SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 [FEE REQUIRED] For the Fiscal Year Ended March 31, 2001

                                       OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

      For the transition period from _________________ to ____________________

                        Commission File Number: 000-24811

                              SOUND FEDERAL BANCORP
    ------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

        United States                                             13-4029393
--------------------------------                          ----------------------
(State or Other Jurisdiction of                              (I.R.S. Employer
Incorporation or Organization)                              Identification No.)

  300 Mamaroneck Avenue, Mamaroneck, New York                    10543
  -------------------------------------------                 -----------
   (Address of Principal Executive Offices)                   (Zip Code)

                                 (914) 698-6400
                ------------------------------------------------
               (Registrant's Telephone Number including area code)

           Securities Registered Pursuant to Section 12(b) of the Act:

                                      None
                                      ----

           Securities Registered Pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.10 per share
               ---------------------------------------------------
                                (Title of Class)

      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 twelve months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days. YES |X| NO |_|

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

      As of June 14, 2001, there were issued and outstanding 4,767,292 shares of
the Registrant's Common Stock. The aggregate value of the voting stock held by
non-affiliates of the Registrant, computed by reference to the average bid and
asked prices of the Common Stock as of June 14, 2001 ($10.79) was $15,698,986.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.    Sections of Annual Report to Stockholders for the fiscal year ended March
      31, 2001 (Parts II and IV).

2.    Proxy Statement for the 2001 Annual Meeting of Stockholders (Parts I and
      III).

<PAGE>

                                     PART I

ITEM 1. BUSINESS

General

      Sound Federal Bancorp. Sound Federal Bancorp (the "Company") is a federal
corporation which was organized in October 1998. The principal asset of the
Company is its investment in Sound Federal Savings and Loan Association (the
"Bank"). The Company is majority owned by Sound Federal, MHC, a
federally-chartered mutual holding company (the "Mutual Holding Company"). On
October 8, 1998, the Company sold 2,299,508 shares of its common stock to the
public, issued 2,810,510 shares of common stock to the Mutual Holding Company,
and contributed 102,200 shares of common stock to the Sound Federal Savings and
Loan Association Charitable Foundation. At March 31, 2001, after the repurchase
of 399,926 shares, there were 2,001,782 outstanding shares held by shareholders
other than the Mutual Holding Company. At March 31, 2001, the Company had total
consolidated assets of $552.9 million, total deposits of $473.5 million, and
stockholders' equity of $56.9 million.

      Sound Federal Savings and Loan Association. The Bank is a federally
chartered savings association headquartered in Mamaroneck, New York. The Bank's
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"). The
Bank was organized as a New York chartered savings bank in 1891 and became a
federally chartered savings association in 1934. On October 8, 1998, the Bank
completed its reorganization into the mutual holding company structure. In July
2000, the Company and the Bank completed the acquisition of Peekskill Financial
Corporation and its wholly owned subsidiary, First Federal Savings Bank (the
"Acquisition"). The total purchase price for the Acquisition was approximately
$41.7 million in cash. As a result of the Acquisition, the Bank increased its
branch franchise to eight locations at March 31, 2001 from five at March 31,
2000. The Acquisition was accounted for as a purchase.

      The Bank is a community-oriented institution engaged primarily in the
business of accepting deposits from customers, most of whom live or work in
Westchester County, and investing these deposits together with funds generated
from operations, in one-to-four family residential mortgage loans and home
equity lines of credit, and, to a much lesser extent, in multi-family and
commercial mortgage loans and construction and consumer loans.

      The Company's and the Bank's principal executive office are located at 300
Mamaroneck Avenue, Mamaroneck, New York 10543, and their telephone number at
that address is (914) 698-6400.

Recent Developments

      In February 2001, the Bank formed Mamaroneck Advisors, Inc. ("Advisors"),
a wholly-owned subsidiary. Advisors was formed to offer investment and insurance
products and services to the general public in the Bank's market areas. Products
offered by Advisors include primarily fixed and variable rate annuities and
mutual funds. Management believes that offering these products provides a wider
range of services to the Bank's customers and may help to attract new customers
who wish to use a community bank for all of their financial needs. Advisors did
not have any meaningful operations in fiscal 2001.


                                      1

<PAGE>

Market Area

      The Bank is a community-oriented financial institution that offers a
variety of financial products and services from its main office and branch
offices. The Bank's primary lending areas are the New York counties of
Westchester and Rockland, and Fairfield County, Connecticut. Most of the Bank's
deposit customers are residents of Westchester County. The Bank also obtains
deposits from persons in Rockland County and Fairfield County. The Bank's market
area consists of middle income and upper income communities. Significant
employers headquartered in Westchester County include IBM and Texaco. However,
the local economy is not dependent upon any single employer, but rather is
affected by the general economy of the New York City metropolitan area.

Lending Activities

      Historically, the Bank's principal lending activity has been the
origination of fixed-rate first mortgage loans for the purchase or refinancing
of one-to-four family residential real property. The Bank has thus far retained
all loans that it has originated. One-to-four family residential mortgage loans
represented $221.6 million, or 74.6%, of the Bank's loan portfolio at March 31,
2001. Home equity lines of credit represented $47.3 million, or 16.0%, of the
Bank's loan portfolio at March 31, 2001. The Bank also offers multi-family
mortgage loans, commercial mortgage loans and construction loans. Multi-family
mortgage loans totaled $4.0 million, or 1.3% of the loan portfolio, at March 31,
2001. Commercial mortgage loans totaled approximately $16.8 million, or 5.6% of
the loan portfolio, at March 31, 2001. Construction loans totaled $5.6 million,
or 1.9 % of the loan portfolio, at March 31, 2001. The Bank also makes consumer
loans, which primarily consist of automobile, passbook, home improvement and
secured personal loans. Consumer loans totaled $1.9 million, or 0.6% of the loan
portfolio, at March 31, 2001.


                                      2

<PAGE>

      Loan Portfolio Composition. The following table sets forth the composition
of the Bank's loan portfolio by type of loan at the dates indicated.

<TABLE>
<CAPTION>
                                                                                 At March 31,
                                                   --------------------------------------------------------------------------
                                                            2001                      2000                      1999
                                                   ----------------------    ----------------------    ----------------------
                                                    Amount       Percent      Amount       Percent      Amount       Percent
                                                   ---------    ---------    ---------    ---------    ---------    ---------
                                                                               (Dollars in Thousands)
<S>                                                <C>              <C>      <C>              <C>      <C>              <C>
Mortgage loans:
  One-to four-family ...........................   $ 221,617         74.6%   $ 138,375         75.9%   $ 119,015         82.1%
  Home equity lines of credit ..................      47,315         16.0       24,337         13.3       16,441         11.3
  Multi-family .................................       3,959          1.3        4,621          2.6          396          0.3
  Commercial ...................................      16,771          5.6       10,795          5.9        5,930          4.1
  Construction .................................       5,612          1.9        3,430          1.9        2,160          1.5
                                                   ---------    ---------    ---------    ---------    ---------    ---------
      Total mortgage loans .....................     295,274         99.4      181,558         99.6      143,942         99.3
                                                   ---------    ---------    ---------    ---------    ---------    ---------

Consumer loans:
  Automobile loans .............................       1,154          0.4          467          0.2          609          0.4
  Other(1) .....................................         746          0.2          353          0.2          395          0.3
                                                   ---------    ---------    ---------    ---------    ---------    ---------
      Total consumer loans .....................       1,900          0.6          820          0.4        1,004          0.7
                                                   ---------    ---------    ---------    ---------    ---------    ---------

      Total loans ..............................     297,174        100.0%     182,378        100.0%     144,946        100.0%
                                                                =========                 =========                 =========

Construction loans in process ..................      (1,953)                     (508)                     (339)
Allowance for loan losses ......................      (2,047)                   (1,188)                   (1,094)
Deferred loan origination costs (fees), net ....         633                       250                        23
                                                   ---------                 ---------                 ---------
    Total loans, net ...........................   $ 293,807                 $ 180,932                 $ 143,536
                                                   =========                 =========                 =========

<CAPTION>
                                                   ---------------------------------------------------
                                                            1998                          1997
                                                   -----------------------     -----------------------
                                                    Amount        Percent       Amount        Percent
                                                   ---------     ---------     ---------     ---------
                                                                  (Dollars in Thousands)
<S>                                                <C>               <C>       <C>              <C>
Mortgage loans:
  One-to four-family ...........................   $ 109,207          83.8%    $ 103,595          83.6%
  Home equity lines of credit ..................      13,138          10.1         9,487           7.7
  Multi-family .................................         412           0.3           348           0.3
  Commercial ...................................       3,811           2.9         3,416           2.8
  Construction .................................       1,800           1.4         5,539           4.5
                                                   ---------     ---------     ---------     ---------
      Total mortgage loans .....................     128,368          98.5       122,385          98.9
                                                   ---------     ---------     ---------     ---------

Consumer loans:
  Automobile loans .............................       1,011           0.8         1,028           0.8
  Other(1) .....................................       1,016           0.7           426           0.3
                                                   ---------     ---------     ---------     ---------
      Total consumer loans .....................       2,027           1.5         1,454           1.1
                                                   ---------     ---------     ---------     ---------

      Total loans ..............................     130,395         100.0%      123,839         100.0%
                                                                 =========                   =========

Construction loans in process ..................        (573)                     (1,049)
Allowance for loan losses ......................        (984)                       (845)
Deferred loan origination costs (fees), net ....        (280)                       (328)
                                                   ---------                   ---------
  Total loans, net .............................   $ 128,558                   $ 121,617
                                                   =========                   =========
</TABLE>
------------------------

(1)   Primarily secured personal loans, loans secured by deposit accounts and
      home improvement loans.


                                       3

<PAGE>

      The following table sets forth the composition of the Bank's loan
portfolio by fixed and adjustable rates at the dates indicated.

<TABLE>
<CAPTION>

<S>                                                    <C>                 <C>       <C>                 <C>        <C>

                                                                                 At March 31,
                                                   --------------------------------------------------------------------------
                                                            2001                     2000                       1999
                                                   ----------------------    ----------------------    ----------------------
                                                    Amount       Percent      Amount       Percent      Amount       Percent
                                                   ---------    ---------    ---------    ---------    ---------    ---------
                                                                             (Dollars in Thousands)
<S>                                                <C>             <C>       <C>             <C>       <C>             <C>
Fixed Rate Loans
  Mortgage loans:
    One-to four-family .........................   $ 215,202         72.4%   $ 135,912         74.5%   $ 116,113         80.1%
    Home equity lines of credit ................      46,908         15.9       23,940         13.1       15,590         10.7
    Multi-family ...............................       3,959          1.3        4,621          2.6          396          0.3
    Commercial .................................      16,771          5.6       10,740          5.9        5,930          4.1
    Construction ...............................       5,612          1.9        3,430          1.9        2,160          1.5
                                                   ---------    ---------    ---------    ---------    ---------    ---------
      Total mortgage loans .....................     288,452         97.1      178,643         98.0      140,189         96.7
  Consumer loans (1) ...........................       1,900          0.6          820          0.4        1,004          0.7
                                                   ---------    ---------    ---------    ---------    ---------    ---------
  Total fixed rate loans .......................     290,352         97.7      179,463         98.4      141,193         97.4
                                                   ---------    ---------    ---------    ---------    ---------    ---------

Adjustable Rate Loans
  Mortgage loans:
    One- to four-family ........................       6,415          2.2        2,463          1.4        2,902          2.0
    Home equity lines of credit ................         407          0.1          397           .2          851          0.6
    Commercial .................................          --           --           55           --           --           --
                                                   ---------    ---------    ---------    ---------    ---------    ---------
      Total adjustable rate loans ..............       6,822          2.3        2,915          1.6        3,753          2.6
                                                   ---------    ---------    ---------    ---------    ---------    ---------
Total loans ....................................     297,174        100.0%     182,378        100.0%     144,946        100.0%
                                                                                          =========    =========    =========

Construction loans in process ..................      (1,953)                     (508)                     (339)
Allowance for loan losses ......................      (2,047)                   (1,188)                   (1,094)
Deferred loan origination costs (fees), net ....         633                       250                        23
                                                   ---------                 ---------                 ---------
  Total loans, net .............................   $ 293,807                 $ 180,932                 $ 143,536
                                                   =========                 =========                 =========

<CAPTION>
                                                   -----------------------------------------------
                                                           1998                      1997
                                                   ---------------------     ---------------------
                                                    Amount      Percent       Amount      Percent
                                                   ---------   ---------     ---------   ---------
                                                               (Dollars in Thousands)
<S>                                                <C>              <C>      <C>              <C>
Fixed Rate Loans
  Mortgage loans:
    One-to four-family .........................   $ 103,887        79.7%    $  96,801        78.2%
    Home equity lines of credit ................      12,094         9.3         8,145         6.6
    Multi-family ...............................         412         0.3           348         0.3
    Commercial .................................       3,811         2.9         3,380         2.7
    Construction ...............................       1,800         1.4         5,539         4.5
                                                   ---------   ---------     ---------   ---------
         Total mortgage loans ..................     122,004        93.6       114,213        92.3
  Consumer loans (1) ...........................       2,027         1.5         1,454         1.1
                                                   ---------   ---------     ---------   ---------
  Total fixed rate loans .......................     124,031        95.1       115,667        93.4
                                                   ---------   ---------     ---------   ---------

Adjustable Rate Loans
  Mortgage loans:
    One-to four-family .........................       5,320         4.1         6,794         5.5
    Home equity lines of credit ................       1,044         0.8         1,342         1.1
    Commercial .................................          --          --            36          --
                                                   ---------   ---------     ---------   ---------
         Total adjustable rate loans ...........       6,364         4.9         8,172         6.6
                                                   ---------   ---------     ---------   ---------
Total loans ....................................     130,395       100.0%      123,839       100.0%
                                                                =========                =========

Construction loans in process ..................        (573)                   (1,049)
Allowance for loan losses ......................        (984)                     (845)
Deferred loan origination costs (fees), net ....        (280)                     (328)
                                                   ---------                 ---------
  Total loans, net .............................   $ 128,558                 $ 121,617
                                                   =========                 =========
</TABLE>
----------------------
(1)   Primarily secured personal loans, loans secured by deposit accounts and
      home improvement loans.


                                       4

<PAGE>

      Loan Maturity Schedule. The following table summarizes the contractual
maturities of the Bank's loan portfolio at March 31, 2001. Loans with adjustable
or renegotiable interest rates are shown as maturing in the period during which
the contract is due. The table reflects the entire unpaid principal balance of a
loan in the maturity period that includes the final payment date, and
accordingly, does not reflect the effects of scheduled payments, possible
prepayments or enforcement of due-on-sale clauses.

<TABLE>
<CAPTION>
                                                                        Multi-Family, Commercial,
                                                 One-to-Four Family(1)  Construction and Consumer             Total
                                                ----------------------  -------------------------   -----------------------
                                                              Weighted                Weighted                    Weighted
                                                               Average                 Average                     Average
                                                 Amount         Rate        Amount       Rate         Amount         Rate
                                               ----------    ---------    ---------   ---------     ---------     ---------
                                                                          (Dollars in Thousands)
<S>                                            <C>              <C>       <C>             <C>       <C>             <C>
Due During the Years Ending March 31,
2002(2)...................................     $      216       8.61%     $   5,816       8.90%     $    6,032      8.86%
2003......................................            817       8.22            217       8.19           1,034      8.21
2004 .....................................          2,850       7.80            615       8.50           3,465      7.93
2005 to 2007..............................          6,782       8.52          3,077       7.88           9,859      8.34
2008 to 2011..............................         17,752       7.42         12,594       8.97          30,346      8.06
2012-2016.................................         60,166       7.18          3,442       8.57          63,608      7.26
2017 and following........................        180,349       7.75          2,481       7.59         182,830      7.75
                                               ----------                 ---------                 ----------
   Total..................................     $  268,932       7.64%     $  28,242       8.65%     $  297,174      7.72%
                                               ==========                 =========                 ==========
</TABLE>

------------
(1)   Includes home equity lines of credit.
(2)   Includes demand loans having no stated maturity.

      The following table sets forth the dollar amount of all fixed rate and
adjustable rate loans at March 31, 2001 that are contractually due after March
31, 2002.

<TABLE>
<CAPTION>
                                                                                      Fixed        Adjustable          Total
                                                                                    ---------      -----------       ---------
                                                                                                 (In Thousands)
    <S>                                                                             <C>            <C>               <C>
    One- to four-family....................................................         $ 262,301      $     6,415       $ 268,716
    Multi-family, commercial, construction and consumer....................            22,426               --          22,426
                                                                                    ---------      -----------       ---------
        Total..............................................................         $ 284,727      $     6,415       $ 291,142
                                                                                    =========      ===========       =========
</TABLE>

      One-to-Four Family Residential Loans. The Bank's primary lending activity
is the origination of one-to-four family residential mortgage loans secured by
property located in the Bank's primary lending area. Generally, one-to-four
family residential mortgage loans are made in amounts up to 95% of the lesser of
the appraised value or purchase price of the property, with private mortgage
insurance required for loans with a loan-to-value ratio over 80%. Generally,
fixed-rate loans are originated for terms of up to 30 years. One-to-four family
loans are offered with a monthly or bi-weekly payment feature. The Bank has not
historically sold loans that it originates.

      The Bank primarily originates fixed-rate loans; however, the Bank also
offers adjustable rate mortgage ("ARM") loans with a fixed rate for initial
terms of three, five and seven years and then subsequent one year adjustment
periods. At March 31, 2001, 97.1% of the Bank's one-to-four family residential
loans had fixed interest rates. The interest rate on ARM loans is indexed to the
one year constant maturity Treasury bill. The Bank's ARM loans currently provide
for maximum rate adjustments of 2.00% per year and 5.00% over the term of the
loan. The Bank does not offer ARM loans with initial interest rates that are
below market, referred to as "teaser rates." Residential ARM loans amortize over
terms of up to 30 years.

      ARM loans decrease the risk associated with changes in market interest
rates by periodically repricing, but involve other risks because as interest
rates increase, the underlying payments by the borrower


                                      5

<PAGE>

increase, thus increasing the potential for default by the borrower. At the same
time, the marketability of the underlying collateral may be adversely affected
by higher interest rates. Upward adjustment of the contractual interest rate is
also limited by the maximum periodic and lifetime interest rate adjustment
permitted by the terms of the ARM loans, and, therefore, is potentially limited
in effectiveness during periods of rapidly rising interest rates. At March 31,
2001, 2.9% of the Bank's one-to-four family residential loans had adjustable
interest rates.

      All one-to-four family residential mortgage loans originated by the Bank
include "due-on-sale" clauses, which give the Bank the right to declare a loan
immediately due and payable in the event that, among other things, the borrower,
without the consent of the Bank, sells or otherwise disposes of the real
property subject to the mortgage and the loan is not repaid.

      At March 31, 2001, approximately $221.6 million, or 74.6% of the Bank's
loan portfolio, consisted of one-to-four family residential loans. Approximately
$933,000 of such loans (representing 14 loans) were nonperforming loans at that
date. See "Nonperforming and Problem Assets."

      Home Equity Lines of Credit. The Bank offers home equity lines of credit
that are secured by the borrower's primary residence. The borrower is permitted
to draw on the home equity line of credit during the first five years after it
is originated and may repay the outstanding balance over a term not to exceed 20
years from the date the line of credit is originated. Home equity lines of
credit are generally underwritten under the same criteria that the Bank uses to
underwrite one-to-four family fixed rate loans. Home equity lines of credit may
be underwritten with a loan to value ratio of 80% when combined with the
principal balance of the existing mortgage loan, however, the maximum principal
amount of a home equity line of credit may not exceed $300,000 unless approved
by the Board of Directors. The Bank appraises the property securing the loan at
the time of the loan application (but not thereafter) in order to determine the
value of the property securing the home equity line of credit. At March 31,
2001, the outstanding balances of home equity lines of credit totaled $47.3
million, or 16.0% of the Bank's loan portfolio.

      Commercial Mortgage Loans. At March 31, 2001, $16.8 million, or 5.6%, of
the total loan portfolio consisted of commercial mortgage loans. Commercial
mortgage loans are secured by office buildings, private schools, religious
facilities and other commercial properties. The Bank generally originates
fixed-rate commercial mortgage loans with maximum terms of up to 10 years. The
maximum loan-to-value ratio of commercial mortgage loans is 75%. At March 31,
2001, the largest commercial mortgage loan had a principal balance of $1.5
million and was secured by a corporate park. As of March 31, 2001, there were no
nonperforming commercial mortgage loans.

      In underwriting commercial mortgage loans, the Bank reviews a number of
factors, such as the expected net operating income generated by the real estate
to ensure that it is at least 125% of the amount of the monthly debt service;
the age and condition of the collateral; the financial resources and income
level of the borrower; and the borrower's business experience. Personal
guarantees are obtained when possible from commercial mortgage borrowers.

      Loans secured by commercial real estate generally are larger than
one-to-four family residential loans and involve a greater degree of risk.
Commercial mortgage loans can involve large loan balances to single borrowers or
groups of related borrowers. Payments on these loans depend to a large degree on
the results of operations and management of the properties or underlying
businesses, and may be affected to a greater extent by adverse conditions in the
real estate market or in the economy in general. Accordingly, the


                                      6

<PAGE>

nature of commercial real estate loans makes them more difficult for Bank
management to monitor and evaluate.

      Multi-Family Mortgage Loans. Loans secured by multi-family real estate
totaled approximately $4.0 million, or 1.3% of the total loan portfolio at March
31, 2001. Multi-family mortgage loans generally are secured by multi-family
rental properties (including mixed-use buildings and walk-up apartments). At
March 31, 2001, the Bank had ten multi-family mortgage loans, the largest of
which had a principal balance of $940,000. Multi-family mortgage loans generally
are offered with both fixed and adjustable interest rates, although in the
current interest rate environment the Bank has not recently originated
adjustable rate multi-family loans. Multi-family loans are originated for terms
of up to 30 years.

      In underwriting multi-family mortgage loans, the Bank considers a number
of factors, which include the net operating income projected to be generated by
the real estate to ensure that it is at least 125% of the amount of the monthly
debt service; the age and condition of the collateral; the financial resources
and income level of the borrower; and the borrower's experience in owning or
managing similar properties. Multi-family mortgage loans are originated in
amounts up to 75% of the appraised value of the property securing the loan.
Personal guarantees are obtained when possible from multi-family mortgage
borrowers.

      Loans secured by multi-family real estate generally involve a greater
degree of credit risk than one-to-four family residential mortgage loans and
carry larger loan balances. This increased credit risk is a result of several
factors, including the concentration of principal in a limited number of loans
and borrowers, the effects of general economic conditions on income producing
properties, and the increased difficulty of evaluating and monitoring these
types of loans. Furthermore, the repayment of loans secured by multi-family
real estate typically depends upon the successful operation of the related real
estate property. If the cash flow from the project is reduced, the borrower's
ability to repay the loan may be impaired.

      Construction Lending. To a limited extent, the Bank originates residential
construction loans to local home builders, generally with whom it has an
established relationship, and to individuals who have a contract with a builder
for the construction of their residence. Construction loans are disbursed as
certain portions of the project are completed. The Bank's construction loans are
secured by property located in the Bank's market area. At March 31, 2001, the
Bank had construction loans totaling $5.6 million, or 1.9% of total loans.

      The Bank's construction loans to home builders generally have fixed
interest rates, are for a term of 12 months and have a maximum loan to value
ratio of 80%. Loans to builders are made on either a pre-sold or speculative
(unsold) basis. Construction loans to individuals are generally originated
pursuant to the same policy guidelines regarding loan to value ratios and
interest rates that are used in connection with loans secured by one-to-four
family residential real estate. Construction loans to individuals who intend to
occupy the completed dwelling may be converted to permanent financing after the
construction phase is completed.

      The Bank generally limits the number of outstanding loans on unsold homes
under construction to individual builders, with the amount dependent on the
financial strength, including existing borrowings, of the builder and prior
sales of homes in the development. Prior to making a commitment to fund a
construction loan, the Bank requires an appraisal of the property from a
qualified appraiser approved by the Bank, and all appraisals are reviewed by
management. Loan proceeds are disbursed after an inspection of the property
based on a percentage of completion. Monthly payment of accrued interest is
required.


                                        7

<PAGE>

      Construction loans are generally considered to involve a higher degree of
risk than single-family permanent mortgage loans because of the inherent
difficulty in estimating both a property's value at completion of the project
and the estimated cost of the project. If the estimate of construction costs is
inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the project. If the estimate of
value upon completion is inaccurate, the value of the property may be
insufficient to assure full repayment. Projects may also be jeopardized by
disagreements between borrowers and builders and by the failure of builders to
pay subcontractors. Loans to builders to construct homes for which no purchaser
has been identified carry more risk because the repayment of the loan depends on
the builder's ability to sell the property prior to the time that the
construction loan is due. The Bank has attempted to minimize the foregoing risks
by, among other things, limiting its construction lending primarily to
residential properties and generally requiring personal guarantees from the
principals of its corporate borrowers.

      Consumer Lending. The Bank's consumer loans primarily consist of secured
personal loans, passbook loans and home improvement loans. At March 31, 2001,
consumer loans totaled $1.9 million, or 0.6% of the total loan portfolio.

      Consumer loans generally have shorter terms and higher interest rates than
one-to-four family mortgage loans. While consumer loans expand the products and
services offered by the Bank, these loans generally involve greater credit risk
than residential mortgage loans because of the difference in the underlying
collateral. Repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance because of the
greater likelihood of damage to, loss of or depreciation in the underlying
collateral. The remaining deficiency often does not warrant further substantial
collection efforts against the borrower beyond obtaining a deficiency judgment.
In addition, consumer loan collections depend on the borrower's personal
financial stability. Furthermore, the application of various federal and state
laws, including federal and state bankruptcy and insolvency laws, may limit the
amount that can be recovered on such loans.

      The Bank's underwriting procedures for consumer loans include an
assessment of the applicant's credit history and the ability to meet existing
and proposed debt obligations. Although the applicant's creditworthiness is the
primary consideration, the underwriting process also includes a comparison of
the value of the security, to the proposed loan amount.

      Origination of Loans. Generally, the Bank originates mortgage loans
pursuant to underwriting standards that generally conform with the Fannie Mae
guidelines. The Bank will originate nonconforming loans with respect to loan
principal amount only. Loan origination activities are primarily concentrated in
Westchester County, New York and Fairfield County, Connecticut. New loans are
generated primarily from mortgage brokers, customer referrals, local real estate
agents, local attorneys and other parties with whom the Bank does business, and
from the efforts of employees and advertising.

      The loan approval process is intended to assess the borrower's ability to
repay the loan, the viability of the loan, and the adequacy of the value of the
property that will secure the loan. To assess the borrower's ability to repay,
the Bank reviews the employment and credit history and information on the
historical and projected income and expenses of borrowers. Loans of up to $1.0
million may be approved by the Bank's President and Senior Lending Officer
acting together. All loans in excess of $1.0 million must be approved by the
Board of Directors. In addition, the Board of Directors reviews and confirms all
loan commitments. The Bank will generally not originate a loan with a principal
balance in excess of $1.5 million.


                                      8

<PAGE>

      The Bank requires appraisals of all real property securing loans.
Appraisals are performed by independent appraisers who are licensed by the
state, and who are approved by the Board of Directors annually. The Bank
requires fire and extended coverage insurance in amounts at least equal to the
principal amount of the loan. Where appropriate, flood insurance is also
required. Private mortgage insurance is required for all residential mortgage
loans with loan-to-value ratios greater than 80%.

      The following table sets forth the Bank's loan originations, principal
repayments and other portfolio activity for the periods indicated. The Bank did
not purchase or sell any loans during the periods indicated.

<TABLE>
<CAPTION>
                                                                       Years Ended March 31,
                                                             -----------------------------------------
                                                                2001            2000            1999
                                                             ---------       ---------       ---------
                                                                          (In Thousands)
<S>                                                          <C>             <C>             <C>
Unpaid principal balances at beginning of year ........      $ 182,378       $ 144,946       $ 130,395
                                                             ---------       ---------       ---------
Loans transferred in Acquisition ......................         67,845              --              --

Loans originated by type:
   Fixed rate:
      Mortgage loans:
         One-to-four family ...........................         37,068          32,572          26,881
         Advances under home equity lines of credit ...         34,890          16,676           9,576
         Multi-family .................................            440           4,404              58
         Commercial ...................................          5,887           4,466           1,060
         Construction .................................          4,216           3,678           5,187
      Consumer loans ..................................          1,471             679             699
                                                             ---------       ---------       ---------
         Total fixed rate .............................         83,972          62,475          43,461

   Adjustable rate mortgage loans:
      One-to-four family ..............................          4,114              --              --
      Advances under home equity lines of credit ......             --              --              73
      Commercial ......................................             --              55              --
                                                             ---------       ---------       ---------
         Total loans originated .......................         88,086          62,530          43,534
                                                             ---------       ---------       ---------

Principal repayments:
   Mortgage loans .....................................        (39,925)        (24,111)        (26,675)
   Consumer loans .....................................           (758)           (863)         (1,722)
                                                             ---------       ---------       ---------
      Total principal repayments ......................        (40,683)        (24,974)        (28,397)
                                                             ---------       ---------       ---------

Charge-offs ...........................................           (162)             (6)           (162)
Transfers to real estate owned ........................           (290)           (118)           (424)
                                                             ---------       ---------       ---------
Unpaid principal balances at end of year ..............        297,174         182,378         144,946

Construction loans in process .........................         (1,953)           (508)           (339)
Allowance for loan losses .............................         (2,047)         (1,188)         (1,094)
Deferred loan origination costs (fees), net ...........            633             250              23
                                                             ---------       ---------       ---------
Net loans at end of year ..............................      $ 293,807       $ 180,932       $ 143,536
                                                             =========       =========       =========
</TABLE>

Nonperforming and Problem Assets

      After a mortgage loan becomes fifteen days past due, the Bank delivers a
computer generated delinquency notice to the borrower. When loans become 30 days
past due, the Bank sends additional delinquency notices and attempts to make
personal contact by letter or telephone with the borrower to establish
acceptable repayment schedules. The Board of Directors is advised of all loans
delinquent 60 days or more. The Board will consider the borrower's willingness
to comply with the loan terms, the Bank's actions to date, and the value of the
loan collateral in determining what actions, if any, are to be taken. Generally,
when a mortgage loan is 90 days delinquent and no acceptable resolution has been
reached, the Bank will send the borrower a demand letter. If the delinquency is
not cured within 120 days, the Bank will generally refer the matter to its
attorney. Generally, management will begin foreclosure proceedings on any


                                      9

<PAGE>

loan after it is delinquent over 120 days unless management is engaged in active
discussions with the borrower.

      Mortgage loans are reviewed on a regular basis and such loans are placed
on nonaccrual status when they become 90 days delinquent. When loans are placed
on nonaccrual status, unpaid accrued interest is fully reserved, and further
income is recognized only to the extent of interest payments actually received.

      Nonperforming Assets. The table below sets forth the amounts and
categories of the Bank's nonperforming assets at the dates indicated. At each
date presented, the Bank had no troubled debt restructurings (which involve
forgiving a portion of interest or principal or making loans at rates
significantly less than current market rates).

<TABLE>
<CAPTION>
                                                                        At March 31,
                                                 ----------------------------------------------------------
                                                  2001         2000         1999         1998         1997
                                                 ------       ------       ------       ------       ------
                                                                  (Dollars in Thousands)
<S>                                              <C>          <C>          <C>          <C>          <C>
Nonaccrual loans:
  Mortgage loans:
   One-to-four family(1) ..................      $  933       $  969       $1,077       $1,721       $1,832
   Commercial .............................          --           --           --          236          432
  Consumer loans ..........................          --           --           14            1           --
                                                 ------       ------       ------       ------       ------
   Total ..................................         933          969        1,091        1,958        2,264

Real estate owned:
  One-to-four family properties ...........         197           55          288          129          129
                                                 ------       ------       ------       ------       ------

   Total nonperforming assets .............      $1,130       $1,024       $1,379       $2,087       $2,393
                                                 ======       ======       ======       ======       ======
Ratios:
  Nonperforming loans to total loans ......        0.31%        0.53%        0.75%        1.50%        1.83%
  Nonperforming assets to total assets ....        0.20%        0.31         0.47%        0.82%        0.98%
</TABLE>

--------------
(1)   Includes home equity lines of credit.

      For the year ended March 31, 2001, gross interest income that would have
been recorded had the nonaccrual loans been current in accordance with their
original terms amounted to $84,000. Interest amounts on such loans that were
included in interest income totaled $49,000 for the year ended March 31, 2001.


                                      10

<PAGE>

      The following table sets forth certain information with respect to the
Bank's loan portfolio delinquencies at the dates indicated.

<TABLE>
<CAPTION>
                                                      Loans Delinquent For:
                                           ------------------------------------------
                                               60-89 Days           90 Days and Over             Total
                                           ------------------      ------------------      ------------------
                                           Number      Amount      Number      Amount      Number      Amount
                                           ------      ------      ------      ------      ------      ------
                                                                 (Dollars in Thousands)
<S>                                             <C>    <C>             <C>     <C>             <C>     <C>
At March 31, 2001
   Mortgage loans:
      One- to four-family ...........           8      $  508          14      $  933          22      $1,441
   Consumer loans ...................          --          --          --          --          --          --
                                           ------      ------      ------      ------      ------      ------
      Total .........................           8      $  508          14      $  933          22      $1,441
                                           ======      ======      ======      ======      ======      ======

At March 31, 2000
   Mortgage loans:
      One- to four-family ...........           7      $  829          11      $  969          18      $1,798
   Consumer loans ...................           3           9          --          --           3           9
                                           ------      ------      ------      ------      ------      ------
      Total .........................          10      $  838          11      $  969          21      $1,807
                                           ======      ======      ======      ======      ======      ======

At March 31, 1999
   Mortgage loans:
      One-to-four family ............           5      $  673          12      $1,077          17      $1,750
   Consumer loans ...................          --          --           1          14           1          14
                                           ------      ------      ------      ------      ------      ------
      Total .........................           5      $  673          13      $1,091          18      $1,764
                                           ======      ======      ======      ======      ======      ======
</TABLE>

      Classified Assets. Federal regulations and the Bank's Asset Classification
Policy provide for the classification of loans and other assets, such as debt
and equity securities, considered by the Office of Thrift Supervision (the
"OTS") to be of lesser quality as "substandard," "doubtful" or "loss" assets. An
asset is considered "substandard" if it is inadequately protected by the current
net worth and paying capacity of the obligor or of the collateral pledged, if
any. "Substandard" assets include those characterized by the "distinct
possibility" that the institution will sustain "some loss" if the deficiencies
are not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets is not warranted.

      An insured institution is required to establish general allowances for
loan losses in an amount deemed prudent by management for loans classified
substandard or doubtful, as well as for other problem loans. General allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies problem assets as "loss," it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset so classified or to charge off such amount. An institution's determination
as to the classification of its assets and the amount of its valuation
allowances is subject to review by the OTS which can order the establishment of
additional general or specific loss allowances.

      At March 31, 2001, the Bank's assets classified as substandard totaled
$1.1 million representing all loans delinquent for 90 days or more and
foreclosed properties. At March 31, 2001 the Bank had no assets classified as
doubtful or loss. The loan portfolio is reviewed on a regular basis to determine
whether any loans require classification in accordance with applicable
regulations.


                                      11

<PAGE>

Allowance for Loan Losses

      Management regularly reviews the Bank's loan portfolio and makes
provisions for loan losses in order to maintain the adequacy of the allowance
for loan losses. All loan losses are charged to the allowance and all recoveries
are credited to it. Additions to the allowance for loan losses are provided by
charges to income based on various factors which, in management's judgment,
deserve current recognition in estimating probable loan losses. The allowance
for loan losses consists of amounts specifically allocated to nonperforming
loans and potential problem loans (if any) as well as allowances determined for
each major loan category. Loan categories, such as one-to-four family
residential mortgages and home equity lines of credit (which represent a
combined 90.6% of the Bank's total loans at March 31, 2001) are generally
evaluated on an aggregate or "pool" basis. In recent years, the Bank's allowance
for loan losses was predominately determined on a pool basis by applying loss
factors to the current balances of the various loan categories. The loss factors
are determined by management based on an evaluation of historical loss
experience, delinquency trends, volume and type of lending conducted, and the
impact of current economic conditions in the Bank's market area. The carrying
values of loans are periodically evaluated and the allowance is adjusted
accordingly. While management uses the best information available to make
evaluations, future adjustments to the allowance may be necessary if conditions
differ substantially from the assumptions used in making the evaluations.

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

      The following table sets forth activity in the Bank's allowance for loan
losses for the periods indicated.

<TABLE>
<CAPTION>
                                                                                       Years Ended March 31,
                                                               -------------------------------------------------------------------
                                                                 2001           2000           1999           1998           1997
                                                               -------        -------        -------        -------        -------
                                                                                     (Dollars in Thousands)
<S>                                                            <C>            <C>            <C>            <C>            <C>
Balance at beginning of year .............................     $ 1,188        $ 1,094        $   984        $   845        $   725
                                                               -------        -------        -------        -------        -------
Allowance transferred in Acquisition .....................         784             --             --             --             --

Charge-offs:
   One-to-four family mortgage loans .....................        (162)            (6)          (162)           (16)           (30)
   Consumer loans ........................................          --             --             --             --            (15)
                                                               -------        -------        -------        -------        -------
      Total charge-offs ..................................        (162)            (6)          (162)           (16)           (45)

Recoveries:
   One-to-four family mortgage loans .....................          29             --             --             --             --
   Consumer loans ........................................          --             --             --             --             19
                                                               -------        -------        -------        -------        -------

Net charge-offs ..........................................        (133)            (6)          (162)           (16)           (26)
Provision for loan losses ................................         208            100            272            155            146
                                                               -------        -------        -------        -------        -------
Balance at end of year ...................................     $ 2,047        $ 1,188        $ 1,094        $   984        $   845
                                                               =======        =======        =======        =======        =======
Ratios:
      Allowance for loan losses to nonperforming loans ...       219.4%         122.6%        100.27%         50.26%         37.32%
   Allowance for loan losses to total loans ..............        0.69%          0.65%          0.75%          0.75%          0.68%
</TABLE>


                                       12

<PAGE>

      Allocation of Allowance for Loan Losses. The following table presents an
analysis of the allocation of the allowance for loan losses at the dates
indicated. The allocation of the allowance to each category is not necessarily
indicative of future loss in any particular category and does not restrict the
use of the allowance to absorb losses in other categories.

<TABLE>
<CAPTION>
                                                                         At March 31,
                              ---------------------------------------------------------------------------------------------------
                                            2001                             2000                           1999
                              -------------------------------- --------------------------------- --------------------------------
                                                    Percent of                      Percent of                        Percent of
                                                     Loans in                        Loans in                          Loans in
                                             Loan      Each                  Loan      Each                  Loan        Each
                                           Balances  Category              Balances  Category               Balances   Category
                               Loan Loss      by     to Total  Loan Loss      by     to Totals  Loan Loss      by      to Total
                               Allowance   Category    Loans   Allowance   Category    Loans    Allowance   Category     Loans
                               ---------   --------  --------  ---------   --------  ---------  ---------   --------   ---------
                                                                    (Dollars in Thousands)
<S>                            <C>         <C>         <C>     <C>        <C>           <C>     <C>         <C>            <C>
Mortgage loans:
  One-to-four family(1) ....   $   1,009   $268,932    90.6%   $    633   $162,712      89.2%   $     718   $135,456       93.4%
  Multi-family .............         150      3,959     1.3         125      4,621       2.6           26        396        0.3
  Commercial ...............         600     16,771     5.6         300     10,795       5.9          237      5,930        4.1
  Construction .............          90      5,612     1.9          70      3,430       1.9           43      2,160        1.5
  Consumer .................         198      1,900     0.6          60        820       0.4           70      1,004        0.7
                               ---------   --------   -----    --------   --------     -----    ---------   --------   --------
      Total ................   $   2,047   $297,174   100.0%   $  1,188   $182,378     100.0%   $   1,094   $144,946      100.0%
                               =========   ========   =====    ========   ========     =====    =========   ========   ========

<CAPTION>
                                                              At March 31,
                        ---------------------------------------------------------------------------------------
                                           1998                                         1997
                        ------------------------------------------   ------------------------------------------
                                                       Percent of                                  Percent of
                                                        Loans in                                     Loans in
                                            Loan         Each                           Loan          Each
                                          Balances     Category                       Balances      Category
                          Loan Loss          by        to Total         Loan Loss        by         to Totals
                          Allowance       Category       Loans          Allowance     Category        Loans
                          ----------     ----------   -----------      ----------     ----------   -----------
                                                      (Dollars in Thousands)
<S>                       <C>            <C>                <C>        <C>            <C>                 <C>
Mortgage loans:
  One-to-four family(1)   $      668     $  122,345          93.9%     $      514     $  113,082          91.3%
  Multi-family..........          27            412           0.3              10            348           0.3
  Commercial............         152          3,811           2.9             137          3,416           2.8
  Construction..........          36          1,800           1.4             111          5,539           4.5
  Consumer..............         101          2,027           1.5              73          1,454           1.1
                          ----------     ----------   -----------      ----------     ----------   -----------
      Total.............  $      984     $  130,395         100.0%     $      845     $  123,839         100.0%
                          ==========     ==========   ===========      ==========     ==========   ===========
</TABLE>

------------
(1)   Includes home equity lines of credit.


                                       13

<PAGE>

Investment Activities

      The Bank's investments include mortgage-backed securities, collateralized
mortgage obligations, U.S. Government and agency securities, federal funds sold,
certificates of deposit at other financial institutions, mutual funds and FHLB
stock. Management invests a significant portion of the Bank's assets in
short-term investments and adjustable rate mortgage-backed securities in order
to increase the Bank's ability to reinvest assets in higher yielding securities
in a rising interest rate environment. Historically, the Bank classified
substantially all securities as held-to-maturity. Based on amortized cost at
March 31, 2001, 84.5% of the total securities portfolio consisted of securities
classified as available-for-sale and 15.5% of the total securities portfolio
consisted of securities classified as held-to-maturity.

      The Bank's mortgage-backed securities portfolio (including
held-to-maturity and available-for-sale and collateralized mortgage obligations)
had a carrying value of $141.1 million, or 25.5% of total assets at March 31,
2001. Of this amount, $83.7 million of mortgage-backed securities had adjustable
rates of interest and $57.4 million had fixed rates of interest. Mortgage-backed
securities are created by the pooling of mortgages and the issuance of a
security with an interest rate that is less than the interest rate on the
underlying mortgages. The Bank's mortgage-backed securities are insured or
guaranteed by Fannie Mae, Ginnie Mae or Freddie Mac. Mortgage-backed securities
increase the liquidity and the credit quality of the Bank's assets. The Bank has
not invested in privately issued mortgage-backed securities.

      Collateralized Mortgage Obligations ("CMOs") are typically issued by a
special-purpose entity, which may be organized in a variety of legal forms, such
as a trust, a corporation or a partnership. The entity aggregates pools of
pass-through securities, which are used to collateralize the CMO. Once combined,
the cash flows are divided into "tranches" or "classes" of individual bonds,
thereby creating more predictable average duration for each bond than the
underlying pass-through pools. Accordingly, under the CMO structure, all
principal pay-downs from the various mortgage pools are allocated to a CMO's
first class until it has been paid off, then to a second class until such class
has been paid off and then to the next classes. The loans underlying the Bank's
CMO's are either guaranteed by Freddie Mac or Fannie Mae.

      At March 31, 2001, the carrying value of the Bank's investment securities
other than mortgage-backed securities included $36.6 million in U.S. Government
and agency securities which consisted of fixed rate Federal Home Loan Bank,
Federal Farm Credit, Fannie Mae and FHLB issues with maturities of 20 years or
less, as well as adjustable rate Small Business Administration participation
certificates that are guaranteed by the U.S. Government with contractual terms
of up to 30 years. The U. S. Government and agency securities typically have
call dates of six months to three years. At March 31, 2001, the Bank had
invested $8.0 million in two mutual funds that provide a rate of return that
adjusts daily. The first mutual fund, in which the Bank has a $1.0 million
investment, invests primarily in repurchase agreements secured by U.S.
Government and agency securities and federal funds. The average maturities of
the underlying securities can be from one to seven days, but primarily are
overnight. The second mutual fund, in which the Bank has a $7.0 million
investment, is an adjustable rate mortgage fund that invests primarily in
securities backed by or representing an interest in mortgages on residential
properties meeting the definition of such assets for purposes of the qualified
thrift lender test under OTS regulations. These mutual fund investments are
permissible investments as set forth in the Bank's investment policy. The
securities were purchased, as part of the Bank's ongoing interest rate risk
management process, to provide interest earning liquid funds and an adjustable
interest rate.

      A significant portion of the Bank's assets are invested in federal funds
sold and certificates of deposit at other financial institutions. At March 31,
2001, $37.5 million, or 6.8% of total assets, were invested in federal funds
sold and certificates of deposit at other financial institutions.


                                       14

<PAGE>

      The following table sets forth the composition of the Company's securities
classified as held to maturity at the dates indicated.

<TABLE>
<CAPTION>
                                                                           At March 31,
                                             ---------------------------------------------------------------------
                                                      2001                   2000                     1999
                                             ---------------------   ---------------------   ---------------------
                                             Amortized     Fair      Amortized     Fair      Amortized     Fair
                                               Cost        Value       Cost        Value       Cost        Value
                                             ---------   ---------   ---------   ---------   ---------   ---------
                                                                        (In Thousands)
<S>                                          <C>         <C>         <C>         <C>         <C>         <C>
Mortgage-backed securities:
Adjustable rate:
   Ginnie Mae ............................   $  21,613   $  21,682   $  27,772   $  27,171   $  35,977   $  35,614
   Fannie Mae ............................       3,114       3,127       3,827       3,711       4,902       4,817
Fixed rate:
   Ginnie Mae ............................         429         452         571         570         795         795
   Freddie Mac ...........................          21          21          40          38          65          64
                                             ---------   ---------   ---------   ---------   ---------   ---------
Total mortgage-backed securities .........      25,177      25,282      32,210      31,490      41,739      41,290

Federal agency obligations ...............       3,038       3,035       3,448       3,309       3,851       3,797
                                             ---------   ---------   ---------   ---------   ---------   ---------
   Total securities held-to-maturity .....   $  28,215   $  28,317   $  35,658   $  34,799   $  45,590   $  45,087
                                             =========   =========   =========   =========   =========   =========
</TABLE>

      The following table sets forth the composition of the Company's securities
classified as available for sale and other earning assets at the dates
indicated:

<TABLE>
<CAPTION>
                                                                           At March 31,
                                             ---------------------------------------------------------------------
                                                      2001                   2000                     1999
                                             ---------------------   ---------------------   ---------------------
                                             Amortized     Fair      Amortized     Fair      Amortized     Fair
                                               Cost        Value       Cost        Value       Cost        Value
                                             ---------   ---------   ---------   ---------   ---------   ---------
                                                                        (In Thousands)
<S>                                          <C>         <C>         <C>         <C>         <C>         <C>
Mortgage-backed securities:
Adjustable rate:
   Collateralized mortgage obligations ...   $   1,518   $   1,526   $      --   $      --   $      --   $      --
   Ginnie Mae ............................      37,294      38,032      10,493      10,370       7,146       7,176
   Fannie Mae ............................      12,008      12,196       5,515       5,500       1,202       1,196
   Freddie Mac ...........................       7,035       7,188       4,202       4,120       2,314       2,297
Fixed rate:
   Collateralized mortgage obligations ...      28,316      30,048          --          --          --          --
   Ginnie Mae ............................       1,384       1,413         916         865       1,017       1,005
   Fannie Mae ............................       5,667       5,992       1,621       1,545       1,922       1,909
   Freddie Mac ...........................      18,848      19,536       2,738       2,580       2,978       2,948
                                             ---------   ---------   ---------   ---------   ---------   ---------
Total mortgage-backed securities .........     112,070     115,931      25,485      24,980      16,579      16,531

U.S. Government agency securities ........      33,644      33,599      35,891      34,417      15,000      14,841
Mutual fund investments ..................       8,000       7,996       3,000       2,968       8,046       8,030
                                             ---------   ---------   ---------   ---------   ---------   ---------
   Total securities available-for-sale ...   $ 153,714   $ 157,526   $  64,376   $  62,365   $  39,625   $  39,402
                                                         =========               =========               =========

Other earning assets:
   Federal funds sold ....................   $  35,000               $  25,000               $  44,400
   Certificates of deposit ...............       2,491                  10,075                  10,686
   FHLB stock ............................       3,745                   2,195                   1,884
                                             ---------               ---------               ---------
      Total ..............................   $ 194,950               $  37,270               $  56,970
                                             =========               =========               =========

</TABLE>


                                       15

<PAGE>

      The following table sets forth the activity in the Bank's mortgage-backed
securities portfolios for the periods indicated.

<TABLE>
<CAPTION>
                                                                   Years Ended March 31,
                                                          -----------------------------------
                                                             2001         2000         1999
                                                          ---------    ---------    ---------
                                                                     (In Thousands)
<S>                                                       <C>          <C>          <C>
Amortized cost at beginning of year ...................   $  57,695    $  58,318    $  53,421
Transferred in acquisition ............................      97,784           --           --
Purchases of mortgage-backed securities ...............      15,075       13,257       24,823
Principal repayments ..................................     (33,538)     (13,660)     (19,379)
Premium amortization and discount accretion, net ......         231         (220)        (547)
                                                          ---------    ---------    ---------
Amortized cost at end of year .........................   $ 137,247    $  57,695    $  58,318
                                                          =========    =========    =========
</TABLE>


                                       16

<PAGE>

      The composition and contractual maturities of mortgage-backed securities
and other debt securities at March 31, 2001 are indicated in the following
table. The table does not reflect the impact of prepayments or redemptions which
may occur.

<TABLE>
<CAPTION>
                                                                           More than One Year       More than Five Years
                                                   One Year or Less        through Five Years        through Ten Years
                                                ----------------------    ---------------------    ----------------------
                                                             Weighted                 Weighted                 Weighted
                                                 Amortized    Average     Amortized    Average     Amortized    Average
                                                   Cost        Yield        Cost        Yield        Cost        Yield
                                                 ---------   ---------    ---------   ---------    ---------   ---------
                                                                         (Dollars in Thousands)
<S>                                              <C>              <C>     <C>              <C>     <C>              <C>
Held to maturity:
Mortgage-backed securities:
   Ginnie Mae ................................   $       1        6.76%   $     172        8.17%   $      50        8.71%
   Fannie Mae ................................          --          --           --          --           --          --
   Freddie Mac ...............................          --          --           21        7.57           --          --
                                                 ---------                ---------                ---------

      Total mortgage-backed securities .......           1        6.76%         193        8.11           50        8.71

Other debt securities:
   Federal agency obligations ................          --          --           --          --        1,000        6.44
                                                 ---------                ---------                ---------

      Total securities held-to-maturity ......   $       1        6.76%   $     193        8.11%   $   1,050        6.54%
                                                 =========                =========                =========

Available for sale:
Collateralized mortgage obligations ..........          --          --           --          --          582        6.99
Mortgage-backed securities:
   Ginnie Mae ................................   $      --          --%   $     101        8.34%   $     387        8.26%
   Fannie Mae ................................          --          --        2,835        6.74        3,329        7.01
   Freddie Mac ...............................         983        6.76        6,865        7.34        7,188        7.26
                                                 ---------                ---------                ---------

      Total mortgage-backed securities .......         983        6.76        9,801        7.18       11,486        7.21

Other debt securities:
   Federal agency obligations ................          --          --       12,000        6.15       11,190        6.47
                                                 ---------                ---------                ---------

      Total securities available-for-sale ....   $     983        6.76%   $  21,801        6.61%   $  22,676        6.84%
                                                 =========                =========                =========

<CAPTION>
                                                  More than Ten Years              Total Securities
                                                 ---------------------    ----------------------------------
                                                              Weighted                           Weighted
                                                 Amortized    Average     Amortized     Fair       Average
                                                   Cost        Yield        Cost        Value       Yield
                                                 ---------   ---------    ---------   ---------   ---------
                                                                    (Dollars in Thousands)
<S>                                              <C>              <C>     <C>         <C>              <C>
Held to maturity:
Mortgage-backed securities:
   Ginnie Mae ................................   $  21,819        7.30%   $  22,042   $  22,134        7.31%
   Fannie Mae ................................       3,114        7.03        3,114       3,127        7.03
   Freddie Mac ...............................          --          --           21          21        7.57
                                                 ---------                ---------   ---------

      Total mortgage-backed securities .......      24,933        7.27       25,177      25,282        7.28

Other debt securities:
   Federal agency obligations ................       2,038        7.27        3,038       3,035        6.99
                                                 ---------                ---------   ---------

      Total securities held-to-maturity ......   $  26,971        7.27%   $  28,215   $  28,317        7.25%
                                                 =========                =========   ========-

Available for sale:
Collateralized mortgage obligations ..........      29,252        6.62       29,834      31,574        6.63
Mortgage-backed securities:
   Ginnie Mae ................................   $  38,190        7.14%   $  38,678   $  39,445        7.15%
   Fannie Mae ................................      11,511        6.79       17,675      18,188        6.82
   Freddie Mac ...............................      10,847        6.83       25,883      26,724        7.08
                                                 ---------                ---------   ---------

      Total mortgage-backed securities .......      89,800        6.89      112,070     115,931        6.94

Other debt securities:
   Federal agency obligations ................      10,454        7.88       33,644      33,599        6.91
                                                 ---------                ---------   ---------

      Total securities available-for-sale ....   $ 100,254        6.99%   $ 145,714   $ 149,530        6.63%
                                                 =========                =========   =========
</TABLE>


                                       17

<PAGE>

Sources of Funds

      General. Deposits have traditionally been the primary source of funds for
the Bank's lending and investment activities. In addition to deposits, funds are
derived from a variety of sources including scheduled loan payments, investment
maturities, loan prepayments and income on earning assets. While scheduled loan
payments and income on earning assets are relatively stable sources of funds,
deposit inflows and outflows can vary widely and are influenced by prevailing
interest rates, market conditions and levels of competition. In addition,
borrowings from the FHLB of New York may be used in the short-term to compensate
for reductions in deposits and to fund growth. At the time the Acquisition was
completed the Bank assumed certain borrowings which totaled $14.6 million at
March 31, 2001. For further information regarding these borrowings see Note 9 to
the Notes to Consolidated Financial Statements.

      Deposits. Deposits are obtained primarily from customers who live or work
in the New York counties of Westchester and Rockland and Fairfield County,
Connecticut. The Bank offers a selection of deposit instruments, including
savings and club accounts, money market accounts, NOW accounts, commercial
checking and fixed-term certificate of deposit accounts. Deposits are not
actively solicited outside of the Bank's market area. Deposit account terms
vary, with the principal differences being the minimum balance required, the
amount of time the funds must remain on deposit and the interest rate. The Bank
does not pay broker fees for any deposits.

      Interest rates paid, maturity terms, service fees and withdrawal penalties
are established on a periodic basis. Deposit rates and terms are based primarily
on current operating strategies and market rates, liquidity requirements, rates
paid by competitors and growth goals. Personalized customer service and
long-standing relationships with customers are relied upon to attract and retain
deposits.

      The flow of deposits is influenced significantly by general economic
conditions, changes in money markets and other prevailing interest rates and
competition. The variety of deposit accounts offered allows the Bank to be
competitive in obtaining funds and responding to changes in consumer demand. In
recent years, the Bank has become more susceptible to short-term fluctuations in
deposit flows as customers have become more interest rate conscious. Deposits
are priced to reflect the Bank's interest rate risk management and profitability
objectives. Based on experience, management believes that passbook accounts and
money market accounts are relatively stable sources of deposits. However, the
ability to attract and maintain certificates of deposit, and the rates paid on
these deposits, have been and will continue to be significantly affected by
market conditions. At March 31, 2001, $295.7 million, or 62.4% of the Bank's
deposit accounts were certificates of deposit, of which $272.6 million have
maturities of one year or less.


                                       18

<PAGE>

      The following table sets forth the distribution of the Bank's deposit
accounts by account type at the dates indicated.

<TABLE>
<CAPTION>
                                                                                At March 31,
                                                   -------------------------------------------------------------------------
                                                                   2001                                2000
                                                   ----------------------------------    -----------------------------------
                                                                            Weighted                              Weighted
                                                                             Average                              Average
                                                    Amount      Percent       Rate        Amount      Percent       Rate
                                                   ---------   ---------    ---------    ---------   ---------    ---------
                                                                           (Dollars in Thousands)
<S>                                                <C>             <C>           <C>     <C>             <C>           <C>
Transaction accounts and savings deposits:
   Savings and club accounts ...................   $ 108,371        22.9%        2.00%   $  60,567        22.0%        2.00%
   Money market accounts .......................      28,333         6.0         2.60       18,583         6.7         1.77
   NOW and Super NOW accounts ..................      38,710         8.2         1.27       26,664         9.7         1.53
   Commercial checking .........................       2,390         0.5         1.91           --          --           --
                                                   ---------                             ---------   ---------
      Total ....................................     177,804        37.6           --      105,814        38.4         1.84
                                                   ---------   ---------                 ---------   ---------

Certificates of deposit maturing:
   Within one year .............................     272,570        57.6         6.01      158,085        57.3         5.23
   After one but within three years ............      20,619         4.4         5.41       10,653         3.9         5.69
   After three years ...........................       2,553         0.4         4.85        1,220         0.4         3.88
                                                   ---------   ---------                 ---------   ---------
      Total ....................................     295,742        62.4         5.96      169,958        61.6         5.25
                                                   ---------   ---------                 ---------   ---------

Total deposits .................................   $ 473,546       100.0%        4.44%   $ 275,772       100.0%        3.94%
                                                   =========   =========                 =========   =========

<CAPTION>
                                                                 1999
                                                   -----------------------------------
                                                                            Weighted
                                                                             Average
                                                    Amount      Percent       Rate
                                                   ---------   ---------    ---------
                                                         (Dollars in Thousands)
<S>                                                <C>             <C>           <C>
Transaction accounts and savings deposits:
   Savings and club accounts ...................   $  60,112        25.3%        2.25%
   Money market accounts .......................      17,754         7.5         1.83
   NOW and Super NOW accounts ..................      22,828         9.6         1.52
   Commercial checking .........................          --          --           --
                                                   ---------   ---------
      Total ....................................     100,694        42.4         2.01
                                                   ---------   ---------

Certificates of deposit maturing:
   Within one year .............................     105,111        44.3         5.03
   After one but within three years ............      30,263        12.8         5.16
   After three years ...........................       1,211         0.5         4.21
                                                   ---------   ---------
      Total ....................................     136,585        57.6         5.05
                                                   ---------   ---------

Total deposits .................................   $ 237,279       100.0%        3.76%
                                                   =========   =========
</TABLE>

      The following table sets forth the deposit activity of the Bank for the
periods indicated.

<TABLE>
<CAPTION>
                                                Years Ended March 31,
                                       -------------------------------------
                                          2001          2000          1999
                                       ---------     ---------     ---------
                                               (Dollars in Thousands)
<S>                                    <C>           <C>           <C>
Balance at beginning of year .......   $ 275,772     $ 237,279     $ 219,913
Deposits assumed in acquisition ....     152,361            --            --
Deposits ...........................     502,757       349,460       353,228
Withdrawals ........................    (475,352)     (320,788)     (344,919)
Interest credited ..................      18,008         9,821         9,057
                                       ---------     ---------     ---------

Balance at end of year .............   $ 473,546     $ 275,772     $ 237,279
                                       =========     =========     =========

Net increase during the year:
   Amount ..........................   $ 197,774     $  38,493     $  17,366
   Percent .........................        71.7%         16.2%          7.9%
                                       =========     =========     =========
</TABLE>

      The following table indicates the amount of the Bank's certificates of
deposits by time remaining until maturity as of March 31, 2001.

<TABLE>
<CAPTION>
                                                                               Maturity
                                                          --------------------------------------------------
                                                          3 Months    Over 3 to 6   Over 6 to 12    Over 12
                                                           or Less       Months        Months        Months         Total
                                                          --------      --------      --------      --------      --------
                                                                                   (In Thousands)
<S>                                                       <C>           <C>           <C>           <C>           <C>
Certificates of deposit less than $100,000 .........      $ 64,414      $ 54,708      $ 99,509      $ 20,887      $239,518
Certificates of deposit of $100,000 or more(1) .....        14,828        13,400        25,711         2,285        56,224
                                                          --------      --------      --------      --------      --------

Total of certificates of deposit ...................      $ 79,242      $ 68,108      $125,220      $ 23,172      $295,742
                                                          ========      ========      ========      ========      ========
</TABLE>

----------------
(1)   The weighted average interest rates for these accounts, by maturity
      period, are 6.0% for 3 months or less; 5.90% for 3 to 6 months; 6.37% for
      6 to 12 months; and 5.33% for over 12 months. The overall weighted average
      rate for accounts of $100,000 or more was 6.12%.


                                      19
<PAGE>

Competition

      The Bank has significant competition in originating loans from savings and
loan associations, savings banks, mortgage banking companies, insurance
companies and commercial banks, many of which have greater financial and
marketing resources than the Bank. The Bank also faces significant competition
in attracting deposits from savings and loan associations, savings banks,
commercial banks and credit unions. The Bank faces additional competition for
deposits from common stock mutual funds, money market funds and other corporate
and government securities funds, and from other financial service providers such
as brokerage firms and insurance companies.

      The Bank attracts and retains deposits by offering personalized service,
convenient office locations and competitive interest rates. Loan originations
are obtained primarily through (i) direct contacts by employees with
individuals, businesses and attorneys in the Bank's community, (ii) mortgage
brokers, (iii) personalized service that the Bank provides borrowers and (iv)
competitive pricing. Competition is affected by, among other things, the general
availability of lendable funds, general and local economic conditions, current
interest rate levels, and other factors that management cannot readily predict.

Service Corporation Subsidiaries

      The Bank has three active subsidiaries, Sound REIT, Inc., First Federal
REIT, Inc. and Mamaroneck Advisors. In April 1999, Sound REIT, Inc. was
incorporated as a special purpose real estate investment trust under New York
law. Sound REIT, Inc. was funded with $74.2 million in mortgage loans and
mortgage-related assets contributed by the Bank. At March 31, 2001, Sound REIT,
Inc. held $67.9 million in mortgage loan and mortgage-related assets.

      First Federal REIT was also formed as a special purpose real estate
investment trust by Peekskill prior to the Acquisition and holds a portion of
the Company's mortgage-related assets, primarily mortgage-backed securities.

      In February 2001, Mamaroneck Advisors was incorporated as a New York
corporation for the purpose of providing investment and insurance products to
the Bank's customers. Mamaroneck Advisors did not have any meaningful operations
in fiscal 2001.

      OTS regulations permit federal savings associations to invest in the
capital stock, obligations or other specified types of securities of
subsidiaries (referred to as "service corporations") and to make loans to such
subsidiaries and joint ventures in which such subsidiaries are participants in
an aggregate amount not exceeding 2% of an association's assets, plus an
additional 1% of assets if the amount over 2% is used for specified community or
inner-city development purposes. In addition, federal regulations permit
associations to make specified types of loans to such subsidiaries (other than
special purpose finance subsidiaries) in which the association owns more than
10% of the stock, in an aggregate amount not exceeding 50% of the association's
regulatory capital if the association's regulatory capital is in compliance with
applicable regulations.

Employees

      As of March 31, 2001, the Bank employed 69 persons on a full-time basis
and 16 persons on a part-time basis. None of the Bank's employees is represented
by a collective bargaining group and management considers employee relations to
be good.


                                      20
<PAGE>

Regulation

      General. As a federally chartered, FDIC-insured savings association, the
Bank is subject to extensive regulation by the OTS and the FDIC. For example,
the Bank must obtain OTS approval before it engages in certain activities and
must file reports with the OTS regarding its activities and financial condition.
The OTS periodically examines the Bank's books and records and, in conjunction
with the FDIC in certain situations, has examination and enforcement powers.
This supervision and regulation are intended primarily for the protection of
depositors and the FDIC insurance funds. The Bank's semi-annual assessment paid
to the OTS, which is based upon a specified percentage of assets, is
approximately $37,000.

      The Bank's activities and operations are subject to a number of additional
detailed, complex and sometimes overlapping federal and state laws and
regulations. These include state usury and consumer credit laws, state laws
relating to fiduciaries, the Federal Truth-In-Lending Act and Regulation Z, the
Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting
Act, the Community Reinvestment Act, the Fair Lending Act and antitrust laws.

      Federal Home Loan Bank System. The Bank is a member of the FHLB of New
York, which is one of twelve regional FHLBs. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from funds deposited by savings associations and proceeds derived from the sale
of consolidated obligations of the FHLB system. It makes loans to members ("FHLB
advances") in accordance with policies and procedures established by the Board
of Directors of the FHLB. All FHLB advances must be fully secured by sufficient
collateral as determined by the FHLB. The Federal Housing Finance Board
("FHFB"), an independent agency, controls the FHLB System, including the FHLB of
New York.

      As a member, the Bank is required to purchase and maintain stock in the
FHLB of New York in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts, or similar obligations at
the beginning of each year. At March 31, 2001, the Bank's investment in stock of
the FHLB of New York was $3.7 million. The FHLB imposes various limitations on
advances such as limiting the amount of certain types of real estate-related
collateral to 30% of a member's capital and limiting total advances to a member.
Interest rates charged for advances vary depending upon maturity, the cost of
funds to the FHLB of New York and the purpose of the borrowing.

      The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. For the fiscal year ended March 31, 2001, dividends paid by the
FHLB of New York to the Bank were approximately $231,000 representing an annual
rate of 7.4%.

      Deposit Insurance. The FDIC is an independent federal agency that insures
deposits of banks and thrift institutions up to certain specified limits and
regulates such institutions for safety and soundness. The FDIC administers two
separate insurance funds, the Bank Insurance Fund ("BIF") for commercial banks
and state savings banks, and the Savings Association Insurance Fund ("SAIF") for
savings associations such as the Bank and banks that have acquired deposits from
savings associations. The FDIC is required to maintain designated levels of
reserves in each fund. The FDIC is authorized to establish separate annual
assessment rates for deposit insurance for members of the BIF and members of the
SAIF. The FDIC may increase assessment rates for either fund if necessary to
restore the fund's ratio of reserves to insured deposits to the target level
within a reasonable time, and may decrease these rates if the target level has
been met. The FDIC


                                      21
<PAGE>

has established a risk-based assessment system for both SAIF and BIF members.
Under this system, assessments vary depending on the risk the institution poses
to its deposit insurance fund. An institution's risk level is determined based
on its capital levels, and the FDIC's level of supervisory concern about the
institution.

      Savings Association Regulatory Capital. Savings associations are subject
to three separate minimum capital-to-assets requirements: (i) a leverage ratio
requirement, (ii) a tangible capital requirement, and (iii) a risk-based capital
requirement. The leverage capital rule at March 31, 2001 generally requires that
savings associations maintain "core capital" of at least 4% of total assets.
Core capital is generally defined as common shareholders' equity (including
retained earnings), noncumulative perpetual preferred stock and related surplus,
certain minority equity interests in subsidiaries, qualifying supervisory
goodwill, purchased mortgage servicing rights and purchased credit card
relationships (subject to certain limits) less nonqualifying intangibles. Under
the tangible capital requirement, a savings association must maintain tangible
capital (core capital less all intangible assets except a limited amount of
purchased mortgage servicing rights and credit card relationships) of at least
1.5% of total assets. Under the risk-based capital requirements, a minimum
amount of capital must be maintained by a savings association to account for the
relative risks inherent in the type and amount of assets held by the savings
association. The risk-based capital requirement requires a savings association
to maintain capital (defined generally for these purposes as core capital plus
general valuation allowances and permanent or maturing capital instruments such
as preferred stock and subordinated debt, less assets required to be deducted)
equal to 8.0% of risk-weighted assets. Assets are ranked as to risk in one of
four risk-weight categories (0%, 20%, 50% or 100%). A credit risk-free asset,
such as cash, requires no risk-based capital, while an asset with a potentially
greater credit risk, such as a commercial loan, requires a risk weight of 100%.
Moreover, a savings association must deduct from capital, for purposes of
meeting the core capital, tangible capital and risk-based capital ratio
requirements, its entire equity and debt investment in and loans to a subsidiary
engaged in activities not permissible for a national bank (other than
exclusively agency activities for its customers or mortgage banking
subsidiaries). At March 31, 2001, the Bank was in compliance with all capital
requirements imposed by law.

      Limitation on Capital Distributions. Under current OTS regulations, a
savings institution may make capital distributions provided it has filed a
notice with, or under certain circumstances made application to, the OTS.
Subsidiaries of a savings and loan holding company must provide prior notice to
the OTS of their intention to declare a dividend. A savings association must
make application to the OTS if the total amount of all capital distributions
(including the proposed distribution) for the applicable calendar year exceeds
the savings association's net income for the year to date plus retained net
income for the prior two years. A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. The OTS may
object to a capital distribution if it would constitute an unsafe or unsound
practice.

      Safety and Soundness Standards. The federal banking agencies have also
adopted safety and soundness standards for all insured depository institutions.
The standards, which were issued in the form of guidelines rather than
regulations, relate to internal controls, information systems, internal audit
systems, loan underwriting and documentation, asset growth, compensation, asset
quality, earnings, and interest rate exposure. In general, the standards are
designed to assist the federal banking agencies in identifying and addressing
problems at insured depository institutions before capital becomes impaired. If
an institution fails to meet these standards, the appropriate federal banking
agency may require the institution to submit a compliance plan. Failure to
submit a compliance plan may result in enforcement proceedings.


                                      22
<PAGE>

      Loans-to-One-Borrower. A savings association generally may not make a loan
or extend credit to a single or related group of borrowers in excess of 15% of
unimpaired capital and surplus. Additional amounts may be lent, not in excess of
10% of unimpaired capital and surplus, if such loans or extensions of credit are
fully secured by readily marketable collateral, including certain debt and
equity securities, but not including real estate. In some cases, a savings
association may lend up to 30% of unimpaired capital and surplus to one borrower
for purposes of developing domestic residential housing, provided that the
association meets its regulatory capital requirements and the OTS authorizes the
association to use this expanded lending authority. At March 31, 2001, the Bank
had no loans to a single or related group of borrowers in excess of its lending
limits. Management does not believe that the loans-to-one-borrower limits have
had a significant impact on the Bank's business operations or earnings.

      Qualified Thrift Lender Test. The HOLA requires savings institutions to
meet a qualified thrift lender ("QTL") test. Under the QTL test, a savings
association is required to maintain at least 65% of its "portfolio assets"
(total assets less (i) specified liquid assets up to 20% of total assets, (ii)
intangibles, including goodwill, and (iii) the value of property used to conduct
business) in certain "qualified thrift investments," primarily residential
mortgages and related investments, including certain mortgage-backed and related
securities on a monthly basis in 9 out of every 12 months.

      A savings association that fails the QTL test must either convert to a
bank charter or operate under certain restrictions. As of March 31, 2001, the
Bank maintained 88.9% of its portfolio assets in qualified thrift investments
and, therefore, met the QTL test.

      Transactions with Affiliates. The Bank is subject to Sections 22(h), 23A
and 23B of the Federal Reserve Act, which restrict financial transactions
between banks and affiliated companies. The statutes limit the amount of credit
and other transactions between a bank or savings association and its executive
officers and its affiliates, prescribes terms and conditions for bank affiliate
transactions deemed to be consistent with safe and sound banking practices, and
restricts the types of collateral security permitted in connection with a bank's
extension of credit to an affiliate.

      Community Reinvestment Act Matters. Federal law requires that ratings of
depository institutions under the Community Reinvestment Act of 1977 ("CRA") be
disclosed. The disclosure includes both a four-unit descriptive
rating--outstanding, satisfactory, needs to improve, and substantial
noncompliance--and a written evaluation of an institution's performance. Each
FHLB is required to establish standards of community investment or service that
its members must maintain for continued access to long-term advances from the
FHLBs. The standards take into account a member's performance under the CRA and
its record of lending to first time home buyers. The OTS has designated the
Bank's record of meeting community credit needs as "satisfactory."

      Savings and Loan Holding Company Regulation. The Mutual Holding Company
and the Company are regulated as savings and loan holding companies under the
Home Owners' Loan Act (the "HOLA"). As such, the Mutual Holding Company and the
Company are registered with and are subject to OTS regulation and examination
and supervision as well as certain reporting requirements. The Company is
regulated in the same manner as a mutual holding company pursuant to Section
10(o) of the HOLA. As a federally-insured savings association, the Bank is
subject to certain restrictions in dealing with the Mutual Holding Company and
with other persons affiliated with the Mutual Holding Company and the Company,
and is subject to examination and supervision by the OTS.


                                      23
<PAGE>

      Pursuant to Section 10(o) of the HOLA, and OTS regulations and policy, a
mutual holding company and a federally chartered mid-tier holding company may
engage in the following activities: (i) investing in the stock of a savings
association; (ii) acquiring a mutual association through the merger of such
association into a savings association subsidiary of such holding company or an
interim savings association subsidiary of such holding company; (iii) merging
with or acquiring another holding company, one of whose subsidiaries is a
savings association; (iv) investing in a corporation, the capital stock of which
is available for purchase by a savings association under federal law or under
the law of any state where the subsidiary savings association or associations
share their home offices; (v) furnishing or performing management services for a
savings association subsidiary of such company; (vi) holding, managing or
liquidating assets owned or acquired from a savings association subsidiary of
such company; (vii) holding or managing properties used or occupied by a savings
association subsidiary of such company properties used or occupied by a savings
association subsidiary of such company; (viii) acting as trustee under deeds of
trust; (ix) any other activity (A) that the Federal Reserve Board, by
regulation, has determined to be permissible for bank holding companies under
Section 4(c) of the Bank Holding Company Act, unless the Director, by
regulation, prohibits or limits any such activity for savings and loan holding
companies; or (B) that is permissible for financial holding companies under the
Gramm Leach Bliley Act; and (x) purchasing, holding, or disposing of stock
acquired in connection with a qualified stock issuance if the purchase of such
stock by such savings and loan holding company is approved by the Director. If a
mutual holding company acquires or merges with another holding company, the
holding company acquired or the holding company resulting from such merger or
acquisition may only invest in assets and engage in activities listed in (i)
through (x) above, and has a period of two years to cease any non-conforming
activities and divest of any non-conforming investments.

      HOLA prohibits a savings and loan holding company, including the Company
and the Mutual Holding Company, directly or indirectly, or through one or more
subsidiaries, from acquiring another savings institution or holding company
thereof, without prior written approval of the OTS. It also prohibits the
acquisition or retention of, with certain exceptions, more than 5% of a
non-subsidiary savings institution, a non-subsidiary holding company, or a
non-subsidiary company engaged in activities other than those permitted by the
HOLA unless prior approval of the OTS is obtained; or acquiring or retaining
control of an institution that is not federally insured. In evaluating
applications by holding companies to acquire savings institutions, the OTS must
consider the financial and managerial resources, future prospects of the company
and institution involved, the effect of the acquisition on the risk to the
insurance fund, the convenience and needs of the community and competitive
factors.

      The OTS is prohibited from approving any acquisition that would result in
a multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies; and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.

      In addition, OTS regulations require the Mutual Holding Company to notify
the OTS of any proposed waiver of its right to receive dividends. The OTS
reviews dividend waiver notices on a case-by-case basis, and, in general, does
not object to a waiver if: (i) the mutual holding company's board of directors
determines that waiver is consistent with its fiduciary duties to the mutual
holding company's members; (ii) for as long as the savings association
subsidiary is controlled by the mutual holding company, the dollar amount of
dividends waived by the mutual holding company is considered as a restriction in
the retained earnings of the savings association, which restriction, if
material, is disclosed in the public financial statements of the savings
association as a note to the financial statements; (iii) the amount of any
dividend


                                      24
<PAGE>

waived by the mutual holding company is available for declaration as a dividend
solely to the mutual holding company, and, in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 5, where the savings association
determines that the payment of such dividend to the mutual holding company is
probable, an appropriate dollar amount is recorded as a liability; and (iv) the
amount of any waived dividend is considered as having been paid by the savings
association in evaluating any proposed dividend under OTS capital distribution
regulations.

Executive Officers of the Company

      Listed below is information, as of March 31, 2001, concerning the
Company's executive officers. There are no arrangements or understandings
between the Company and any of the persons named below with respect to which he
was or is to be selected as an officer.

<TABLE>
<CAPTION>
      Name               Age                         Position and Term
      ----               ---       ----------------------------------------------------------
<S>                      <C>       <C>
Bruno J. Gioffre         66        Chairman of the Board ; Director of the Bank since 1975.

Richard P. McStravick    52        President and Chief Executive Officer since 1996; Director
                                   of the Bank since 1996.

Anthony J. Fabiano       40        Chief Financial Officer and Accounting Officer since 1998.
</TABLE>

ITEM 2. PROPERTIES

Properties

      The following table provides certain information with respect to the
Bank's offices at March 31, 2001.

<TABLE>
<CAPTION>
                                    Leased or Owned,                                     Net Book Value of Real
      Location                    Lease Expiration Date    Year Acquired or Leased              Property
----------------------------------------------------------------------------------------------------------------
                                                                                              (In Thousands)

<S>                                    <C>                           <C>                         <C>
Main Office                               Owned                      1954                          $626
300 Mamaroneck Avenue
Mamaroneck, New York 10543

Branch Office                             Owned                      1961                         1,126
389 Halstead Avenue
Harrison, New York 10528

Branch Office                             Owned                      1972                         1,452
115 South Ridge Street
Rye Brook, New York 10573

Branch Office                            Leased                      1998                        162(2)
180 South Main Street                  12/31/03(1)
New City, New York 10956

Branch Office                            Leased                      1998                        366(2)
East Putnam Avenue                     11/30/08(3)
Cos Cob, Connecticut 06807

Branch Office                             Owned                      2000                           432
1019 Park Street
Peekskill, New York 10566
</TABLE>


                                      25

<PAGE>

<TABLE>
<S>                                    <C>                           <C>                       <C>
Branch Office                            Leased                      2000                         32(2)
1961 Commerce Street                   12/31/02(4)
Yorktown Heights, New York
10598

Branch Office                            Leased                      2000                      1,010(2)
Cortland Town Center                   10/14/17(5)
Mohegan Lake, New York
</TABLE>

----------

(1)   The Company holds two five-year options to renew the lease until 12/31/13.
(2)   The Company's lease agreement is an operating lease. The net book value at
      March 31, 2001 represents the amortized cost of leasehold improvements.
(3)   The Company holds a ten-year option to renew the lease until 11/30/18.
(4)   The Company holds a ten-year option to renew the lease until 12/31/12.
(5)   The Company holds a ten-year option to renew the lease until 10/14/27.

      The total net book value of the Bank's premises, land and equipment was
approximately $5.9 million at March 31, 2001.

ITEM 3. LEGAL PROCEEDINGS

      Although the Company is involved, from time to time, in various legal
proceedings in the normal course of business, there are no material legal
proceedings to which the Company presently is a party or to which any of its
property is subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      None

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
        STOCKHOLDER MATTERS

      Information relating to the market for the Company's common stock is set
forth in the Company's Annual Report to Stockholders which is incorporated
herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

      The "Selected Consolidated Financial Information" section of the Company's
Annual Report to Stockholders is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS

      The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of the Company's Annual Report to Stockholders is
incorporated herein by reference.


                                      26

<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of the Company's Annual Report to Stockholders,
which is incorporated herein by reference, includes the information required by
this item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The financial statements identified in Item 14(a)(1) hereof are
incorporated by reference hereunder.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
        ACCOUNTING AND FINANCIAL DISCLOSURE

      None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      Information concerning Directors of the Company is incorporated herein by
reference from the Company's definitive Proxy Statement dated July 10, 2001 (the
"Proxy Statement"), specifically the section captioned "Proposal I--Election of
Directors." In addition, see "Executive Officers of the Company" in Item 1 for
information concerning the Company's executive officers.

ITEM 11. EXECUTIVE COMPENSATION

      Information concerning executive compensation is incorporated herein by
reference from the Company's Proxy Statement, specifically the section captioned
"Executive Compensation."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
         AND MANAGEMENT

      Information concerning security ownership of certain owners and management
is incorporated herein by reference from the Company's Proxy Statement,
specifically the section captioned "Voting Securities and Principal Holder
Thereof."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Information concerning relationships and transactions is incorporated
herein by reference from the Company's Proxy Statement, specifically the section
captioned "Transactions with Certain Related Persons."


                                      27
<PAGE>

                                     PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
            REPORTS ON FORM 8-K

            The exhibits and financial statement schedules filed as a part of
            this Form 10-K are as follows:

      (a)(1) Financial Statements

            o     Independent Auditors' Report

            o     Consolidated Balance Sheets at March 31, 2001 and 2000
            o     Consolidated Statements of Income for the Years Ended March
                  31, 2001, 2000 and 1999
            o     Consolidated Statements of Changes in Stockholders' Equity for
                  the Years Ended March 31, 2001, 2000 and 1999
            o     Consolidated Statements of Cash Flows for the Years Ended
                  March 31, 2001, 2000 and 1999
            o     Notes to Consolidated Financial Statements.

      (a)(2) Financial Statement Schedules

            No financial statement schedules are filed because the required
            information is not applicable or is included in the consolidated
            financial statements or related notes.

      (a)(3) Exhibits

            3.1   Federal Charter of Sound Federal Bancorp (Incorporated by
                  reference to the Company's Registration Statement on Form S-1
                  (file No. 333-57377) Exhibit 3.1 filed on June 22, 1998))

            3.2   Bylaws of Sound Federal Bancorp (Incorporated by reference to
                  the Company's Registration Statement on Form S-1 (file No.
                  333- 57377) Exhibit 3.2 filed on June 22, 1998))

            13    2001 Annual Report to Stockholders

            10.1  Sound Federal Bancorp 1999 Stock Option Plan (Incorporated by
                  reference to the Company's Registration Statement on Form S-8
                  (File No. 333-93215 filed on December 21, 1999))

            10.2  Sound Federal Bancorp 1999 Recognition and Retention Plan
                  (Incorporated by reference to the Company's Registration
                  Statement on Form S-8 (File No. 333-93215))

            10.3  Employment Agreement with Richard McStravick (Incorporated by
                  reference to the Company's registration Statement on Form S-1
                  (File No. 333-57377 Exhibit 10.2 filed on June 22, 1998))


                                       28

<PAGE>

            21    Subsidiaries of the Registrant

            23    Consent of KPMG LLP

            99.1  Proxy Statement for Annual Meeting of Stockholders

      (b) Reports on Form 8-K

      None.

      (c) The exhibits listed under (a)(3) above are filed herewith.

      (d) Not applicable.


                                       29
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) 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.

                                      SOUND FEDERAL BANCORP


Date: June 21, 2001              By:  /s/ Richard P. McStravick
                                      -------------------------------------
                                      Richard P. McStravick
                                      President and Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<S>                                                  <C>

By:/s/ Richard P. McStravick                         By:   /s/ Bruno J.  Gioffre
   -----------------------------------------               -----------------------------------------------
   Richard P. McStravick, President, Chief                 Bruno J. Gioffre, Chairman of the Board
     Executive Officer and Director
   (Principal Executive Officer)

Date: June 21, 2001                                  Date: June 21, 2001

By:/s/ Joseph Dinlofo                                By:   /s/ Donald H. Heithaus
   -----------------------------------------               -----------------------------------------------
   Joseph Dinolfo, Director                                Donald H. Heithaus, Director

Date: June 21, 2001                                  Date: June 21, 2001

By: /a/ Joseph A. Lanza                              By:   /s/ James Staudt
   -----------------------------------------               -----------------------------------------------
   Joseph A. Lanza, Director                               James Staudt, Director

Date: June 21, 2001                                  Date: June 21, 2001

By:/s/ Arthur C. Phillips                            By:   /s/ Anthony J. Fabiano
   -----------------------------------------               -----------------------------------------------
   Arthur C. Phillips, Jr., Director                       Anthony J. Fabiano, Chief Financial Officer and
                                                           Accounting Officer

Date: June 21, 2001                                        Date: June 21, 2001
</TABLE>