements which involve risks
and uncertainties. The actual impact on the Company of the Year 2000 issue could
materially  differ  from  that  which  is  anticipated  in  the  forward-looking
statements as a result of certain factors identified below.

As the year 2000 approaches,  an important  business issue has emerged regarding
how existing application software programs and operating systems can accommodate
this date value.  Year 2000 issues  result from the  inability of many  computer
programs or computerized equipment to accurately calculate,  store or use a date
after  December 31, 1999.  The erroneous  date can be interpreted in a number of
different  ways,  the most common being Year 2000  represented as the year 1900.
Correctly  identifying  and  processing  Year 2000 as a leap year may also be an
issue. These  misinterpretations  of various dates in the Year 2000 could result
in a system failure or  miscalculations  causing  disruptions of normal business
operation  including,  among  other  things,  a temporary  inability  to process
transactions,   track  important  customer  account   information,   or  provide
convenient access to this information.

The  Bank  is  subject  to the  regulation  and  oversight  of  various  banking
regulators,   whose  oversight  includes  complying  with  specific  timetables,
                                       17
<PAGE>

programs and guidance regarding Year 2000 issues.  Regulatory examination of the
Bank's Year 2000  programs  are  conducted  on a periodic  basis and reports are
submitted  by the  Bank  to the  banking  regulators  on a  periodic  basis.  In
addition,  reports are  currently  provided  on a monthly  basis to the Board of
Directors.

Company  State of  Readiness.  The Company has  completed an  assessment  of its
financial  and  operational  software  systems in  accordance  with the  various
regulatory agency guidance documents. The Company is maintaining an inventory of
hardware and software  systems,  which  ranges from  mission  critical  software
systems  and  personal   computers  to  security  and  video  equipment   backup
generators,  and general  office  equipment.  The Company  has  prioritized  its
hardware and software systems to focus on the most critical systems first.

For most of its mission critical software systems, the Company relies on a major
data  processing  provider in the  banking  industry.  The Company has  received
written  representations  and  warranties  from its vendor for mission  critical
software systems that the system was compliant by June 30, 1998. The Company has
substantially  completed  testing its mission  critical  systems at December 31,
1998.  If testing were to present any system  problems,  the vendor will work to
correct the problem and the Company will test again until resolved.  At the same
time, the Company is upgrading  personal  computers to meet both system and Year
2000 requirements.  In connection with the Company's assessment, a number of the
less significant  third party vendors advised the Company that their software is
Year 2000  compliant,  and the  Company  intends to fully test that  software by
March 31, 1999.

The Company has initiated  communications  with all of its significant  vendors,
suppliers  and large  commercial  customers to determine the extent to which the
Company is vulnerable to those  third-parties'  failure to remedy their own Year
2000 Problems.  By March 31, 1999, the Company expects to have communicated with
all  significant  vendors.  In the event that any of the  Company's  significant
vendors,  suppliers and large commercial  customers do not successfully  achieve
Year 2000  compliance in a timely manner,  the Company's  business or operations
could be adversely  affected.  If  significant  suppliers fail to meet Year 2000
operating requirements, the Company intends to engage alternative suppliers. For
insignificant  vendors,  the Company will not necessarily validate that they are
Year 2000 compliant.  However,  for any  insignificant  vendor who responds that
they will not be compliant by March 1999,  the Company will seek a new vendor or
system that is compliant.  The Bank has surveyed its large commercial  customers
as to their Y2K preparedness.  Respondents have acknowledged  their awareness of
Y2K issues and currently  believe that these issues will not  materially  affect
their financial condition,  liquidity,  or results of operations.  The extent to
which customers are Y2K compliant is considered in the Bank's decision to extend
credit.

Contingency  Plan.  The Company is in the process of obtaining  back-up  service
providers  and  assessing  the  potential  adverse  risks  to the  Company.  The
Company's  contingency  plans involve the use of manual labor to compensate  for
the loss of certain  automated  computer  systems and  inconveniences  caused by
disruption in command systems.

A contingency plan will be developed for mission-critical and required mainframe
and PC based applications,  third-party  relationships,  environmental  systems,
proprietary  programs and non-computer  related  systems.  This contingency plan
will identify scheduled completion dates, test dates and trigger dates.
                                       18
<PAGE>

Business  continuation  plans for critical  business  applications are in place.
These plans include  adequate  staffing on site during the year 2000 date change
to quickly  repair any errant  applications.  In  addition,  in the event of any
problems  the  Company  would  follow  its  current   computer  outage  business
continuation plans until such problems are corrected.


Cost of Year 2000.  Over the past several years,  the Company's  Technology Plan
has called for an aggressive  schedule for  installing  new systems or upgrading
old systems in order to build a technology  infrastructure  which will allow the
Company to offer competitive products while providing for internal  efficiencies
and  customer  service   improvement.   The  Technology  Plan  has  resulted  in
positioning the Company to continue its technology  improvements  while avoiding
specific  costly  Year 2000  issues.  The  Company  estimates  its  expenditures
specifically  associated  with Year 2000 will be $75,000  during the fiscal year
ending September 1999.

The  Company  believes  that the  costs or the  consequences  of  incomplete  or
untimely  resolution of its Year 2000 issues do not  represent a known  material
event or uncertainty  that is reasonably  likely to affect its future  financial
results,  or cause its  reported  financial  information  not to be  necessarily
indicative of future operating results or future financial  condition.  However,
if  compliance  is not achieved in a timely  manner by the Company or any of its
significant related  third-parties,  be it a supplier of services or a customer,
the Y2K issue could possibly have a material effect on the Company's  operations
and financial position.

The cost of the  projects  and the date on which the  Company  plans to complete
both Year 2000  modifications and systems  conversions are based on management's
best  estimates,  which are derived  utilizing  numerous  assumptions  of future
events including the continued  availability of certain  resources,  third-party
modification  plans and other factors.  However,  there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those  plans.  Specific  factors  that  might  cause such  material  differences
include,  but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, and
similar uncertainties.

Risks of Year 2000.  The Year 2000 issue presents  potential  risks of uncertain
magnitude.  The risks arise both with regard to systems purchased by the Company
through third party vendors as well as those outside the control of the Company,
such as with ATM networks or credit card  processors.  These  failures may cause
delays in the  ability of  customers  to access  their funds  through  automated
teller machines,  point of sale terminals at retail  locations,  or other shared
networks.  The Year 2000  issue  also  poses  the  potential  risk for  business
disruption due to a mission critical software system failure, which could result
in  inaccurate   interest  payment   calculations,   credit   transactions,   or
record-keeping.  The Company and the OTS are closely  monitoring the progress of
the Company's  major third party vendors and, to date,  the Company is satisfied
with their  progress.  However,  if the Company,  its customers,  or vendors are
unable to resolve  year 2000  issues in a timely  manner,  it could  result in a
material financial risk.

                                       19


<PAGE>

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

Total assets increased by $788,000, from $522.2 million at September 30, 1998 to
$523.0  million at December 31, 1998.  The growth in assets was primarily due to
increases in cash and cash equivalents and loans receivable, offset by decreases
in investment securities.

Cash and cash equivalents increased $6.1 million to $9.1 million at December 31,
1998 from $3.0  million at  September  30,  1998 due to the net effect of called
securities, increased FHLB advances and a decrease in deposits.

Securities  classified as held-to-maturity  decreased $6.4 million, or 20.2%, to
$25.4  million  at  December  31,  1998,  while  securities   available-for-sale
decreased  from  $189.1  million  at  September  30,  1998 to $188.7  million at
December 31, 1998. These decreases were primarily  attributable to the effect of
called securities, net of security purchases.

Loans  increased $1.6 million to $284.3  million at December 31, 1998.  This was
primarily  due to a $2.6 million  increase in home equity loans  resulting  from
increased marketing efforts and competitive pricing of such loans, combined with
an increase of $1.5 million in other  commercial  loans.  These  increases  were
offset by declines in one-to four-family  mortgage loans and automobile loans of
$2.0 million and $681,000, respectively.

Accrued interest receivable decreased $283,000,  to $3.7 million at December 31,
1998.  This was due to decreases in  investment  and  mortgage-related  security
balances, offset by an increase in loans receivable.

Total  deposits  decreased  $2.8 million to $321.2 million at December 31, 1998.
The  decrease in  deposits  was the result of a $7.7  million  decrease in jumbo
certificates  of deposit  from  $32.8  million at  September  30,  1998 to $25.0
million  at  December  31,  1998,   primarily  due  to  the  maturity  of  jumbo
certificates.  This decrease was offset by increases in money market accounts of
$1.9  million,  non-interest  bearing  demand  accounts  of  $1.4  million,  and
certificates of deposit less than $100,000 of $1.7 million resulting from a more
active solicitation of such accounts.

FHLB advances  increased  $5.5 million from $106.5 million at September 30, 1998
to $112.0  million  at  December  31,  1998.  This was a result of  management's
determination to place increased  emphasis on the utilization of FHLB borrowings
to fund asset growth.  FHLB borrowings can be invested at yields higher than the
cost of the borrowed funds thereby increasing net interest income.

Total equity  decreased $2.2 million to $85.2 million at December 31, 1998. This
decrease in equity resulted  primarily from the  establishment of a $3.3 million
liability for unearned  stock awards,  offset by the $1.2 million net income for
the current period.


                                       20

<PAGE>

    Comparison of Operating Results for the Three Months ended December 31, 1998
and December 31, 1997

General.  The Company had net income of $1.2  million for the three months ended
December 31, 1998, compared to net income of $557,000 for the three months ended
December  31,  1997,  an increase  of  $621,000.  This  increase  was  primarily
attributable to a $2.1 million rise in interest  income,  offset by increases in
interest   expense  and   non-interest   expense  of  $927,000   and   $838,000,
respectively.

Interest  Income.  Total interest  income  increased by $2.1 million , or 29.7%,
from $6.9 million for the three  months ended  December 31, 1997 to $9.0 million
for the three months ended December 31, 1998. This was primarily due to a $135.7
million, or 36.7%,  increase in the average balance of interest-earning  assets,
offset by a slight  decrease in the weighted  average yield on  interest-earning
assets. Interest income on securities increased $1.6 million to $3.2 million for
the three  months  ended  December 31, 1998  primarily  due to a $116.2  million
increase in average balances of securities.

Interest  income  on loans  increased  $473,000.  This was  primarily  due to an
increase in interest  income on consumer loans of $495,000 from $1.3 million for
the period ending  December 31, 1997 to $1.8 million  principally due to a $22.3
million,  or 35.8% increase in the average  balance of consumer loans from $62.3
million to $84.6  million  for the three  months  ended  December  31,  1997 and
December 31, 1998, respectively.  Interest income on mortgage-related securities
increased  $494,000,  or 69.5%, to $1.2 million at December 31, 1998, due to the
average balance  increasing  $31.1 million to $76.7 million for the period ended
December 31, 1998.

Interest  Expense.  Interest expense  increased  $927,000,  or 25.0%,  from $3.7
million  to $4.6  million  for the three  months  ended  December  31,  1997 and
December 31, 1998, respectively.  The increase in interest expense was primarily
the result of a $66.0 million  increase in the average  balance of FHLB advances
and other borrowings, which increased from $34.0 million at December 31, 1997 to
$100.0  million at  December  31,  1998.  This  increase  reflects  management's
determination  to more  heavily  utilize  FHLB  advances  to fund asset  growth.
Contributing to this change is an increase in interest expense on certificate of
deposit accounts, which was the result of a $9.5 million increase in the average
balances of these accounts.

Provision  for Loan Losses.  The Bank's  provision for loan losses for the three
months ended  December  31, 1998 was $47,000  compared to $267,000 for the three
months ended December 31, 1997. The allowance for loan losses is maintained at a
level that management  considers  adequate to provide for estimated losses based
upon  an  evaluation  of  known  and  inherent  risks  in  the  loan  portfolio.
Management's  evaluation is based upon, among other things,  delinquency trends,
the volume of  non-performing  loans,  prior loss  experience of the  portfolio,
current economic  conditions,  and other relevant factors.  Although  management
believes  it has  used the  best  information  available  to it in  making  such
determinations,  and that the  allowance  for loan  losses is  adequate,  future
adjustments  to the allowance may be necessary,  and net income may be adversely
affected if  circumstances  differ  substantially  from the assumptions  used in
determining  the  level  of  the  allowance.  In  addition,  various  regulatory
agencies, as an integral part of their examination process,  periodically review
the  Company's  allowance  for losses on loans.  Such  agencies  may require the
Company to recognize  additions to the allowance based on their judgements about
information available to them at the time of their examination. The allowance is
increased by the provision for loan losses which is charged to operations.  Loan
                                       21
<PAGE>

losses,  other than those incurred on loans held for sale, are charged  directly
against  the  allowance  and  recoveries  on  previously  charged-off  loans are
generally added to the allowance.

Non-interest  Income.  Non-interest  income increased  $224,000 from $160,000 to
$384,000  for the three  months  ended  December 31, 1997 and December 31, 1998,
respectively.  The  increase  in  non-interest  income was  primarily  due to an
increase  in service  charges and other fees from  $178,000 to $347,000  for the
three  months ended  December  31, 1997 and  December  31,  1998,  respectively,
primarily  due to increased  customer  activity on the various  deposit and loan
accounts.

Non-interest Expense.  Total non-interest expense increased from $2.3 million to
$3.1 million for the three months ended December 31, 1997 and December 31, 1998,
respectively. This increase was due primarily to an increase in compensation and
employee  benefits of $493,000,  or 40.2%,  to $1.7 million for the three months
ended December 31, 1998, from $1.2 million for the comparable period in 1997 due
to staff additions  relating to the opening of the Mountaintop  branch,  as well
as, the  establishment  of the ESOP and stock award program.  Professional  fees
increased  $177,000 due to increased  legal and accounting  fees associated with
being a public company.

Income  Taxes.  The Company had an income tax expense of $387,000  for the three
months ended December 31, 1998, compared to an expense of $275,000 for the three
months  ended  December 31, 1997  resulting in effective  tax rates of 24.7% and
33.0%, respectively.  The increase in income tax expense was attributable to the
increase in income  before taxes for the three  months ended  December 31, 1998.
The  decline  in the  effective  tax rate was the result of  increased  tax-free
security purchases.


                                       22


<PAGE>

Item 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Incorporated  by reference to Part I, Item 2, Sections C and D on pages
13-15, inclusive.

                                       23


<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

          On October 21, 1998, the Company held a special meeting of 
          shareholders to vote on the approval of the Northeast Pennsylvania 
          Financial Corp.  1998 Stock-Based Incentive Plan.  The number of 
          votes cast at the meeting was:

          Number of Votes For      Number of Votes Against       Abstentions
          -------------------      -----------------------       -----------
             3,786,646                   438,128                   33,463

Item 5.   Other information

          Not applicable.

Item 6.   Exhibits and Reports on Form 8-K

         (A) Exhibits

          2.1  Amended Plan of Conversion (including the Federal Stock 
               Charter and Bylaws of First Federal Bank).*

          3.1  Certificate of Incorporation of Northeast Pennsylvania 
               Financial Corp.*

          3.2  Bylaws of Northeast Pennsylvania Financial Corp.*

          4.0  Form of Stock Certificate of Northeast Pennsylvania Financial
               Corp.*

          10.1 Form of First Federal Bank Supplemental Executive Retirement 
               Plan*

          10.2 Form of First Federal Bank Employee Severance Compensation Plan*

          10.3 Form of First Federal Bank Management Supplemental Executive 
               Retirement Plan*
                                       24
<PAGE>


          10.4 Northeast Pennsylvania Financial Corp. 1998 Stock-Based 
               Incentive Plan**

          11.0 Statement regarding Computation of Per Share Earnings 
               (See Notes to Consolidated Financial Statements)

          27.0 Financial Data Schedule (submitted only with filing in 
               electronic format)



*    Incorporated herein by reference into this document from the Exhibits to 
     Form S-1, Registration Statement, and any amendments thereto, Registration
     No. 333-43281.

**   Incorporated herein by reference into this document from the Proxy
     Statement for the 1998 Special Meeting of Shareholders dated 
     September 9, 1998.

     (B)  Reports on Form 8-K

          On October 16, 1998 the Company filed an 8-K to announce its 1999 
          Annual Meeting of Shareholders. The press release announcing the
          Company's Annual Meeting was filed by exhibit.

          On October 26, 1998 the Company filed an 8-K to announce its earnings 
          for the quarter and year ended September 30, 1998.  The press release 
          announcing the Company's earnings was filed by exhibit.

          On November 27, 1998 the Company filed an 8-K to announce it had 
          received regulatory clearance to repurchase 5% of its outstanding 
          shares. The press release announcing the receipt of regulatory 
          clearance was filed by exhibit.



                                       25

<PAGE>




                                   SIGNATURES

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




                                                  NORTHEAST PENNSYLVANIA
                                                  FINANCIAL CORP.


Date:     February 11, 1999                       By: /s/ E. Lee Beard
          ----------------------------------      E. Lee Beard
                                                  President and Chief Executive 
                                                  Officer 
                                                  

Date:     February 11, 1999                       By: /s/ Patrick J. Owens, Jr.
          --------------------------------        Patrick  J. Owens, Jr.
                                                  Chief Financial Officer and 
                                                  Treasurer


                                       26