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, 2000

                                       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 13, 2000, there were issued and outstanding 5,005,218 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 13, 2000 ($8.5625) was $14,044,153.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.    Sections of Annual Report to Stockholders for the fiscal year ended March
      31, 2000 (Parts II and IV).
2.    Proxy Statement for the 2000 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, 2000, after the repurchase
of 207,000 shares, there were 2,194,708 outstanding shares held by shareholders
other than the Mutual Holding Company. At March 31, 2000, the Company had total
consolidated assets of $332.3 million, total deposits of $275.8 million, and
stockholders' equity of $52.7 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.

      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 mortgages, construction and consumer loans.

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

Recent Developments

      On February 16, 2000, the Company entered into an Agreement and Plan of
Merger (the "Agreement") with Peekskill Financial Corporation ("Peekskill").
Peekskill is the holding company for First Federal Savings Bank, Peekskill, New
York. Under the terms of the Agreement, Peekskill will be merged into a
subsidiary of the Company and all shares of Peekskill will be cancelled. The
Company will pay $22.00 per share in cash for each outstanding share of
Peekskill's common stock. Each option to purchase Peekskill's common stock shall
be converted into the right to receive in cash an amount equal to the difference
(if a positive number) between $22.00 and the exercise price of the option.

      As a result of the merger, First Federal Savings Bank will merge into the
Bank, and Peekskill's main office and two branch locations will become branch
offices of the Bank. The aggregate purchase price for the transaction (including
cash payments for the cancellation of options) is approximately $41.7 million,
based on Peekskill's share data as of March 31, 2000. The transaction will be
accounted for using the purchase method.


                                        1

<PAGE>

      In connection with the execution of the Agreement, the Company and
Peekskill entered into a Stock Option Agreement, dated February 16, 2000,
pursuant to which Peekskill granted the Company an option to purchase, subject
to certain terms and conditions contained therein, up to an aggregate of 19.9%
of the outstanding shares of Peekskill's common stock. The option was granted as
an inducement to the Company's and the Bank's willingness to enter into this
Agreement.

      Consummation of the merger is subject to approval by Peekskill's
shareholders and the receipt of all required regulatory approvals. It is
anticipated that the transaction will be completed during the quarter ending
September 30, 2000. At March 31, 2000, Peekskill had total consolidated assets
of approximately $206 million and total deposits of approximately $152 million.

Market Area

      The Bank is a community-oriented savings 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. To a lesser extent, the Bank
obtains deposits from persons in Rockland County and Fairfield County. The
Bank's market area is characterized by 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 $138.4 million, or 75.9%, of the Bank's loan portfolio at March 31,
2000. Home equity lines of credit represented $24.3 million, or 13.3%, of the
Bank's loan portfolio at March 31, 2000. The Bank also offers multi-family
mortgage loans, commercial mortgage loans and construction loans. Multi-family
mortgage loans totaled $4.6 million, or 2.6%, of the loan portfolio at March 31,
2000. Commercial mortgage loans totaled approximately $10.8 million, or 5.9%, of
the loan portfolio at March 31, 2000. Construction loans totaled $3.4 million or
1.9 % of the loan portfolio at March 31, 2000. The Bank also makes consumer
loans, which primarily consist of automobile, passbook, home improvement and
secured personal loans. Consumer loans totaled $820,000, or 0.4%, of the loan
portfolio at March 31, 2000.


                                        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,
                                               -------------------------------------------------------------------------------------
                                                       2000                  1999                  1998                  1997
                                               -------------------   -------------------   -------------------   -------------------
                                                Amount    Percent      Amount   Percent     Amount    Percent     Amount    Percent
                                                ------    -------      ------   -------     ------    -------     ------    -------
                                                                            (Dollars in Thousands)
<S>                                            <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Mortgage loans:
   One- to four-family........................ $ 138,375    75.9%    $ 119,015    82.1%    $109,207     83.8%    $103,595     83.6%
   Home equity lines of credit................    24,337    13.3        16,441    11.3       13,138     10.1        9,487      7.7
   Multi-family...............................     4,621     2.6           396     0.3          412      0.3          348      0.3
   Commercial.................................    10,795     5.9         5,930     4.1        3,811      2.9        3,416      2.8
   Construction...............................     3,430     1.9         2,160     1.5        1,800      1.4        5,539      4.5
                                               ---------  ------     ---------  ------     --------   ------     --------   ------
      Total mortgage loans....................   181,558    99.6       143,942    99.3      128,368     98.5      122,385     98.9
                                               ---------  ------     ---------  ------     --------   ------     --------   ------

Consumer loans:
   Automobile loans...........................       467     0.2           609     0.4        1,011      0.8        1,028      0.8
   Other (1)..................................       353     0.2           395     0.3        1,016      0.7          426      0.3
                                               ---------  ------     ---------  ------     --------   ------     --------   ------
      Total consumer loans....................       820     0.4         1,004     0.7        2,027      1.5        1,454      1.1
                                               ---------  ------     ---------  ------     --------   ------     --------   ------

      Total loans.............................   182,378   100.0%      144,946   100.0%     130,395    100.0%     123,839    100.0%
                                                          ======                ======                ======                ======

Construction loans in process.................      (508)                 (339)                (573)               (1,049)
Allowance for loan losses.....................    (1,188)               (1,094)                (984)                 (845)
Deferred loan origination costs (fees), net...       250                    23                 (280)                 (328)
                                               ---------             ---------             --------              --------
   Total loans, net........................... $ 180,932             $ 143,536             $128,558              $121,617
                                               =========             =========             ========              ========

<CAPTION>
                                                     At March 31,
                                                  ------------------
                                                         1996
                                                  ------------------
                                                   Amount    Percent
                                                   ------    -------
                                                (Dollars in Thousands)
<S>                                               <C>        <C>
Mortgage loans:
   One- to four-family........................    $ 98,865     84.7%
   Home equity lines of credit................       7,131      6.1
   Multi-family...............................         373      0.3
   Commercial.................................       3,469      3.0
   Construction...............................       5,193      4.5
                                                  --------   ------
      Total mortgage loans....................     115,031     98.6
                                                  --------   ------

Consumer loans:
   Automobile loans...........................         968      0.8
   Other (1)..................................         665      0.6
                                                  --------   ------
      Total consumer loans....................       1,633      1.4
                                                  --------   ------

      Total loans.............................     116,664    100.0%
                                                             ======

Construction loans in process.................      (2,023)
Allowance for loan losses.....................        (725)
Deferred loan origination costs (fees), net...        (384)
                                                  --------
   Total loans, net...........................    $113,532
                                                  ========
</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>
                                                                                  At March 31,
                                               -------------------------------------------------------------------------------------
                                                       2000                  1999                  1998                  1997
                                               -------------------   -------------------   -------------------   -------------------
                                                Amount    Percent      Amount   Percent     Amount    Percent     Amount    Percent
                                                ------    -------      ------   -------     ------    -------     ------    -------
                                                                            (Dollars in Thousands)
<S>                                            <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Fixed Rate Loans
   Mortgage loans:
      One- to four-family....................  $ 135,912    74.5%    $ 116,113    80.1%    $103,887    79.7%     $ 96,801    78.2%
      Home equity lines of credit............     23,940    13.1        15,590    10.7       12,094      9.3        8,145      6.6
      Multi-family...........................      4,621     2.6           396     0.3          412      0.3          348      0.3
      Commercial.............................     10,740     5.9         5,930     4.1        3,811      2.9        3,380      2.7
      Construction...........................      3,430     1.9         2,160     1.5        1,800      1.4        5,539      4.5
                                               ---------  ------     ---------  ------     --------   ------     --------   ------
        Total mortgage loans.................    178,643    98.0       140,189    96.7      122,004     93.6      114,213     92.3
   Consumer loans (1)........................        820     0.4         1,004     0.7        2,027      1.5        1,454      1.1
                                               ---------  ------     ---------  ------     --------   ------     --------   ------
   Total fixed rate loans....................    179,463    98.4       141,193    97.4      124,031     95.1      115,667     93.4
                                               ---------  ------     ---------  ------     --------   ------     --------   ------

Adjustable Rate Loans
   Mortgage loans:
      One- to four-family....................      2,463     1.4         2,902     2.0        5,320      4.1        6,794      5.5
      Home equity lines of credit............        397      .2           851     0.6        1,044      0.8        1,342      1.1
      Commercial.............................         55      --            --      --           --       --           36       --
                                               ---------  ------     ---------  ------     --------   ------     --------   ------
        Total adjustable rate loans..........      2,915     1.6         3,753     2.6        6,364      4.9        8,172      6.6
                                               ---------  ------     ---------  ------     --------   ------     --------   ------

Total loans..................................    182,378   100.0%      144,946   100.0%     130,395    100.0%     123,839    100.0%
                                                          ======                ======                ======                ======

Construction loans in process................       (508)                 (339)                (573)               (1,049)
Allowance for loan losses....................     (1,188)               (1,094)                (984)                 (845)
Deferred loan origination costs (fees), net .        250                    23                 (280)                 (328)
                                               ---------             ---------             ---------             ---------
   Total loans, net .........................  $ 180,932             $ 143,536             $128,558              $121,617
                                               =========             =========             ========              ========

<CAPTION>
                                                     At March 31,
                                                  ------------------
                                                         1996
                                                  ------------------
                                                   Amount    Percent
                                                   ------    -------
                                                (Dollars in Thousands)
<S>                                               <C>        <C>
Fixed Rate Loans
   Mortgage loans:
      One- to four-family....................     $ 90,881     77.9%
      Home equity lines of credit............        5,528      4.7
      Multi-family...........................          373      0.3
      Commercial.............................        3,403      2.9
      Construction...........................        5,193      4.5
                                                  --------   ------
        Total mortgage loans.................      105,378     90.3
   Consumer loans (1)........................        1,633      1.4
                                                  --------   ------
   Total fixed rate loans....................      107,011     91.7
                                                  --------   ------

Adjustable Rate Loans
   Mortgage loans:
      One- to four-family....................        7,984      6.8
      Home equity lines of credit............        1,603      1.4
      Commercial.............................           66      0.1
                                                  --------   ------
        Total adjustable rate loans..........       9 ,653      8.3
                                                  --------   ------

Total loans..................................      116,664    100.0%
                                                             ======

Construction loans in process................       (2,023)
Allowance for loan losses....................         (725)
Deferred loan origination costs (fees), net .         (384)
                                                  ---------
   Total loans, net .........................     $113,532
                                                  ========
</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, 2000. 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,
2001(2) .............................   $  1,870       8.20%    $  3,652       7.76%       $  5,522       7.91%
2002 ................................        292       8.87          255       8.30             547       8.60
2003 ................................        616       8.16          197       8.26             813       8.18
2004 to 2006 ........................      3,723       7.88        2,792       7.95           6,515       7.91
2007 to 2010 ........................     10,701       7.64        9,292       8.07          19,993       7.84
2011-2015 ...........................     30,613       7.16        2,996       8.48          33,609       7.28
2016 and following ..................    114,897       7.66          482       8.08         115,379       7.66
                                        --------                --------                   --------
   Total ............................   $162,712       7.58%    $ 19,666       8.06%       $182,378       7.63%
                                        ========                ========                   ========
</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, 2000 that are contractually due after March
31, 2001.

<TABLE>
<CAPTION>
                                                        Fixed    Adjustable    Total
                                                       --------   --------   --------
                                                              (In Thousands)
<S>                                                    <C>        <C>        <C>
One- to four-family ................................   $157,982   $  2,860   $160,842
Multi-family, commercial, construction and consumer      15,959         55     16,014
                                                       --------   --------   --------
   Total ...........................................   $173,941   $  2,915   $176,856
                                                       ========   ========   ========
</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 90% 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 one year adjustment periods.
In the low interest rate environment that prevailed during most of calendar
1999, borrowers showed a preference for fixed rate loans. At March 31, 2000,
98.2% of the Bank's one-to-four family residential loans had fixed interest
rates. The interest rate on ARM loans is indexed to the prime interest rate as
published in The Wall Street Journal. The Bank's ARM loans currently provide for
maximum rate adjustments of 1.75% per year and 6% 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.


                                        5

<PAGE>

      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 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,
2000, 1.8% 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, 2000, approximately $138.4 million, or 75.9% of the Bank's
loan portfolio, consisted of one-to-four family residential loans. Approximately
$969,000 of such loans (representing 11 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 75% when combined with the
principal balance of the existing mortgage loan, if the Bank has the first
mortgage on the property securing the loan, and up to a 65% loan to value ratio
when combined with the principal balance of the existing mortgage loan if the
first mortgage is held by another financial institution; however, the maximum
principal amount of a home equity line of credit may not exceed $200,000 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, 2000, the outstanding balances of home equity lines of credit totaled
$24.3 million, or 13.3% of the Bank's loan portfolio.

      Commercial Mortgage Loans. At March 31, 2000, $10.8 million, or 5.9%, 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 and adjustable 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, 2000, the largest commercial mortgage loan had a principal
balance of $976,000 and was secured by a commercial complex which includes
retail stores. As of March 31, 2000, 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.


                                        6
<PAGE>

      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 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 $4.6 million, or 2.5% of the total loan portfolio at March
31, 2000. Multi-family mortgage loans generally are secured by multi-family
rental properties (including mixed-use buildings and walk-up apartments).
Substantially all multi-family mortgage loans were secured by properties located
within the Bank's primary lending area. At March 31, 2000, the Bank had eleven
multi-family mortgage loans, the largest of which had a principal balance of
$975,000. 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, 2000, the
Bank had construction loans totaling $3.4 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


                                        7
<PAGE>

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.

      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, 2000,
consumer loans totaled $820,000, or 0.4% 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 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. Historically, the Bank has not used
mortgage brokers to obtain loans. Loan applications are underwritten and
processed at the Bank's main office.

      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


                                        8

<PAGE>

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 $750,000 with loan-to-value ratios of 70% or less may be approved
by the Bank's President and Senior Lending Officer acting together. Loans up to
$500,000 with a loan-to-value ratio between 70% and 80% (or up to 90% with
private mortgage insurance) may be approved by the President and Senior Lending
Officer acting together. All loans in excess of $750,000 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 $1.0 million.

      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,
                                                    -----------------------------------
                                                      2000         1999         1998
                                                    ---------    ---------    ---------
                                                               (In Thousands)
<S>                                                 <C>          <C>          <C>
Unpaid principal balances at beginning of year ..   $ 144,946    $ 130,395    $ 123,839
                                                    ---------    ---------    ---------

Loans originated by type:
   Fixed rate:
     Mortgage loans:
       One-to-four family .......................      32,572       26,881       14,794
       Advances under home equity lines of credit      16,676        9,576        6,925
       Multi-family .............................       4,404           58          257
       Commercial ...............................       4,466        1,060          660
       Construction .............................       3,678        5,187        4,159
     Consumer loans .............................         679          699        1,843
                                                    ---------    ---------    ---------
       Total fixed rate .........................      62,475       43,461       28,638

   Adjustable rate mortgage loans:
     One-to-four family .........................          --           --          225
     Advances under home equity lines of credit .          --           73           72
     Commercial .................................          55           --           --
                                                    ---------    ---------    ---------
       Total loans originated ...................      62,530       43,534       28,935
                                                    ---------    ---------    ---------

Principal repayments:
   Mortgage loans ...............................     (24,111)     (26,675)     (21,093)
   Consumer loans ...............................        (863)      (1,722)      (1,270)
                                                    ---------    ---------    ---------
     Total principal repayments .................     (24,974)     (28,397)     (22,363)
                                                    ---------    ---------    ---------

Charge-offs .....................................          (6)        (162)         (16)
Transfers to real estate owned ..................        (118)        (424)          --
                                                    ---------    ---------    ---------
Unpaid principal balances at end of year ........     182,378      144,946      130,395

Construction loans in process ...................        (508)        (339)        (573)
Allowance for loan losses .......................      (1,188)      (1,094)        (984)
Deferred loan origination costs (fees), net .....         250           23         (280)
                                                    ---------    ---------    ---------
Net loans at end of year ........................   $ 180,932    $ 143,536    $ 128,558
                                                    =========    =========    =========
</TABLE>


                                        9

<PAGE>

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 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,
                                          ----------------------------------------------
                                            2000      1999      1998      1997      1996
                                          ------    ------    ------    ------    ------
                                                      (Dollars in Thousands)
<S>                                       <C>       <C>       <C>       <C>       <C>
Nonaccrual loans:
   Mortgage loans:
     One-to-four family(1) ............   $  969    $1,077    $1,721    $1,832    $2,831
     Commercial .......................       --        --       236       432       236
   Consumer loans .....................       --        14         1        --        21
                                          ------    ------    ------    ------    ------
     Total ............................      969     1,091     1,958     2,264     3,088

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

     Total nonperforming assets .......   $1,024    $1,379    $2,087    $2,393    $3,143
                                          ======    ======    ======    ======    ======

Ratios:
   Nonperforming loans to total loans .     0.53%     0.75%     1.50%     1.83%     2.65%
   Nonperforming assets to total assets     0.31%     0.47%     0.82%     0.98%     1.37%
</TABLE>

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

      For the year ended March 31, 2000, gross interest income that would have
been recorded had the nonaccrual loans been current in accordance with their
original terms amounted to $87,000. Interest amounts on such loans that were
included in interest income totaled $29,000 for the year ended March 31, 2000.


                                       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, 2000 Mortgage loans:
     One- to four-family.........          7       $   829           11      $   969           18       $1,798
     Commercial..................         --            --           --           --           --           --
   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
     Commercial..................         --            --           --           --           --           --
   Consumer loans................         --            --            1           14            1           14
                                      ------       -------      -------      -------      -------       ------
     Total.......................          5       $   673           13      $ 1,091           18       $1,764
                                      ======       =======      =======      =======      =======       ======

At March 31, 1998 Mortgage loans:
     One-to-four family..........          8       $   526           13      $ 1,721           21       $2,247
     Commercial..................         --            --            1          236            1          236
   Consumer loans................          1             4            1            1            2            5
                                      ------       -------      -------      -------      -------       ------
     Total.......................          9       $   530           15      $ 1,958           24       $2,488
                                      ======       =======      =======      =======      =======       ======
</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, 2000, the Bank's assets classified as substandard and
doubtful totaled $789,000 and $235,000, respectively, representing all loans
delinquent for 90 days or more and foreclosed properties. At March 31, 2000 the
Bank had no assets classified as 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 89.2% of the Bank's total loans at March 31, 2000) 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,
                                                           --------------------------------------------------------
                                                            2000        1999        1998        1997        1996
                                                           -------     -------     -------     -------     -------
                                                                             (Dollars in Thousands)
<S>                                                        <C>         <C>         <C>         <C>         <C>
Balance at beginning of year ........................      $ 1,094     $   984     $   845     $   725     $   652
                                                           -------     -------     -------     -------     -------

Charge-offs:
   One-to-four family mortgage loans ................           (6)       (162)        (16)        (30)        (26)
   Consumer loans ...................................           --          --          --         (15)         --
                                                           -------     -------     -------     -------     -------
     Total charge-offs ..............................           (6)       (162)        (16)        (45)        (26)

Recoveries:
   One-to-four family mortgage loans ................           --          --          --          --           1
   Consumer loans ...................................           --          --          --          19          --
                                                           -------     -------     -------     -------     -------

Net charge-offs .....................................           (6)       (162)        (16)        (26)        (25)
Provision for loan losses ...........................          100         272         155         146          98
                                                           -------     -------     -------     -------     -------
Balance at end of year ..............................      $ 1,188     $ 1,094     $   984     $   845     $   725
                                                           =======     =======     =======     =======     =======

Ratios:
     Allowance for loan losses to nonperforming loans        122.6%     100.27%      50.26%      37.32%      23.48%
   Allowance for loan losses to total loans .........         0.65%       0.75%       0.75%       0.68%       0.62%
</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,
                            --------------------------------------------------------------------------------------------------------
                                        2000                              1999                                1998
                           ---------------------------------  ---------------------------------   ----------------------------------
                                                  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)     $    633   $162,712       89.2%    $    718    $135,456      93.4%     $    668     $122,345     93.9%
  Multi-family ........          125      4,621        2.6           26         396       0.3            27          412      0.3
  Commercial ..........          300     10,795        5.9          237       5,930       4.1           152        3,811      2.9
  Construction ........           70      3,430        1.9           43       2,160       1.5            36        1,800      1.4
  Consumer ............           60        820        0.4           70       1,004       0.7           101        2,027      1.5
                            --------   --------      -----     --------    --------     -----      --------     --------    -----
     Total ............     $  1,188   $182,378      100.0%    $  1,094    $144,946     100.0%     $    984     $130,395    100.0%
                            ========   ========      =====     ========    ========     =====      ========     ========    =====
</TABLE>

<TABLE>
<CAPTION>
                                                            At March 31,
                             -------------------------------------------------------------------------
                                           1997                                  1996
                             -----------------------------------  ------------------------------------
                                                     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)      $    514     $113,082        91.3%   $    390     $105,996        90.8%
  Multi-family ........            10          348         0.3          11          373         0.3
  Commercial ..........           137        3,416         2.8         139        3,469         3.0
  Construction ........           111        5,539         4.5         103        5,193         4.5
  Consumer ............            73        1,454         1.1          82        1,633         1.4
                             --------     --------       -----    --------     --------       -----
     Total ............      $    845     $123,839       100.0%   $    725     $116,664       100.0%
                             ========     ========       =====    ========     ========       =====
</TABLE>

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


                                       13
<PAGE>

Investment Activities

      The Bank's investments include mortgage-backed securities, U.S. Government
and agency securities, federal funds sold, certificates of deposit at other
financial institutions, mutual funds and FHLB stock. Management has decided to
invest 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 deploy assets as interest rates begin to rise. Historically, the Bank
classified substantially all securities as held-to-maturity. During fiscal year
1999, the Bank began classifying a larger portion of security purchases as
available-for-sale. Based on amortized cost at March 31, 2000, the total
securities portfolio consisted of 64.4% in available-for-sale securities and
35.6% in held-to-maturity securities.

      The Bank's mortgage-backed securities portfolio (including
held-to-maturity and available-for-sale) had a carrying value of $57.2 million,
or 17.2% of total assets at March 31, 2000. Of this amount, $51.6 million of
mortgage-backed securities had adjustable rates of interest and $5.6 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 the 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
quality of the Bank's assets by virtue of their greater liquidity compared to
individual mortgage loans and the guarantees that back the securities
themselves. The Bank has not invested in collateralized mortgage obligations or
privately issued mortgage-backed securities.

      At March 31, 2000, the carrying value of the Bank's investment securities
other than mortgage-backed securities included $37.8 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 twenty 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 Government and agency securities typically have call
dates of six months to three years. At March 31, 2000, the Bank had also
invested $3.0 million in two mutual funds that provide a rate of return that
adjusts daily. The first mutual fund, in which the Bank had 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 had a $2.0 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,
2000, $35.1 million, or 10.6% 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,
                                        -------------------------------------------------------------------
                                               2000                      1999                      1998
                                        ------------------     -------------------     --------------------
                                        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 ......................     $27,772     $27,171     $35,977     $35,614     $45,260     $45,411
   Fannie Mae ......................       3,827       3,711       4,902       4,817       6,935       6,940
Fixed rate:
   Ginnie Mae ......................         571         570         795         795       1,129       1,211
   Freddie Mac .....................          40          38          65          64          97          99
                                         -------     -------     -------     -------     -------     -------
Total mortgage-backed securities ...      32,210      31,490      41,739      41,290      53,421      53,661

U.S. Government securities .........          --          --          --          --       4,012       4,030
Federal agency obligations .........       3,448       3,309       3,851       3,797       7,465       7,400
                                         -------     -------     -------     -------     -------     -------
   Total securities held-to-maturity     $35,658     $34,799     $45,590     $45,087     $64,898     $65,091
                                         =======     =======     =======     =======     =======     =======
</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,
                                        -------------------------------------------------------------------
                                               2000                      1999                      1998
                                        ------------------     -------------------     --------------------
                                        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 ........................   $10,493     $10,370     $ 7,146     $ 7,176     $    --     $    --
   Fannie Mae ........................     5,515       5,500       1,202       1,196          --          --
   Freddie Mac .......................     4,202       4,120       2,314       2,297          --          --
Fixed rate:
   Ginnie Mae ........................       916         865       1,017       1,005          --          --
   Fannie Mae ........................     1,621       1,545       1,922       1,909          --          --
   Freddie Mac .......................     2,738       2,580       2,978       2,948          --          --
                                         -------     -------     -------     -------     -------     -------
Total mortgage-backed securities .....    25,485      24,980      16,579      16,531          --          --

U.S. Government agency securities ....    35,891      34,417      15,000      14,841          --          --
Mutual fund investments ..............     3,000       2,968       8,046       8,030       3,000       2,994
                                         -------     -------     -------     -------     -------     -------
   Total securities available-for-sale   $64,376     $62,365     $39,625     $39,402     $ 3,000     $ 2,994
                                         =======     =======     =======     =======     =======     =======

Other earning assets:
   Federal funds sold ................   $25,000                 $44,400                 $36,400
   Certificates of deposit ...........    10,075                  10,686                  11,483
   FHLB stock ........................     2,195                   1,884                   1,745
                                         -------                 -------                 -------
     Total ...........................   $37,270                 $56,970                 $49,628
                                         =======                 =======                 =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                 Years Ended March 31,
                                                         ------------------------------------
                                                           2000          1999          1998
                                                         --------      --------      --------
                                                                    (In Thousands)
<S>                                                      <C>           <C>           <C>
Amortized cost at beginning of year ................     $ 58,318      $ 53,421      $ 52,901
Purchases of adjustable rate pass-through securities       13,257        24,823        12,237
Principal repayments ...............................      (13,660)      (19,379)      (11,591)
Premium amortization and discount accretion, net ...         (220)         (547)         (126)
                                                         --------      --------      --------
Amortized cost at end of year ......................     $ 57,695      $ 58,318      $ 53,421
                                                         ========      ========      ========
</TABLE>


                                       15
<PAGE>

         The composition and contractual maturities of mortgage-backed
securities and other debt securities at March 31, 2000 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 ..........................     $     2     8.00%    $   278     8.51%     $   291     9.02%
   Fannie Mae ..........................          --       --          --       --           --       --
   Freddie Mac .........................          --       --          26     7.23           14     8.00
                                             -------              -------               -------

     Total mortgage-backed securities ..           2     8.00         304     8.40          305     8.97

Other debt securities:
   Federal agency obligations ..........          --       --          --       --        1,000     6.90
                                             -------              -------               -------

     Total securities held-to-maturity       $     2     8.00%    $   304     8.40%     $ 1,305     7.38%
                                             =======              =======               =======

Available for sale:
Mortgage-backed securities:
   Ginnie Mae ..........................     $    --       --%    $    --       --%     $    --       --%
   Fannie Mae ..........................          --       --          --       --        1,622     5.94
   Freddie Mac .........................          --       --          --       --          880     5.95
                                             -------              -------               -------

     Total mortgage-backed securities ..          --       --          --       --        2,502     5.94

Other debt securities:
   Federal agency obligations ..........          --       --      16,500     6.31       14,250     6.73
                                             -------              -------               -------

     Total securities available-for-sale     $    --       --%    $16,500     6.31%     $16,752     6.61%
                                             =======              =======               =======

<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 ..........................         $27,772     6.80%     $28,343     $27,741     6.84%
   Fannie Mae ..........................           3,827     6.53        3,827       3,711     6.53
   Freddie Mac .........................              --       --           40          38     7.51
                                                 -------               -------     -------

     Total mortgage-backed securities ..          31,599     6.77       32,210      31,490     6.80

Other debt securities:
   Federal agency obligations ..........           2,448     6.71        3,448       3,309     6.77
                                                 -------               -------     -------

     Total securities held-to-maturity           $34,047     6.77%     $35,658     $34,799     6.80%
                                                 =======               =======     =======

Available for sale:
Mortgage-backed securities:
   Ginnie Mae ..........................         $11,409     6.19%     $11,409     $11,235     6.19%
   Fannie Mae ..........................           5,514     6.21        7,136       7,045     6.15
   Freddie Mac .........................           6,060     6.63        6,940       6,700     6.54
                                                 -------               -------     -------

     Total mortgage-backed securities ..          22,983     6.31       25,485      24,980     6.27

Other debt securities:
   Federal agency obligations ..........           5,141     6.86       35,891      34,417     6.56
                                                 -------               -------     -------

     Total securities available-for-sale         $28,124     6.41%     $61,376     $59,397     6.44%
                                                 =======               =======     =======
</TABLE>


                                       16
<PAGE>

Sources of Funds

      General. Deposits have traditionally been the primary source of funds for
use in 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, although the Bank has not had to
borrow funds in recent periods.

      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
passbook and club accounts, money market accounts, NOW accounts 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, 2000, $170.0 million, or 61.6% of the Bank's
deposit accounts were certificates of deposit, of which $158.1 million have
maturities of one year or less.


                                       17
<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,
                                       --------------------------------------------------------------------------------------
                                                  2000                          1999                          1998
                                       ---------------------------    --------------------------    -------------------------
                                                          Weighted                      Weighted                     Weighted
                                                           Average                       Average                      Average
                                       Amount    Percent    Rate      Amount   Percent    Rate      Amount   Percent    Rate
                                       ------    -------  --------    ------   -------  --------    ------   ------- --------
                                                                            (Dollars in Thousands)
<S>                                  <C>           <C>      <C>     <C>          <C>      <C>     <C>          <C>      <C>
Transaction accounts and savings
 deposits:
   Passbook and club accounts....    $  60,567     22.0%    2.00%   $  60,112    25.3%    2.25%   $  61,347    27.9%    2.54%
   Money market accounts.........       18,583      6.7     1.77       17,754     7.5     1.83       17,676     8.0     3.05
   NOW and Super NOW accounts....       26,664      9.7     1.53       22,828     9.6     1.52       21,261     9.7     2.04
                                     ---------   ------             ---------   -----             ---------   -----
     Total.......................      105,814     38.4     1.84      100,694    42.4     2.01      100,284    45.6     2.52
                                     ---------   ------             ---------   -----             ---------   -----
Certificates of deposit maturing:
   Within one year...............      158,085     57.3     5.23      105,111    44.3     5.03      108,902    49.5     5.60
   After one but within three years     10,653      3.9     5.69       30,263    12.8     5.16        9,613     4.4     5.72
   After three years.............        1,220      0.4     3.88        1,211     0.5     4.21        1,114     0.5     4.49
                                     ---------   ------             ---------   -----             ---------   -----
     Total.......................      169,958     61.6     5.25      136,585    57.6     5.05      119,629    54.4     5.60
                                     ---------   ------             ---------   -----             ---------   -----

Total deposits...................    $ 275,772    100.0%    3.94%   $ 237,279   100.0%    3.76%   $ 219,913   100.0%    4.20%
                                     =========   ======             =========   =====             =========   =====
</TABLE>

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

<TABLE>
<CAPTION>
                                                Years Ended March 31,
                                     -----------------------------------------
                                       2000             1999            1998
                                     ---------       ---------       ---------
                                               (Dollars in Thousands)
<S>                                  <C>             <C>             <C>
Balance at beginning of year ...     $ 237,279       $ 219,913       $ 211,223
Deposits .......................       349,460         353,228         279,709
Withdrawals ....................      (320,788)       (344,919)       (279,719)
Interest credited ..............         9,821           9,057           8,700
                                     ---------       ---------       ---------

Balance at end of year .........     $ 275,772       $ 237,279       $ 219,913
                                     =========       =========       =========

Net increase during the year:
   Amount ......................     $  38,493       $  17,366       $   8,690
   Percent .....................          16.2%            7.9%            4.1%
                                     =========       =========       =========
</TABLE>

      The following table indicates the amount of the Bank's certificates of
deposits by time remaining until maturity as of March 31, 2000.

<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>          <C>
Certificates of deposit less than $100,000 .........     $ 39,798     $ 25,967     $ 65,956     $  9,869     $141,590
Certificates of deposit of $100,000 or more(1) .....        9,924        4,068       12,372        2,004       28,368
                                                         --------     --------     --------     --------     --------

Total of certificates of deposit ...................     $ 49,722     $ 30,035     $ 78,328     $ 11,873     $169,958
                                                         ========     ========     ========     ========     ========
</TABLE>

----------
(1)   The weighted average interest rates for these accounts, by maturity
      period, are 4.81% for 3 months or less; 4.91% for 3 to 6 months; 5.62% for
      6 to 12 months; and 5.50% for over 12 months. The overall weighted average
      rate for accounts of $100,000 or more was 5.28%.


                                       18
<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) personalized
service that the Bank provides borrowers and (iii) 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 Subsidiary

      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, 2000, Sound REIT, Inc. held $69.4 million in mortgage loan
and mortgage-related assets.

      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 2.0% of an association's assets, plus an
additional 1% of assets if the amount over 2.0% 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, 2000, the Bank employed 51 persons on a full-time basis
and 9 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.

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 may engage 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


                                       19
<PAGE>

primarily for the protection of depositors and the FDIC insurance funds. The
Bank's present semi-annual assessment paid to the OTS, which is based upon a
specified percentage of assets, is approximately $32,000.

      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.

      The United States Congress in the past has considered legislation that
would require all federal savings associations, such as the Bank, to either
convert to a national bank or a state-chartered bank by a specified date to be
determined. In addition, under such legislation, the Mutual Holding Company and
the Company likely would not be regulated as savings and loan holding companies
but rather as bank holding companies. This proposed legislation would abolish
the OTS and transfer its functions to other federal banking regulators. No
assurance can be given as to whether or in what form such legislation might be
enacted or its potential effect on the Company and the Bank.

      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 and loan 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.

      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 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 of 1956, unless the Director, by regulation,
prohibits or limits any such activity for savings and loan holding companies; or
(B) in which multiple savings and loan holding companies were authorized (by
regulation) to directly engage on March 5, 1987; 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.


                                       20
<PAGE>

      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; 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.

      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 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; (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; and (v) in the event the mutual holding company converts to stock
form, the appraisal submitted to the OTS in connection with the conversion
application takes into account the aggregate amount of the dividends waived by
the mutual holding company.

      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, 2000, the Bank's investment in stock of
the FHLB of New York was $2.2 million. The FHLB imposes various limitations on
advances such as limiting


                                       21
<PAGE>

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, 2000, dividends paid by the
FHLB of New York to the Bank were approximately $129,000 representing an annual
rate of 6.76%.

      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.

      Assessments. 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 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, 2000 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, 2000, the Bank was in compliance with all capital
requirements imposed by law.


                                       22
<PAGE>

      If an association is not in compliance with the capital requirements, the
OTS is required to prohibit asset growth and to impose a capital directive that
may restrict, among other things, the payment of dividends and officers
compensation. In addition, the OTS and the FDIC generally are authorized to take
enforcement actions against a savings association that fails to meet its capital
requirements. These actions may include restricting the operations and
activities of the association, imposing a capital directive, cease and desist
order, or civil money penalties, or imposing harsher measures such as appointing
a receiver or conservator or forcing the association to merge into another
institution.

      Prompt Corrective Regulatory Action. Federal law requires, among other
things, that federal bank regulatory authorities take "prompt corrective action"
with respect to institutions that do not meet minimum capital requirements. For
these purposes, federal law establishes five capital tiers: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. At March 31, 2000, the Bank was categorized as
"well capitalized," meaning that the Bank's total risk-based capital ratio
exceeded 10%, Tier I risk-based capital ratio exceeded 6%, leverage capital
ratio exceeded 5%, and the Bank was not subject to a regulatory order, agreement
or directive to meet and maintain a specific capital level for any capital
measure.

      The FDIC may order savings associations which have insufficient capital to
take corrective actions. For example, a savings association which is categorized
as "undercapitalized" would be subject to growth limitations and would be
required to submit a capital restoration plan, and a holding company that
controls such a savings association would be required to guarantee that the
savings association complies with the restoration plan. "Significantly
undercapitalized" savings associations would be subject to additional
restrictions. Savings associations deemed by the FDIC to be "critically
undercapitalized" would be subject to the appointment of a receiver or
conservator.

      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 if its 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 institution 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.

      In addition, OTS regulations require the Mutual Holding Company to notify
the OTS of any proposed waiver of its right to receive dividends. It is the OTS'
recent practice to review dividend waiver notices on a case-by-case basis, and,
in general, not object to any such waiver if: (i) the mutual holding company's
board of directors determines that such waiver is consistent with such
directors' 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 are
considered as a restriction on 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 waived by the mutual holding company is available for
declaration as a dividend solely to the mutual holding company, and, in
accordance with 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; (iv) the amount of any
waived dividend is considered


                                       23
<PAGE>

as having been paid by the savings association (and the savings association's
capital ratios adjusted accordingly) in evaluating any proposed dividend under
OTS capital distribution regulations; and (v) in the event the mutual holding
company converts to stock form, the appraisal submitted to the OTS in connection
with the conversion application takes into account the aggregate amount of the
dividends waived by the mutual holding company.

      Limitations on Rates Paid for Deposits. FDIC regulations place limitations
on the ability of insured depository institutions to accept, renew or roll over
deposits by offering rates of interest which are significantly higher than the
prevailing rates of interest on deposits offered by other insured depository
institutions having the same type of charter in the institution's normal market
area. Under these regulations, "well-capitalized" depository institutions may
accept, renew or roll such deposits over without restriction; "adequately
capitalized" depository institutions may accept, renew or roll such deposits
over with a waiver from the FDIC (subject to the above restrictions on payments
of rates); and "undercapitalized" depository institutions may not accept, renew
or roll over such deposits. The regulations provide that the definitions of
"well capitalized," "adequately capitalized" and "undercapitalized" will be the
same as the definitions adopted by the agencies to implement the prompt
corrective action provisions of federal law. Management does not believe that
these regulations will have a materially adverse effect on the Bank's current
operations.

      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.

      Loans to One Borrower. Under OTS regulations, a savings association 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, 2000, 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 will have a significant impact on the Bank's business operations
or earnings following the Reorganization.

      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.


                                       24
<PAGE>

      A savings association that fails the QTL test must either convert to a
bank charter or operate under certain restrictions. As of March 31, 2000, the
Bank maintained 90.1% of its portfolio assets in qualified thrift investments
and, therefore, met the QTL test.

      Acquisitions and Branching. The Bank Holding Company Act specifically
authorizes a bank holding company, upon receipt of appropriate regulatory
approvals, to acquire control of any savings association or holding company
thereof wherever located. Similarly, a non-diversified savings and loan holding
company may acquire control of a bank. Moreover, federal savings associations
may acquire or be acquired by any insured depository institution. Savings
associations acquired by bank holding companies may be converted to banks if
they continue to pay SAIF premiums, but as such they become subject to branching
and activity restrictions applicable to banks.

      Subject to certain exceptions, commonly-controlled banks and savings
associations must reimburse the FDIC for any losses suffered by the FDIC in
connection with a failed bank or savings association affiliate. Institutions are
commonly controlled if one is owned by another or if both are owned by the same
holding company. Such claims by the FDIC under this provision are subordinate to
claims of depositors, secured creditors, and holders of subordinated debt, other
than affiliates.

      The OTS has adopted regulations which permit nationwide branching to the
extent permitted by federal statute. Branching that would result in the
formation of a multiple savings and loan holding company controlling savings
associations in more than one state is permitted if the law of the state in
which the savings association to be acquired is located specifically authorizes
acquisitions of its state-chartered associations by state-chartered associations
or their holding companies in the state where the acquiring association or
holding company is located.

      Finally, The Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Riegle-Neal Act") permits bank holding companies to acquire banks
in other states and, with state consent and subject to certain limitations,
allows banks to acquire out-of-state branches either through merger or de novo
expansion.

      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.

      Federal Securities Law. The shares of Common Stock of the Company have
been registered with the SEC under the Securities Exchange Act of 1934 (the
"1934 Act"). The Company is subject to the information, proxy solicitation,
insider trading restrictions and other requirements the 1934 Act and the rules
of the SEC thereunder. After three years following the reorganization to stock
form, if the Company has fewer than 300 shareholders, it may deregister its
shares under the 1934 Act and cease to be subject to the foregoing requirements.

      Shares of Common Stock held by persons who are affiliates of the Company
may not be resold without registration unless sold in accordance with the resale
restrictions of Rule 144 under the 1933 Act. If the Company meets the current
public information requirements under Rule 144, each affiliate of the Company
that complies with the other conditions of Rule 144 (including those that
require the affiliate's sale


                                       25
<PAGE>

to be aggregated with those of certain other persons) would be able to sell in
the public market, without registration, a number of shares not to exceed, in
any three-month period, the greater of (i) 1% of the outstanding shares of the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks.

      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."

Executive Officers of the Company

      Listed below is information, as of March 31, 2000, concerning the
Company's executive officers. There are no arrangements or understandings
between the Company and any of persons named below with respect to which he was
or is to be selected as an officer.

      Name               Age                 Position and Term
      ----               ---                 -----------------

Bruno J. Gioffre         65    Chairman of the Board ; Director of the
                               Bank since 1975.

Richard P. McStravick    51    President and Chief Executive Officer since 1996;
                               Director of the Bank since 1996.

Anthony J. Fabiano       39    Chief Financial Officer and Accounting Officer
                               since 1998.

William H. Morel         67    Senior Vice President, Chief Lending Officer and
                               Corporate Secretary since 1969.


                                       26
<PAGE>

ITEM 2. PROPERTIES

Properties

      The following table provides certain information with respect to the
Bank's offices at March 31, 2000.

<TABLE>
<CAPTION>
                                       Leased or Owned,                                       Net Book Value of Real
           Location                 Lease Expiration Date        Year Acquired or Leased             Property
           --------                 ---------------------        -----------------------      ----------------------
<S>                                     <C>                               <C>                       <C>
Main Office                                 Owned                         1954                       $616,000
300 Mamaroneck Avenue
Mamaroneck, New York 10543

Branch Office                               Owned                         1961                       1,203,000
389 Halstead Avenue
Harrison, New York 10528

Branch Office                               Owned                         1972                       1,216,000
115 South Ridge Street
Rye Brook, New York 10573

Branch Office                               Leased                        1998                      174,000(2)
180 South Main Street                    12/31/03(1)
New City, New York 10956

Branch Office                               Leased                        1998                      410,000(2)
East Putnam Avenue                       11/30/08(3)
Cos Cob, Connecticut 06807
</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, 2000 represents the amortized cost of leasehold improvements.
(3)   The Company holds a ten-year option to renew the lease until 11/30/18.

      The total net book value of the Bank's premises, land and equipment was
approximately $4.3 million at March 31, 2000.

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


                                       27
<PAGE>

                                     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.

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.


                                       28
<PAGE>

                                    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 12, 2000 (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."

                                     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, 2000 and 1999
            o     Consolidated Statements of Income for the Years Ended March
                  31, 2000, 1999 and 1998
            o     Consolidated Statements of Changes in Stockholders' Equity for
                  the Years Ended March 31, 2000, 1999 and 1998
            o     Consolidated Statements of Cash Flows for the Years Ended
                  March 31, 2000, 1999 and 1998
            o     Notes to Consolidated Financial Statements.


                                       29
<PAGE>

      (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    2000 Annual Report to Stockholders

            21    Subsidiaries of the Registrant

            23    Consent of KPMG LLP

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

            99.1  Proxy Statement for Annual Meeting of Stockholders

      (b) Reports on Form 8-K

      On March 1, 2000, the Company filed a Current Report on Form 8-K to report
under "Item 5. Other Events" that it had entered into the Merger Agreement. See
"Recent Developments", in Item 1 of this Form 10-K.

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

      (d) Not applicable.


                                       30
<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 26, 2000                          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,             Bruno J. Gioffre, Chairman of the Board
    Chief Executive Officer and  Director
     (Principal Executive Officer)

Date: June 26, 2000                          Date: June 26, 2000


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

Date: June 26, 2000                                  Date: June 26, 2000


By: /s/ Arthur C. Phillips, Jr.              By: /s/ Joseph A. Lanza
   --------------------------------------          ---------------------------------------
     Arthur C. Phillips, Jr., Director           Joseph A. Lanza, Director

Date: June 26, 2000                          Date: June 26, 2000


By: /s/ Anthony J. Fabiano                   By: /s/ James Staudt
   --------------------------------------        ---------------------------------------
     Anthony J. Fabiano                          James Staudt, Director

Date: June 26, 2000                          Date: June 26, 2000


</TABLE>