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
                    For the Fiscal Year Ended March 31, 2005

                                       OR

      [_]   Transition Report pursuant to Section 13 or 15(d) of the Securities
            Exchange Act of 1934

         For the transition period from ______________to________________

                        Commission File Number: 000-24811

                           SOUND FEDERAL BANCORP, INC.
             (Exact Name of Registrant as Specified in its Charter)

              Delaware                                         22-3887679
  (State or Other Jurisdiction                             (I.R.S. Employer
of Incorporation or Organization)                         Identification No.)

1311 Mamaroneck Avenue, White Plains, New York                   10605
   (Address of Principal Executive Offices)                    (Zip Code)

                                 (914) 761-3636
              (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]

Indicate  by check mark  whether  the  Registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).

YES [X]    NO [_]

As of September 30, 2004, there were issued and outstanding 12,577,841 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  September  30,  2004  ($14.71)  was
$149,799,712.

The number of shares of the registrant's  common stock outstanding as of June 6,
2005 was 12,298,206 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.    Sections of Annual Report to Stockholders for the fiscal year ended March
      31, 2005 (Parts II and IV).

2.    Proxy Statement for the 2005 Annual Meeting of Stockholders (Parts I and
      III).
<PAGE>

                                     PART I

ITEM 1. BUSINESS

General

      Sound Federal  Bancorp,  Inc.  Sound Federal  Bancorp,  Inc. is a Delaware
corporation  which was  organized in 2002 and is the  successor to Sound Federal
Bancorp,  a federal  corporation.  In January 2003, Sound Federal Bancorp,  Inc.
became  the  holding  company  parent of Sound  Federal  Savings  following  the
completion  of the "second  step"  mutual-to-stock  conversion  of Sound Federal
Bancorp, MHC. References to the Company include both Sound Federal Bancorp, Inc.
and Sound Federal Bancorp.  The principal asset of the Company is its investment
in Sound Federal Savings (the "Bank").  At March 31, 2005, the Company had total
consolidated  assets of $1.0 billion,  total deposits of $831.8  million,  total
stockholders' equity of $127.2 million and 12,377,206 shares outstanding.

      Sound  Federal  Savings.   The  Bank  is  a  federally  chartered  savings
association  headquartered  in White Plains,  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. In October 1998,  the Bank  reorganized
into the mutual  holding  company form of  organization.  At March 31, 2005, the
Bank operated from 14 locations in New York and Connecticut.

      The Company's  principal  executive  office is located at 1311  Mamaroneck
Avenue,  White Plains,  New York 10605, and its telephone number at that address
is (914) 761-3636.

      The  Company's  Form 10-K and Annual Report are available on the Company's
website at www.soundfed.com.

Market Area

      The  Bank is a  community-oriented  financial  institution  that  offers a
variety of  financial  products  and  services  from its main  office and branch
offices.  The  Bank's  primary  lending  areas  are the  New  York  counties  of
Westchester, Putnam and Rockland, and Fairfield County, Connecticut. Most of the
Bank's  deposit  customers are residents of  Westchester  County.  The Bank also
obtains  deposits from persons in Rockland  County and Putnam County in New York
and  Fairfield  County,  Connecticut.  The Bank's market area consists of middle
income and upper income communities. 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.  In fiscal 2002, the Bank began
to originate  adjustable-rate  mortgage loans with fixed-rates for initial terms
of three,  five, seven and ten years. After the initial terms, the interest rate
on these loans adjust  annually.  Until fiscal year 2005,  the Bank retained all
loans that it originated.  During fiscal 2005, the Bank sold one-to-four  family
mortgage  loans with  principal  balances of $1.1  million.  One-to-four  family
residential  mortgage loans represented $441.7 million,  or 78.6%, of the Bank's
loan portfolio at March 31, 2005. Home equity lines of credit  represented $42.1
million,  or 7.5%, of the Bank's loan portfolio at March 31, 2005. The Bank also
offers multi-family  mortgage loans,  commercial mortgage loans and construction


                                       1
<PAGE>

loans. At March 31, 2005,  multi-family  mortgage loans totaled $9.8 million, or
1.7% of the loan portfolio,  commercial mortgage loans totaled $45.6 million, or
8.2% of the loan portfolio, construction loans totaled $17.4 million, or 3.1% of
the loan  portfolio,  consumer  loans totaled $2.2 million,  or 0.4% of the loan
portfolio and  commercial  loans  amounted to $2.9 million,  or 0.5% of the loan
portfolio.


                                       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,
                        -----------------------------------------------------------------------------------------------------------
                               2005                   2004                  2003                   2002                 2001
                        ------------------     ------------------     -----------------     ------------------    -----------------
                        Amount     Percent     Amount     Percent     Amount    Percent     Amount     Percent    Amount    Percent
                        ------     -------     ------     -------     ------    -------     ------     -------    ------    -------
                                                                  (Dollars in thousands)
<S>                    <C>          <C>       <C>          <C>       <C>          <C>      <C>          <C>      <C>          <C>
Mortgage Loans:
  One-to-four family   $441,655     78.6%     $375,714     78.3%     $343,608     80.2%    $334,683     79.7%    $221,617     75.1%
  Home equity lines
    of credit            42,052      7.5        35,185      7.3        44,364     10.4       47,889     11.4       47,315     16.0
  Multi-family            9,807      1.7         8,472      1.8         7,118      1.7        8,347      2.0        3,959      1.3
  Commercial             45,645      8.2        43,153      9.0        27,866      6.5       23,701      5.6       16,771      5.7
  Construction           17,416      3.1        13,723      2.9         4,117      0.9        3,733      0.9        3,659      1.2
                       --------    -----      --------    -----      --------    -----     --------    -----     --------    -----
Total mortgage loans    556,575     99.1       476,247     99.3       427,073     99.7      418,353     99.6      293,321     99.3

Consumer loans            2,168      0.4         2,598      0.5         1,551      0.3        1,469      0.4        1,900      0.7
Commercial loans          2,932      0.5           798      0.2            --       --           --       --           --       --
                       --------    -----      --------    -----      --------    -----     --------    -----     --------    -----

  Total loans           561,675    100.0%      479,643    100.0%      428,624    100.0%     419,822    100.0%     295,221    100.0%
                                   =====                  =====                  =====                 =====                 =====

Deferred loan
  origination
  costs, net              2,087                  1,524                  1,502                   767                   633
Allowance for
  loan losses            (3,011)                (2,712)                (2,442)               (2,221)               (2,047)
                       --------               --------               --------              --------              --------
  Total loans, net     $560,751               $478,455               $427,684              $418,368              $293,807
                       ========               ========               ========              ========              ========
</TABLE>


                                       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,
                        -----------------------------------------------------------------------------------------------------------
                               2005                   2004                  2003                   2002                 2001
                        ------------------     ------------------     -----------------     ------------------    -----------------
                        Amount     Percent     Amount     Percent     Amount    Percent     Amount     Percent    Amount    Percent
                        ------     -------     ------     -------     ------    -------     ------     -------    ------    -------
                                                                  (Dollars in thousands)
<S>                    <C>          <C>       <C>          <C>       <C>          <C>      <C>          <C>      <C>          <C>
Fixed rate loans
Mortgage loans:
  One-to-four family   $252,140     44.9%     $251,916     52.5%     $259,870     60.7%    $272,203     64.8%    $215,202     72.9%
  Home equity lines
    of credit            20,260      3.6        30,922      6.4        44,229     10.3       47,724     11.4       46,908     15.9
  Multi-family            9,727      1.7         8,472      1.8         7,118      1.7        8,347      2.0        3,959      1.3
  Commercial             44,764      8.0        41,086      8.6        27,109      6.3       23,296      5.6       16,771      5.7
  Construction           17,416      3.1        13,723      2.9         4,117      0.9        3,733      0.9        3,659      1.2
                       --------    -----      --------    -----      --------    -----     --------    -----     --------    -----
Total fixed-rate
  mortgage loans        344,307     61.3       346,119     72.2       342,443     79.9      355,303     84.7      286,499     97.0
Consumer loans            2,168      0.4         2,598      0.5         1,551      0.4        1,469      0.3        1,900      0.7
Commercial loans          2,663      0.5           798      0.2            --       --           --       --           --       --
                       --------    -----      --------    -----      --------    -----     --------    -----     --------    -----
  Total fixed
    rate loans          349,138     62.2       349,515     72.9       343,994     80.3      356,772     85.0      288,399     97.7
                       --------    -----      --------    -----      --------    -----     --------    -----     --------    -----

Adjustable rate
  loans
Mortgage loans:
  One-to-four
    family (1)          189,515     33.7       123,798     25.8        83,738     19.5       62,480     14.9        6,415      2.2
  Home equity lines
    of credit            21,792      3.9         4,263      0.9           135       --          165       --          407      0.1
  Multi-family               80       --            --       --            --       --           --       --           --       --
  Commercial                881      0.2         2,067      0.4           757      0.2          405      0.1           --       --
                       --------    -----      --------    -----      --------    -----     --------    -----     --------    -----
    Total adjustable
      rate mortgage     212,268     37.8       130,128     27.1        84,630     19.7       63,050     15.0        6,822      2.3
Commercial loans            269       --            --       --            --       --           --       --           --       --
                       --------    -----      --------    -----      --------    -----     --------    -----     --------    -----
    Total adjustable
      rate loans        212,537     37.8       130,128     27.1        84,630     19.7       63,050     15.0        6,822      2.3
                       --------    -----      --------    -----      --------    -----     --------    -----     --------    -----


                                   -----                  -----                  -----                 -----                 -----
   Total loans          561,675    100.0%      479,643    100.0%      428,624    100.0%     419,822    100.0%     295,221    100.0%
                                   =====                  =====                  =====                 =====                 =====

Deferred loan
  origination
  costs, net              2,087                  1,524                  1,502                   767                   633
Allowance for
  loan losses            (3,011)                (2,712)                (2,442)               (2,221)               (2,047)
                       --------               --------               --------              --------              --------
  Total loans, net     $560,751               $478,455               $427,684              $418,368              $293,807
                       ========               ========               ========              ========              ========
</TABLE>

----------
(1)   These loans have fixed rates for initial terms of three,  five,  seven and
      ten years and then subsequent one year rate adjustment periods.


                                       4
<PAGE>

      Loan Maturity  Schedule.  The following  table  summarizes the contractual
maturities of the Bank's loan portfolio at March 31, 2005. Loans with adjustable
or  renegotiable  interest rates are shown as maturing in the period of the next
regularly  scheduled  interest rate  adjustment.  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,
                             One-to-Four            Commercial                                Consumer and
                             Family (1)              Mortgages          Construction           Commercial               Total
                         -------------------    ------------------   ------------------    ------------------    -------------------
                                    Weighted              Weighted             Weighted              Weighted               Weighted
                                     Average               Average              Average               Average                Average
                          Amount      Rate       Amount     Rate      Amount     Rate       Amount     Rate       Amount      Rate
                         --------   --------    --------  --------   --------  --------    --------  --------    --------   --------
                                                                    (Dollars in Thousands)
<S>                      <C>          <C>       <C>         <C>      <C>         <C>       <C>         <C>       <C>          <C>
Due During the Years
Ending March 31,
2006 (2)                 $ 25,140     5.67%     $ 1,473     6.24%    $17,066     6.10%     $ 1,709     6.56%     $ 45,388     5.88%
2007                       18,621     4.77            5     7.00         350     6.14          207     8.90        19,183     4.84
2008                       29,755     4.69           26     9.75          --       --          213     8.16        29,994     4.72
2009 to 2011               90,557     5.04        1,014     6.12          --       --           65     7.60        91,636     5.05
2012 to 2015               84,027     5.45        4,427     7.17          --       --        3,257     6.13        91,711     5.56
2016 to 2020              123,473     5.33       12,435     6.96          --       --        1,307     6.04       137,215     5.48
2021 and following        112,134     6.52       26,265     6.82          --       --        8,149     7.30       146,548     6.61
                         --------               -------              -------               -------               --------
     Total               $483,707     5.53%     $45,645     6.86%    $17,416     6.10%     $14,907     6.88%     $561,675     5.69%
                         ========               =======              =======               =======               ========
</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, 2005 that are  contractually  due after March
31, 2006.

                                           Fixed        Adjustable        Total
                                          --------      ----------      --------
                                                      (In Thousands)
One-to-four family                        $271,686       $186,881       $458,567
Commercial mortgages                        44,172             --         44,172
Construction                                   350             --            350
Multi-family, consumer
  and commercial                            13,198             --         13,198
                                          --------       --------       --------
  Total                                   $329,406       $186,881       $516,287
                                          ========       ========       ========

      One-to-Four  Family Residential Loans. The Bank's primary lending activity
is the origination of one-to-four family  residential  mortgage loans secured by
property  located in the Bank's  primary  lending area.  Generally,  one-to-four
family residential mortgage loans are made in amounts up to 95% of the lesser of
the appraised  value or purchase  price of the property,  with private  mortgage
insurance  required for loans with a  loan-to-value  ratio over 80%.  Generally,
fixed-rate loans are originated for terms of up to 30 years.  One-to-four family
loans are offered with a monthly or bi-weekly payment feature.

      The Bank  originates  fixed-rate  loans,  and also offers  adjustable-rate
mortgage loans with a fixed rate for initial terms of three, five, seven and ten
years and then subsequent one year rate adjustment periods. The ten year loan is
also offered as an  interest-only  loan during the initial ten year  period.  At
March 31, 2005, 57.1% of the Bank's  one-to-four  family  residential loans were
fixed-rate  loans,  compared to 67.1% at March 31, 2004.  The  interest  rate on
adjustable-rate  mortgage  loans is  indexed to


                                       5
<PAGE>

the one  year  constant  maturity  Treasury  bill.  The  Bank's  adjustable-rate
mortgage loans currently  provide for maximum rate adjustments of 2.00% per year
and  5.00%  over the term of the loan.  The Bank does not offer  adjustable-rate
mortgage loans with initial interest rates that are below market, referred to as
"teaser rates." Residential  adjustable-rate  mortgage loans amortize over terms
of up to 30 years.

      Adjustable-rate  mortgage 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 adjustable-rate mortgage loans, and, therefore, is
potentially  limited in effectiveness  during periods of rapidly rising interest
rates. At March 31, 2005,  42.9% of the Bank's  one-to-four  family  residential
loans had adjustable interest rates.

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

      All  one-to-four  family  residential  mortgage  borrowers are required to
obtain title insurance. We also require homeowner's insurance, fire and casualty
insurance and, where appropriate, flood insurance.

      At March 31, 2005, $441.7 million,  or 78.6% of the Bank's loan portfolio,
consisted of one-to-four  family  residential  loans.  Loans  totaling  $510,000
(representing 4 loans) were  nonperforming 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 for a limited  period of time (up to
nine years) after it is originated and may repay the outstanding  balance over a
term not to exceed 24 years from the date the line of credit is originated. Home
equity lines of credit are generally  underwritten  under the same criteria that
the Bank uses to  underwrite  one-to-four  family fixed rate loans.  Home equity
lines of  credit  may be  underwritten  with a loan to  value  ratio of 80% when
combined  with the principal  balance of the existing  mortgage  loan.  The Bank
appraises the property  securing the loan at the time of the loan application in
order to determine  the value of the  property  securing the home equity line of
credit. At the time we close a home equity line of credit, we file a mortgage to
protect our security interest in the underlying  collateral.  At March 31, 2005,
the  outstanding  balances of home equity lines of credit totaled $42.1 million,
or 7.5% of the Bank's loan portfolio.  Nonperforming home equity lines of credit
totaled $70,000 at March 31, 2005.

      Commercial  Mortgage Loans. At March 31, 2005, $45.6 million,  or 8.2%, of
the total loan  portfolio  consisted of commercial  mortgage  loans.  Commercial
mortgage loans are secured by office buildings,  religious  facilities and other
commercial  properties.  The Bank  generally  originates  fixed-rate  commercial
mortgage loans with maximum terms of up to 20 years.  The maximum  loan-to-value
ratio of  commercial  mortgage  loans is 75%.  At March 31,  2005,  the  largest
commercial mortgage loan had a principal balance of $3.2 million and was secured
by a storage unit facility.  As of March 31, 2005,  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


                                       6
<PAGE>

level  of  the  borrower;  and  the  borrower's  business  experience.  Personal
guarantees are obtained in most cases from commercial mortgage borrowers.

      Loans  secured  by  commercial  real  estate  generally  are  larger  than
one-to-four  family  residential  loans and  involve  a greater  degree of risk.
Commercial mortgage loans can involve large loan balances to single borrowers or
groups of related borrowers. Payments on these loans depend to a large degree on
the  results of  operations  and  management  of the  properties  or  underlying
businesses, and may be affected to a greater extent by adverse conditions in the
real  estate  market or in the economy in  general.  Accordingly,  the 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  $9.8  million,  or 1.7% of the total loan  portfolio at March 31, 2005.
Multi-family  mortgage  loans  generally  are  secured  by  multi-family  rental
properties (including mixed-use buildings and walk-up apartments).  At March 31,
2005, the Bank had 18 multi-family  mortgage  loans,  the largest of which had a
principal  balance of $1.5 million.  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.  There were no  non-performing  multi-family  mortgage loans at March 31,
2005.

      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  in most  cases 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.  The Bank  originates  construction  loans to local
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  residential  and
commercial  properties located in the Bank's market area. At March 31, 2005, the
Bank had  construction  loans totaling  $17.4  million,  or 3.1% of total loans.
There were no nonperforming construction loans at March 31, 2005.

      The  Bank's  construction  loans to home  builders  generally  have  fixed
interest  rates,  are typically for a term of up to 18 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.


                                       7
<PAGE>

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

      Construction loans are generally  considered to involve a higher degree of
risk than  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  residential  properties 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, 2005,
consumer loans totaled $2.2 million, or 0.4% of the total loan portfolio.  There
were no non-performing consumer loans at that date.

      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.

      Commercial  Loans. The Bank began  originating  commercial loans in fiscal
2004. These loans are generally secured by equipment, fixed assets or collateral
other than real estate.  Commercial  loans are  originated in amounts up to $2.0
million with terms of up to 10 years.

      Commercial  loans  generally have shorter terms and higher  interest rates
than mortgage loans, but involve greater credit risk than mortgage loans because
of the nature of the underlying  collateral.  Commercial  loans amounted to $2.9
million or 0.5% at the total loan  portfolio  at March 31,  2005.  There were no
nonperforming commercial loans at that date.


                                       8
<PAGE>

      Loan Approval  Procedures  and  Authority.  The loan  approval  process is
intended to assess the  borrower's  ability to repay the loan,  the viability of
the loan,  and the  adequacy of the value of the  property  that will secure the
loan. To assess the borrower's ability to repay, the Bank reviews the employment
and credit history and  information  on the historical and projected  income and
expenses  of  borrowers.  Loans of up to $3.0  million may be approved by two of
three  designated  lending  officers  acting  together.   All  loans  (including
aggregate  loans to one  borrower) in excess of $3.0 million must be approved by
the Company's Loan Committee.  In addition,  the Board of Directors  reviews and
confirms  all loan  commitments.  The Loan  Committee  is comprised of the Chief
Executive  Officer,  the Chief Financial Officer and two lending  officers.  The
Bank will  generally not originate a loan with a principal  balance in excess of
$6.0 million.

      The Bank generally  requires  appraisals of 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%.

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


                                       9
<PAGE>

      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 any loans during the periods indicated.

                                              For the Year Ended March 31,
                                        ---------------------------------------
                                           2005          2004           2003
                                        ---------      ---------      ---------
                                                    (In Thousands)

Unpaid principal balances
  at beginning of year                  $ 479,643      $ 428,624      $ 419,822
                                        ---------      ---------      ---------

Loans originated by type:
    One-to-four family                    132,349        119,910        165,384
    Advances under home
      equity lines of credit               34,352         24,718         26,444
    Multi-family                            3,196          1,500            490
    Commercial                             12,488         19,836         11,782
    Construction                           19,716         17,415         10,606
    Consumer loans                          4,459          2,474          1,585
    Commercial loans                        1,370            800             --
                                        ---------      ---------      ---------
    Total loans originated                207,930        186,653        216,291
                                        ---------      ---------      ---------

Principal repayments:
   Mortgage loans                        (118,406)      (134,205)      (205,761)
   Consumer and commercial
     loans                                 (6,425)        (1,424)        (1,503)
                                        ---------      ---------      ---------
    Total principal
      repayments                         (124,831)      (135,629)      (207,264)
                                        ---------      ---------      ---------

Loan sales:
  One-to-four family                       (1,066)            --             --

Charge-offs                                    (1)            (5)           (54)
Transfers to real estate
  owned                                        --             --           (171)
                                        ---------      ---------      ---------
Unpaid principal balances
  at end of year                          561,675        479,643        428,624

Deferred loan origination
  costs, net                                2,087          1,524          1,502
Allowance for loan losses                  (3,011)        (2,712)        (2,442)
                                        ---------      ---------      ---------
Net loans at end of year                $ 560,751      $ 478,455      $ 427,684
                                        =========      =========      =========


                                       10
<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,
                                                                 ------------------------------------------------------------------
                                                                  2005           2004           2003           2002           2001
                                                                 ------         ------         ------         ------         ------
                                                                                        (Dollars in Thousands)
<S>                                                              <C>            <C>            <C>            <C>            <C>
Nonaccrual loans:
  Mortgage loans:
    One-to-four family                                           $  510         $1,359         $  449         $  690         $  855
    Home equity lines of credit                                      70            617             18             65             78
  Consumer loans                                                     --              5             10             --             --
                                                                 ------         ------         ------         ------         ------
    Total                                                           580          1,981            477            755            933

Real estate owned:
  One-to-four family properties                                      --             --             --            114            197
                                                                 ------         ------         ------         ------         ------

    Total non-performing assets                                     580         $1,981            477            869          1,130
                                                                 ======         ======         ======         ======         ======

Ratios:
Nonperforming loans to total loans                                 0.10%          0.41%          0.11%          0.18%          0.31%

Nonperforming assets to total assets                               0.06%          0.22%          0.06%          0.14%          0.20%
</TABLE>

      For the year ended March 31, 2005,  gross interest  income that would have
been recorded had the  nonaccrual  loans been current in  accordance  with their
original  terms  amounted to $40,000.  Interest  amounts on such loans that were
included in interest income totaled $16,000 for the year ended March 31, 2005.


                                       11
<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, 2005
  Mortgage loans:
    One-to-four-family                                     6        $1,278           4        $  510          10        $1,788
    Home equity lines of credit                            2            51           1            70           3           121
  Consumer loans                                           4             2          --            --           4             2
                                                        ----        ------        ----        ------        ----        ------
    Total                                                 12        $1,331           5        $  580          17        $1,911
                                                        ====        ======        ====        ======        ====        ======

At March 31, 2004
  Mortgage loans:
    One-to-four-family                                     8        $1,412           6        $1,359          14        $2,771
    Home equity lines of credit                           --            --           6           617           6           617
  Consumer loans                                          --            --           7             5           7             5
                                                        ----        ------        ----        ------        ----        ------
     Total                                                 8        $1,412          19        $1,981          27        $3,393
                                                        ====        ======        ====        ======        ====        ======

At March 31, 2003
  Mortgage loans:
    One-to-four-family                                    10        $  917           5        $  449          15        $1,366
    Home equity lines of credit                            2           228           1            18           3           246
  Consumer loans                                           2             1           5            10           7            11
                                                        ----        ------        ----        ------        ----        ------
    Total                                                 14        $1,146          11        $  477          25        $1,623
                                                        ====        ======        ====        ======        ====        ======
</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 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  "uncollectable"
and of such little value that their continuance as assets is not warranted.

      In addition  to the  adverse  classifications  described  above,  the Bank
separately classifies as "special mention" loans that are delinquent for between
60 and 89 days or for which the borrower  has not  submitted  updated  financial
information  which the Bank uses to complete its annual  review of the loan.  At
March 31, 2005, loans classified as special mention consisted of $1.3 million of
loans that were  between  60 and 89 days past due and $8.7  million of loans for
which the Bank has not received updated financial information (all of which were
current as of March 31, 2005).


                                       12
<PAGE>

      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 Office of Thrift  Supervision,  which can
order the establishment of additional general or specific loss allowances.

      The table  below  sets  forth  the  amount  and  categories  of  adversely
classified  assets at the dates indicated.  No assets were classified as loss at
the dates indicated.

<TABLE>
<CAPTION>
                                                                                           At March 31,
                                                              ----------------------------------------------------------------------
                                                               2005            2004            2003            2002            2001
                                                              ------          ------          ------          ------          ------
                                                                                          (In Thousands)
<S>                                                           <C>             <C>             <C>             <C>             <C>
Substandard loans:
   One-to-four family (1)                                     $  580          $1,976          $  467          $  755          $  933
   Consumer                                                       --              --              10              --              --

Doubtful loans:
   Consumer                                                       --               5              --              --              --
                                                              ------          ------          ------          ------          ------
Total classified loans                                           580           1,981             477             755             933

Real estate owned:
   Substandard                                                    --              --              --             114             197
                                                              ------          ------          ------          ------          ------
     Total classified  assets                                 $  580          $1,981          $  477          $  869          $1,130
                                                              ======          ======          ======          ======          ======
</TABLE>

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

Allowance for Loan Losses

      Management   regularly   reviews  the  Bank's  loan  portfolio  and  makes
provisions  for loan losses in amounts  required to maintain the  allowance  for
loan losses in accordance with generally  accepted  accounting  principles.  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  losses  in the  loan  portfolio  and  that are both
probable  and  estimable.  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  86.1% of our total loans at March
31, 2005) are generally  evaluated on an aggregate or "pool"  basis.  The Bank's
allowance  for  loan  losses  is  predominantly  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 our
historical  loss  experience,  delinquency  trends,  volume  and type of lending
conducted, and the impact of current economic conditions in our 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


                                       13
<PAGE>

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>
                                                                                  For the Years Ended March 31,
                                                               -------------------------------------------------------------------
                                                                 2005           2004           2003           2002           2001
                                                               -------        -------        -------        -------        -------
                                                                                     (Dollars in Thousands)
<S>                                                            <C>            <C>            <C>            <C>            <C>
Balance at beginning of year                                   $ 2,712        $ 2,442        $ 2,221        $ 2,047        $ 1,188
                                                               -------        -------        -------        -------        -------

Provision for loan losses                                          300            275            275            175            208

Allowance recorded in purchase acquisition                          --             --             --             --            784

Charge-offs:
   One-to-four family mortgage loans                                --             --            (54)           (15)          (162)
   Consumer loans                                                   (1)            (5)            --             --             --

Recoveries:
   One-to-four family mortgage loans                                --             --             --             14             29
                                                               -------        -------        -------        -------        -------
   Net charge-offs                                                  (1)            (5)           (54)            (1)          (133)
                                                               -------        -------        -------        -------        -------

Balance at end of year                                         $ 3,011        $ 2,712        $ 2,442        $ 2,221        $ 2,047
                                                               =======        =======        =======        =======        =======

Ratios:
Allowance for loan losses to nonperforming loans                519.14%        136.90%        511.95%        294.17%        219.40%
Allowance for loan losses to total loans                          0.54%          0.57%          0.57%          0.53%          0.69%
</TABLE>


                                       14
<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>
                                 -------------------------------  --------------------------------   -------------------------------
                                              2005                              2004                             2003
                                 -------------------------------  --------------------------------   -------------------------------
                                                      Percent of                        Percent of                        Percent of
                                                       Loan in                           Loan in                           Loan in
                                                         Each                              Each                              Each
                                              Loan     Category                 Loan     Category                 Loan     Category
                                    Loan    Balances      to         Loan     Balances      to          Loan    Balances      to
                                    Loss       by       Total        Loss        by       Total         Loss       by       Total
                                 Allowance  Category    Loans     Allowance   Category    Loans      Allowance  Category    Loans
                                 ---------  --------  ----------  ---------   --------  ----------   ---------  --------  ----------
                                                                       (Dollars in Thousands)
<S>                              <C>        <C>         <C>        <C>        <C>         <C>        <C>        <C>         <C>
Mortgage loans:
  One-to-four
    family (1)                   $  1,519   $483,707     86.1%     $  1,327   $410,899     85.6%     $  1,224   $387,972     90.6%
  Multi-family                        175      9,807      1.7           150      8,472      1.8           150      7,118      1.7
  Commercial                          960     45,645      8.2           935     43,153      9.0           828     27,866      6.5
  Construction                        150     17,416      3.1           100     13,723      2.9            90      4,117      0.9
Consumer                              125      2,168      0.4           150      2,598      0.5           150      1,551      0.3
Commercial                             82      2,932      0.5            50        798      0.2            --         --       --
                                 --------   --------    -----      --------   --------    -----      --------   --------    -----
     Total                       $  3,011   $561,675    100.0%     $  2,712   $479,643    100.0%     $  2,442   $428,624    100.0%
                                 ========   ========    =====      ========   ========    =====      ========   ========    =====
<CAPTION>

                                 -------------------------------  --------------------------------
                                              2002                              2001
                                 -------------------------------  --------------------------------
                                                      Percent of                        Percent of
                                                       Loan in                           Loan in
                                                         Each                              Each
                                              Loan     Category                 Loan     Category
                                    Loan    Balances      to         Loan     Balances      to
                                    Loss       by       Total        Loss        by       Total
                                 Allowance  Category    Loans     Allowance   Category    Loans
                                 ---------  --------  ----------  ---------   --------  ----------
                                                     (Dollars in Thousands)
<S>                              <C>        <C>         <C>        <C>        <C>         <C>
Mortgage loans:
  One-to-four
    family (1)                   $  1,090   $382,572     91.1%     $  1,009   $268,932     91.1%
  Multi-family                        150      8,347      2.0           150      3,959      1.3
  Commercial                          741     23,701      5.6           600     16,771      5.7
  Construction                         90      3,733      0.9            90      3,659      1.2
Consumer                              150      1,469      0.4           198      1,900      0.7
Commercial                             --         --       --            --         --       --
                                 --------   --------    -----      --------   --------    -----
     Total                       $  2,221   $419,822    100.0%     $  2,047   $295,221    100.0%
                                 ========   ========    =====      ========   ========    =====
</TABLE>

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

Investment Activities

      The Bank's investments include mortgage-backed securities,  collateralized
mortgage obligations, U.S. Government and agency securities, federal funds sold,
mutual funds, securities issued by government sponsored enterprises ("GSEs") and
FHLB stock.  Management  invests a  significant  portion of the Bank's assets in
short-term  investments and adjustable rate mortgage-backed  securities in order
to increase the Bank's ability to reinvest assets in higher yielding  securities
in a rising interest rate environment. The Company has not engaged in derivative
or hedging  activities  covered by Statement of Financial  Accounting  Standards
("SFAS") No. 133, Accounting for Derivative  Instruments and Hedging Activities,
and does not expect to do so in the foreseeable future.

      The Bank's mortgage-backed  securities portfolio (including collateralized
mortgage  obligations) had a carrying value of $259.5 million, or 25.8% of total
assets at March 31, 2005.  Of this  amount,  $147.0  million of  mortgage-backed
securities had  adjustable  rates of interest and $112.5 million had fixed rates
of interest.


                                       15
<PAGE>

      Mortgage-backed securities are created by the pooling of mortgages and the
issuance of a security with an interest rate that is less than the interest rate
on the underlying mortgages. The Bank's mortgage-backed securities are issued by
Fannie Mae,  Ginnie Mae or Freddie  Mac.  The Bank has not invested in privately
issued mortgage-backed securities.

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

      We invest in CMOs as part of our overall investment and interest-rate risk
management policies. The CMOs in our portfolio at March 31, 2005 were fixed-rate
securities  and, as a result,  their fair value may  decrease as interest  rates
increase. In addition, they are susceptible to faster than anticipated repayment
speeds if the  borrowers on the  underlying  mortgage  loans prepay those loans.
However,  the CMO  structure  provides for more  stability  than the  underlying
pass-through  mortgage pools in forecasting cash flows. As a result,  they are a
component of our cash management strategies.

      At March 31, 2005, the carrying value of the Bank's investment  securities
other than mortgage-backed  securities included $73.4 million in U.S. Government
and agency securities and GSE securities,  which consisted of fixed rate Federal
Home Loan Bank,  Federal Farm Credit and Fannie Mae issues with maturities of 20
years  or  less,  as well  as  adjustable  rate  Small  Business  Administration
participation  certificates  with  contractual  terms of up to 30  years.  These
securities typically have call dates of six months to three years.

      At March 31, 2005, the Bank had invested $21.8 million in two mutual funds
that provide a rate of return that  adjusts  daily.  The first  mutual fund,  in
which the Bank has a $15.8 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 Office of Thrift  Supervision
regulations.  This fund is called the Asset Management Fund issued by Shay Asset
Management.  The second mutual fund,  the CRA Fund, in which the Bank has a $6.0
million   investment,   invests  in   mortgage-backed   securities,   which  are
collateralized  by mortgages on properties  located in our primary lending area.
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.  In  addition,  the CRA Fund  enables  management  to  invest in
mortgage-backed  securities that are collateralized by mortgage loans in low- to
moderate-income  census tracts  within our market area.  These mutual funds were
selected because the underlying  securities bear similar risk characteristics as
investments  that the Bank  purchases  directly.  These mutual funds provide the
Bank with increased liquidity and also provide the Bank with a higher yield than
other short-term earning assets such as federal funds. The securities underlying
these  funds are  affected  by changes  in  interest  rates.  In  addition,  the
underlying  securities  in the  CRA  Fund  and the  Asset  Management  Fund  are
mortgage-related securities. Accordingly, these mutual funds are subject to many
of the same risks that exist with the Bank's mortgage loans.

      A portion of the Bank's  assets is also invested in federal funds sold and
an interest-earning  checking account at the Federal Home Loan Bank of New York.
At March 31, 2005, $31.1 million,  or 3.1% of total assets, was invested in such
instruments.


                                       16
<PAGE>

      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,
                                                      ------------------------------------------------------------------------------
                                                               2005                        2004                        2003
                                                      ----------------------      ----------------------      ----------------------
                                                      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:
  Pass-through securities
    Ginnie Mae                                        $ 68,750      $ 68,788      $ 87,849      $ 87,907      $101,250      $102,548
    Fannie Mae                                          28,653        28,324        38,085        38,362        30,424        30,720
    Freddie Mac                                         10,816        10,769        15,121        15,261        18,659        18,934
Fixed rate:
  Collateralized mortgage obligations                   86,076        83,594       102,989       103,034        52,336        52,832
  Pass-through securities
    Ginnie Mae                                           1,009         1,017         1,364         1,421           760           814
    Fannie Mae                                           5,243         5,060         6,274         6,290         2,078         2,277
    Freddie Mac                                          2,216         2,193         3,505         3,578         4,122         4,359
                                                      --------      --------      --------      --------      --------      --------
Total mortgage-backed securities                       202,763       199,745       255,187       255,853       209,629       212,484

U.S. Government agency securities                       55,058        53,644        59,546        59,781        59,075        59,409
Mutual fund investments                                 22,007        21,785        21,000        21,094        22,000        22,180
Municipal securities                                       860           980           854         1,002           849           975
                                                      --------      --------      --------      --------      --------      --------
  Total securities available for sale                  280,688      $276,154       336,587      $337,730       291,553      $295,048
                                                                    ========                    ========                    ========

Other earning assets
  Federal funds sold                                     1,000                       1,000                       7,000
  Other overnight deposits                              30,095                      19,756                      29,121
  FHLB stock                                             5,738                       5,303                       4,141
                                                      --------                    --------                    --------
    Total                                             $317,521                    $362,646                    $331,815
                                                      ========                    ========                    ========
</TABLE>

      The following table sets forth the composition of the Company's securities
classified as held to maturity at March 31, 2005.  The Company had no securities
classified as held to maturity at March 31, 2004 and 2003.

                                                       Amortized          Fair
                                                         Cost             Value
                                                       ---------         -------
                                                            (In Thousands)

Adjustable rate mortgage-backed securities:
  Ginnie Mae                                            $35,268          $35,080
  Fannie Mae                                              2,339            2,344
  Freddie Mac                                             1,577            1,556
Fixed rate collateralized mortgage
  obligations                                            20,593           20,257
                                                        -------          -------
Total mortgage-backed securities                         59,777           59,237

U.S. Government and agency securities                    19,712           19,491
                                                        -------          -------
  Total securities
    held to maturity                                    $79,489          $78,728
                                                        =======          =======


                                       17
<PAGE>

      The composition and contractual  maturities of mortgage-backed  securities
and other debt  securities  at March 31,  2005 are  indicated  in the  following
table. The table does not reflect the impact of prepayments or redemptions which
may occur.

<TABLE>
<CAPTION>
                                                                     More than Five
                                                 More than One Year  Years through
                               One Year or Less  through Five Years    Ten Years       More than Ten Years      Total Securities
                              ------------------ ------------------ -----------------  ------------------- -------------------------
                                        Weighted           Weighted          Weighted            Weighted                   Weighted
                              Amortized Average  Amortized Average  Amortized Average  Amortized  Average  Amortized  Fair   Average
                                Cost     Yield     Cost     Yield     Cost    Yield      Cost      Yield     Cost     Value   Yield
                              --------- -------- --------- -------- --------- -------- --------- --------  ---------  ----- --------
                                                                      (Dollars in Thousands)
<S>                             <C>       <C>    <C>        <C>    <C>        <C>     <C>         <C>    <C>        <C>        <C>
Available for sale:
Collateralized mortgage
  obligations                   $   --      --%  $    --      --%  $ 4,783    3.48%   $ 81,293    4.09%  $ 86,076   $ 83,594   4.06%
Mortgage-backed securities:
  Ginnie Mae                         6    8.28        50    8.43         2   11.50      69,701    4.17     69,759     69,805   4.18
  Fannie Mae                        30    5.72       175    6.86       263    7.11      33,428    4.52     33,896     33,384   4.56
  Freddie Mac                       85    6.82       249    7.16     2,125    4.05      10,573    5.01     13,032     12,962   4.90
                                ------   -----   -------   -----   -------   -----    --------   -----   --------   --------  -----
      Total mortgage-backed
        securities                 121    6.63       474    7.18     7,173    3.79     194,995    4.24    202,763    199,745   4.24

Other debt securities:
  U.S. Government and agency
    securities                   1,000    2.03    42,369    3.09     4,626    2.95       7,063    3.05     55,058     53,644   3.05
  Municipal securities              --      --        --      --       210    5.80         650    5.88        860        980   5.86
                                ------   -----   -------   -----   -------   -----    --------   -----   --------   --------  -----
      Total securities
        available for sale      $1,121    2.53%  $42,843    3.13%  $12,009    3.50%   $202,708    4.21%  $258,681   $254,369   3.99%
                                ======   =====   =======   =====   =======   =====    ========   =====   ========   ========  =====

Held to maturity:
Collateralized mortgage
  obligations                   $   --      --%  $    --      --%  $ 5,651    4.30%   $ 14,942    4.21%  $ 20,593   $ 20,257   4.23%
Mortgage-backed securities:
  Ginnie Mae                        --      --        --      --        --      --      35,268    4.59     35,268     35,080   4.59
  Fannie Mae                        --      --        --      --        --      --       2,339    4.66      2,339      2,344   4.66
  Freddie Mac                       --      --        --      --        --      --       1,577    5.57      1,577      1,556   5.57
                                ------   -----   -------   -----   -------   -----    --------   -----   --------   --------  -----
      Total mortgage-backed
        securities                  --                --      --     5,651    4.30      54,126    4.52     59,777     59,237   4.50

Other debt securities:
  U.S. Government and agency
    securities                      --      --    16,850    3.49       999    2.42       1,863    3.91     19,712     19,491   3.47
                                ------   -----   -------   -----   -------   -----    --------   -----   --------   --------  -----
      Total securities held
        to maturity             $   --      --%  $16,850    3.49%  $ 6,650    4.02%   $ 55,989    4.50%  $ 79,489   $ 78,728   4.24%
                                ======   =====   =======   =====   =======   =====    ========   =====   ========   ========  =====
</TABLE>


                                       18
<PAGE>

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

                                                   Years Ended March 31,
                                            -----------------------------------
                                               2005         2004         2003
                                            ---------    ---------    ---------
                                                      (In Thousands)
Amortized cost at beginning of year         $ 255,187    $ 209,629    $ 101,636
Purchases of mortgage-backed securities        20,639      135,683      160,353
Principal repayments                          (72,035)     (89,494)     (52,345)
Premium amortization and
  discount accretion, net                      (1,028)        (631)         (15)
                                            ---------    ---------    ---------
Amortized cost at end of year               $ 202,763    $ 255,187    $ 209,629
                                            =========    =========    =========

      The following table sets forth the activity in the Bank's  mortgage-backed
securities  portfolios  classified  as held to maturity for the year ended March
31, 2005.  The Bank did not have any  mortgage-backed  securities  classified as
held to maturity  at March 31, 2004 and 2003 and there was no activity  for such
securities during those fiscal years.

                                                                   Year Ended
                                                                  March 31, 2005
                                                                  --------------
                                                                  (In Thousands)
Amortized cost at beginning of year                                 $     --
Purchases of mortgage-backed securities                               64,212
Principal repayments                                                  (4,384)
Premium amortization and discount accretion, net                         (51)
                                                                    --------
Amortized cost at end of year                                       $ 59,777
                                                                    ========

Sources of Funds

      General.  Deposits have traditionally been the primary source of funds for
the Bank's lending and investment activities. In addition to deposits, funds are
derived from a variety of sources including scheduled loan payments,  investment
maturities,  loan prepayments and income on earning assets. While scheduled loan
payments and income on earning  assets are  relatively  stable sources of funds,
deposit  inflows and outflows can vary widely and are  influenced  by prevailing
interest  rates,  market  conditions  and levels of  competition.  In  addition,
borrowings from the FHLB of New York may be used in the short-term to compensate
for reductions in deposits and to fund growth.

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

      Interest rates paid, maturity terms, service fees and withdrawal penalties
are established on a periodic basis. Deposit rates and terms are based primarily
on current operating strategies and market


                                       19
<PAGE>

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, 2005,  $552.9 million,  or 66.4% of the Bank's
deposit  accounts were  certificates  of deposit,  of which $260.7  million have
maturities  of one  year or  less.  The  Bank  anticipates  that  most of  these
certificates  of deposit  maturing  within one year will  remain  with the Bank.
However,  should market interest rates continue to increase,  the Bank's cost of
funds may  significantly  increase or we may  experience a  significant  loss of
deposits.

      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,
                                                  ----------------------------------------------------------------------------------
                                                             2005                       2004                        2003
                                                  --------------------------  -------------------------   --------------------------
                                                                    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:
     Savings and club accounts                   $150,455    18.1%    0.51%  $148,231    20.9%    0.51%  $136,846    22.7%    0.81%
     Money market accounts                         52,881     6.4     0.97     47,338     6.7     0.73     45,331     7.5     1.09
     NOW accounts                                  61,357     7.4     0.35     54,616     7.7     0.24     50,912     8.4     0.46
     Commercial checking                           14,201     1.7       --     12,404     1.8       --      7,457     1.2       --
                                                 --------   -----            --------   -----            --------   -----
          Total                                   278,894    33.6     0.54    262,589    37.1     0.47    240,546    39.8     0.76
                                                 --------   -----            --------   -----            --------   -----

Certificates of deposit maturing:
     Within one year                              260,659    31.3     2.30    321,473    45.4     1.87    264,353    43.7     2.33
     After one but within two years               199,952    24.0     3.15     40,517     5.7     2.66     58,309     9.7     2.62
     After two but within three years              59,822     7.2     3.60     56,753     8.0     3.09     16,463     2.7     3.46
     After three years                             32,441     3.9     4.23     26,998     3.8     4.24     24,589     4.1     4.49
                                                 --------   -----            --------   -----            --------   -----
          Total                                   552,874    66.4     2.86    445,741    62.9     2.24    363,714    60.2     2.57
                                                 --------   -----            --------   -----            --------   -----

Total deposits                                   $831,768   100.0%    1.90%  $708,330   100.0%    1.58%  $604,260   100.0%    1.85%
                                                 ========   =====            ========   =====            ========   =====
</TABLE>


                                       20
<PAGE>

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

                                              Years Ended March 31,
                                   -------------------------------------------
                                       2005            2004            2003
                                   -----------     -----------     -----------
                                             (Dollars in Thousands)

Balance at beginning of year       $   708,330     $   604,260     $   519,905
Deposits                             1,185,147       1,033,069       1,151,713
Withdrawals                         (1,075,648)       (940,150)     (1,079,310)
Interest credited                       13,939          11,151          11,952
                                   -----------     -----------     -----------
Balance at end of year             $   831,768     $   708,330     $   604,260
                                   ===========     ===========     ===========

Net increase during the year
     Amount                        $   123,438     $   104,070     $    84,355
     Percent                              17.4%           17.2%           16.2%

      The following  table  indicates the amount of the Bank's  certificates  of
deposits by time remaining until maturity as of March 31, 2005.

<TABLE>
<CAPTION>
                                                                        Maturity
                                                    ------------------------------------------------
                                                    3 Months    Over 3 to 6    Over 6 to     Over 12
                                                     or Less       Months      12 Months      Months        Total
                                                    --------    -----------    ---------     -------        -----
                                                                            (In Thousands)

<S>                                                  <C>          <C>           <C>          <C>           <C>
Certificates of deposit less than $100,000           $40,238      $ 98,096      $62,106      $213,780      $414,220
Certificates of deposit of $100,000 or more (1)       12,740        28,666       18,813        78,435       138,654
                                                     -------      --------      -------      --------      --------
Total of certificates of deposit                     $52,978      $126,762      $80,919      $292,215      $552,874
                                                     =======      ========      =======      ========      ========
</TABLE>

----------
(1)   The  weighted  average  interest  rates for these  accounts,  by  maturity
      period, are 2.10% for 3 months or less; 2.35% for 3 to 6 months; 2.69% for
      6 to 12 months; and 3.49% for over 12 months. The overall weighted average
      rate for accounts of $100,000 or more was 3.02%.

      Borrowed Funds. The Bank has entered into securities repurchase agreements
with the  Federal  Home  Loan  Bank of New York.  Proceeds  from the  securities
repurchase  agreements  are used to fund loan  originations  and to provide cash
during periods of reduced deposits.  Under the repurchase  agreements,  the Bank
transfers U.S. Government and agency securities and  mortgage-backed  securities
and agrees to  repurchase  the identical  securities  from the Federal Home Loan
Bank at a fixed price in the future.  The underlying  securities are included in
the securities portfolio.


                                       21
<PAGE>

      The following  table sets forth certain  information  regarding the Bank's
borrowings  from  the  Federal  Home  Loan  Bank  under  securities   repurchase
agreements at the dates and for the periods indicated:

<TABLE>
<CAPTION>
                                                                  At or for the
                                                                Years Ended March 31,
                                                         -----------------------------------
                                                          2005          2004          2003
                                                         -------       -------       -------
                                                                 (Dollars in Thousands)

<S>                                                      <C>           <C>           <C>
Average principal balance outstanding                    $37,268       $39,208       $34,977
Maximum principal balance outstanding at any
   month end during the period                            44,000        55,000        35,082
Principal balance outstanding at end of period            38,000        35,000        35,000
Weighted average interest rate during the period            4.00%         3.81%         4.66%
Weighted average interest rate at end of the period         3.80%         3.93%         4.11%
</TABLE>

      The following table sets forth the maturity dates of the Bank's borrowings
under securities repurchase agreements at the dates indicated.

                                At March 31,
------------------------------------------------------------------------------
         2005                       2004                         2003
----------------------    ------------------------     -----------------------
Maturity                  Maturity                     Maturity
  Date          Amount      Date            Amount       Date           Amount
--------        ------    --------          ------     --------         ------
                            (Dollars in Thousands)

1/08 (1)       $10,000     1/08 (1)         $10,000     1/08 (1)       $10,000
12/08 (1)        5,000     12/08 (1)          5,000     12/08 (1)        5,000
6/05             3,000     3/05               6,000     3/04             7,000
3/06             7,000     3/06               7,000     3/05             6,000
3/07             7,000     3/07               7,000     3/06             7,000
3/08             6,000

(1)   Callable quarterly

Competition

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

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

Subsidiaries

      Sound Federal  Savings has three active  subsidiaries,  Sound REIT,  Inc.,
First Federal REIT,  Inc. and  Mamaroneck  Advisors,  Inc. In April 1999,  Sound
REIT, Inc. was  incorporated as a special purpose


                                       22
<PAGE>

real estate  investment  trust under New York law. First Federal REIT,  Inc. was
also formed as a real estate investment trust by Peekskill Financial Corporation
("Peekskill")  prior to the  acquisition of Peekskill in July 2000.  Sound REIT,
Inc. and First Federal REIT, Inc. hold a portion of our mortgage-related assets.

      In February 2001, Mamaroneck Advisors, Inc. was incorporated as a New York
corporation  for the purpose of providing  investment and insurance  products to
Sound Federal Savings' customers. Beginning in December 2003, these services are
provided to customers  directly by the Bank.  For the years ended March 31, 2004
and 2003,  Mamaroneck  Advisors,  Inc.  had net income of $23,000  and  $43,000,
respectively. Net income for fiscal 2005 was not significant.

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

Personnel

      As of March 31, 2005,  the Bank employed 130 persons on a full-time  basis
and 16 persons on a part-time basis. None of the Bank's employees is represented
by a collective  bargaining group and management considers employee relations to
be good.

                           SUPERVISION AND REGULATION

General

      Sound Federal  Savings is examined and  supervised by the Office of Thrift
Supervision and the Federal Deposit Insurance  Corporation.  This regulation and
supervision  establishes  a  comprehensive  framework of  activities in which an
institution  may engage and is  intended  primarily  for the  protection  of the
Federal Deposit Insurance  Corporation's deposit insurance funds and depositors.
Under this system of federal regulation, financial institutions are periodically
examined to ensure that they satisfy applicable  standards with respect to their
capital adequacy,  assets,  management,  earnings,  liquidity and sensitivity to
market  interest rates.  Following  completion of its  examination,  the federal
agency critiques the  institution's  operations and assigns its rating (known as
an  institution's  CAMELS  rating).  Under federal law, an  institution  may not
disclose its CAMELS rating to the public. Sound Federal Savings also is a member
of and owns stock in the Federal Home Loan Bank of New York, which is one of the
twelve  regional  banks in the  Federal  Home Loan Bank  System.  Sound  Federal
Savings also is  regulated  to a lesser  extent by the Board of Governors of the
Federal Reserve System, governing reserves to be maintained against deposits and
other matters.  The Office of Thrift Supervision  examines Sound Federal Savings
and  prepares  reports for the  consideration  of its board of  directors on any
operating deficiencies.  Sound Federal Savings' relationship with its depositors
and  borrowers  also is  regulated  to a great  extent by both federal and state
laws, especially in matters concerning the ownership of deposit accounts and the
form and content of Sound Federal Savings' mortgage documents.


                                       23
<PAGE>

      Any change in these laws or  regulations,  whether by the Federal  Deposit
Insurance  Corporation,  Office of Thrift Supervision or Congress,  could have a
material adverse impact on Sound Federal Bancorp, Inc. and Sound Federal Savings
and their operations.

Federal Banking Regulation

      Business Activities. A federal savings association derives its lending and
investment  powers  from  the  Home  Owners'  Loan  Act,  as  amended,  and  the
regulations  of  the  Office  of  Thrift  Supervision.   Under  these  laws  and
regulations,  Sound  Federal  Savings  may invest in mortgage  loans  secured by
residential and commercial real estate,  commercial business and consumer loans,
certain types of debt securities and certain other assets. Sound Federal Savings
also may  establish  subsidiaries  that may engage in  activities  not otherwise
permissible  for Sound Federal  Savings,  including  real estate  investment and
securities and insurance brokerage.

      Capital  Requirements.  Office of Thrift Supervision  regulations  require
savings  associations to meet three minimum capital  standards:  a 1.5% tangible
capital ratio, a 4% leverage  ratio (3% for  associations  receiving the highest
rating on the CAMELS rating system) and an 8% risk-based capital ratio.

      The  risk-based  capital  standard for savings  associations  requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and  supplementary  capital)  to  risk-weighted  assets  of at  least 4% and 8%,
respectively.  In determining the amount of  risk-weighted  assets,  all assets,
including  certain  off-balance  sheet assets,  are  multiplied by a risk-weight
factor of 0% to 100%,  assigned by the Office of Thrift Supervision based on the
risks believed  inherent in the type of asset. Core capital is defined as common
stockholders'  equity  (including  retained  earnings),   certain  noncumulative
perpetual  preferred stock and related surplus and minority  interests in equity
accounts of  consolidated  subsidiaries,  less  intangibles  other than  certain
mortgage  servicing  rights and credit card  relationships.  The  components  of
supplementary  capital currently include cumulative  preferred stock,  long-term
perpetual preferred stock, mandatory convertible  securities,  subordinated debt
and  intermediate  preferred  stock,  the  allowance  for loan and lease  losses
limited  to a  maximum  of 1.25% of  risk-weighted  assets  and up to 45% of net
unrealized   gains  on   available-for-sale   equity   securities  with  readily
determinable fair market values.  Overall,  the amount of supplementary  capital
included as part of total capital cannot exceed 100% of core capital.

      At March 31, 2005,  Sound Federal Savings' capital exceeded all applicable
requirements, and met the criteria for being considered "well-capitalized".

      Loans-to-One  Borrower.  A federal savings  association  generally may not
make a loan or extend credit to a single or related group of borrowers in excess
of 15% of unimpaired  capital and surplus.  An additional  amount may be loaned,
equal to 10% of  unimpaired  capital  and  surplus,  if the loan is  secured  by
readily marketable collateral,  which generally does not include real estate. As
of March 31, 2005, Sound Federal Savings was in compliance with the loans-to-one
borrower limitations.

      Qualified  Thrift Lender Test.  As a federal  savings  association,  Sound
Federal Savings is subject to a qualified  thrift lender,  or "QTL," test. Under
the QTL test, Sound Federal Savings must maintain at least 65% of its "portfolio
assets" in "qualified  thrift  investments"  in at least nine months of the most
recent 12 month period.  "Portfolio  assets"  generally  means total assets of a
savings institution,  less the sum of specified liquid assets up to 20% of total
assets,  goodwill and other intangible assets, and the value of property used in
the conduct of the savings association's business.


                                       24
<PAGE>

      "Qualified  thrift  investments"  includes various types of loans made for
residential  and  housing  purposes,   investments  related  to  such  purposes,
including  certain  mortgage-backed  and  related  securities,   and  loans  for
personal,  family,  household and certain other purposes up to a limit of 20% of
portfolio  assets.  "Qualified  thrift  investments"  also  include  100%  of an
institution's credit card loans, education loans and small business loans. Sound
Federal  Savings  also may  satisfy  the QTL test by  qualifying  as a "domestic
building and loan association" as defined in the Internal Revenue Code.

      A savings  association  that fails the  qualified  thrift lender test must
either  convert to a bank charter or operate under  specified  restrictions.  At
March 31, 2005,  Sound Federal  Savings  maintained  approximately  88.8% of its
portfolio assets in qualified thrift investments.

      Community Reinvestment Act and Fair Lending Laws. All savings associations
have  a  responsibility  under  the  Community   Reinvestment  Act  and  related
regulations of the Office of Thrift Supervision to help meet the credit needs of
their  communities,   including  low-  and  moderate-income  neighborhoods.   In
connection with its examination of a federal savings association,  the Office of
Thrift Supervision is required to assess the association's  record of compliance
with the Community  Reinvestment Act. In addition,  the Equal Credit Opportunity
Act and the Fair  Housing Act  prohibit  lenders  from  discriminating  in their
lending practices on the basis of  characteristics  specified in those statutes.
An  association's  failure  to  comply  with  the  provisions  of the  Community
Reinvestment Act could, at a minimum,  result in regulatory  restrictions on its
activities.  The failure to comply with the Equal Credit Opportunity Act and the
Fair  Housing Act could  result in  enforcement  actions by the Office of Thrift
Supervision,  as well as other federal regulatory agencies and the Department of
Justice.  Sound Federal Savings received a satisfactory  Community  Reinvestment
Act rating in its most recent federal examination.

      Transactions  with  Related  Parties.  A  federal  savings   association's
authority to engage in transactions  with its  "affiliates" is limited by Office
of Thrift  Supervision  regulations  and by Sections  23A and 23B of the Federal
Reserve Act (the "FRA").  The term  "affiliates"  for these  purposes  generally
means any company that controls or is under common control with an  institution.
Sound  Federal  Bancorp,  Inc. is an  affiliate  of Sound  Federal  Savings.  In
general,  transactions with affiliates must be on terms that are as favorable to
the association as comparable  transactions  with  non-affiliates.  In addition,
certain types of these transactions are restricted to an aggregate percentage of
the  association's  capital.  Collateral  in  specified  amounts must usually be
provided  by  affiliates  in order to  receive  loans from the  association.  In
addition,   Office  of  Thrift  Supervision   regulations   prohibit  a  savings
association from lending to any of its affiliates that are engaged in activities
that are not  permissible  for bank holding  companies and from  purchasing  the
securities of any affiliate, other than a subsidiary.

      Sound  Federal  Savings'  authority  to extend  credit  to its  directors,
executive  officers and 10% shareholders,  as well as to entities  controlled by
such persons,  is currently  governed by the  requirements of Sections 22(g) and
22(h) of the FRA and  Regulation  O of the Federal  Reserve  Board.  Among other
things,  these  provisions  require that extensions of credit to insiders (i) be
made on terms that are substantially the same as, and follow credit underwriting
procedures  that are not less stringent  than,  those  prevailing for comparable
transactions  with  unaffiliated  persons and that do not involve  more than the
normal risk of repayment or present  other  unfavorable  features,  and (ii) not
exceed  certain  limitations  on the amount of credit  extended to such persons,
individually  and in the  aggregate,  which  limits are based,  in part,  on the
amount of Sound Federal Savings' capital.  In addition,  extensions of credit in
excess of certain  limits must be approved by Sound  Federal  Savings'  board of
directors.

      Enforcement.  The Office of Thrift  Supervision  has  primary  enforcement
responsibility over federal savings  institutions and has the authority to bring
enforcement  action  against  all  "institution-affiliated  parties,"  including
stockholders,  and  attorneys,  appraisers  and  accountants  who  knowingly  or


                                       25
<PAGE>

recklessly participate in wrongful action likely to have an adverse effect on an
insured institution.  Formal enforcement action may range from the issuance of a
capital  directive  or cease and  desist  order to removal  of  officers  and/or
directors of the institution,  receivership,  conservatorship or the termination
of deposit  insurance.  Civil  penalties  cover a wide range of  violations  and
actions, and range up to $25,000 per day, unless a finding of reckless disregard
is made,  in which  case  penalties  may be as high as $1 million  per day.  The
Federal Deposit Insurance Corporation also has the authority to recommend to the
Director of the Office of Thrift  Supervision that  enforcement  action be taken
with respect to a particular savings institution.  If action is not taken by the
Director, the Federal Deposit Insurance Corporation has authority to take action
under specified circumstances.

      Standards  for Safety and  Soundness.  Federal law  requires  each federal
banking  agency  to  prescribe  certain  standards  for all  insured  depository
institutions.  These standards relate to, among other things, internal controls,
information systems and audit systems, loan documentation,  credit underwriting,
interest rate risk exposure, asset growth,  compensation,  and other operational
and managerial  standards as the agency deems  appropriate.  The federal banking
agencies adopted  Interagency  Guidelines  Prescribing  Standards for Safety and
Soundness to implement the safety and soundness standards required under federal
law.  The  guidelines  set forth the safety  and  soundness  standards  that the
federal  banking  agencies  use to  identify  and  address  problems  at insured
depository  institutions before capital becomes impaired. The guidelines address
internal  controls and  information  systems,  internal  audit  systems,  credit
underwriting,  loan  documentation,  interest rate risk exposure,  asset growth,
compensation,  fees and benefits.  If the  appropriate  federal  banking  agency
determines  that an  institution  fails to meet any standard  prescribed  by the
guidelines,  the agency may require the  institution  to submit to the agency an
acceptable plan to achieve compliance with the standard. If an institution fails
to meet these standards,  the appropriate federal banking agency may require the
institution to submit a compliance plan.

      Insurance of Deposit  Accounts.  Deposit accounts in Sound Federal Savings
are insured by the Federal  Deposit  Insurance  Corporation,  generally  up to a
maximum of $100,000 per separately  insured  depositor.  Sound Federal  Savings'
deposits therefore are subject to Federal Deposit Insurance  Corporation deposit
insurance  assessments.  The Federal Deposit Insurance Corporation has adopted a
risk-based  system for determining  deposit insurance  assessments.  The Federal
Deposit  Insurance  Corporation is authorized to raise the  assessment  rates as
necessary  to maintain  the  required  ratio of reserves to insured  deposits of
1.25%.   In  addition,   all  Federal  Deposit   Insurance   Corporation-insured
institutions must pay assessments to the Federal Deposit  Insurance  Corporation
at an annual rate of  approximately  0.02% of insured  deposits to fund interest
payments on bonds  maturing in 2017 issued by a federal  agency to  recapitalize
the predecessor to the Savings Association Insurance Fund.

      Prohibitions Against Tying Arrangements.  Federal savings associations are
prohibited, subject to some exceptions, from extending credit to or offering any
other  service,  or fixing or varying the  consideration  for such  extension of
credit or service,  on the condition  that the customer  obtain some  additional
service  from the  institution  or its  affiliates  or not obtain  services of a
competitor of the institution.

      Federal Home Loan Bank System.  Sound  Federal  Savings is a member of the
Federal Home Loan Bank System,  which consists of 12 regional  Federal Home Loan
Banks.  The Federal  Home Loan Bank System  provides a central  credit  facility
primarily for member institutions.  As a member of the Federal Home Loan Bank of
New York,  Sound  Federal  Savings is  required  to acquire  and hold  shares of
capital stock in the Federal Home Loan Bank in an amount at least equal to 1% of
the aggregate  principal  amount of its unpaid  residential  mortgage  loans and
similar  obligations  at the beginning of each year,  or 1/20 of its  borrowings
from the Federal  Home Loan Bank,  whichever  is greater.  As of March 31, 2005,
Sound Federal Savings was in compliance with this requirement.


                                       26
<PAGE>

Federal Reserve System

      The Federal  Reserve Board  regulations  require  savings  associations to
maintain  non-interest-earning reserves against their transaction accounts, such
as negotiable  order of withdrawal and regular checking  accounts.  At March 31,
2005, Sound Federal Savings was in compliance with these reserve requirements.

Holding Company Regulation

      Sound Federal Bancorp, Inc. is a unitary savings and loan holding company,
subject to regulation and supervision by the Office of Thrift  Supervision.  The
Office of Thrift  Supervision  has  enforcement  authority  over  Sound  Federal
Bancorp, Inc. and its non-savings institution subsidiaries.  Among other things,
this authority permits the Office of Thrift  Supervision to restrict or prohibit
activities that are determined to be a risk to Sound Federal Savings.

      Under prior law, a unitary savings and loan holding company  generally had
no regulatory  restrictions on the types of business  activities in which it may
engage, provided that its subsidiary savings bank was a qualified thrift lender.
The Gramm-Leach-Bliley Act of 1999, however,  restricts unitary savings and loan
holding  companies  not  existing  or  applied  for  before May 4, 1999 to those
activities  permissible for financial  holding companies or for multiple savings
and loan holding companies.  Sound Federal Bancorp,  Inc. is not a grandfathered
unitary  savings and loan  holding  company  and,  therefore,  is limited to the
activities  permissible for financial  holding companies or for multiple savings
and loan holding companies. A financial holding company may engage in activities
that are  financial in nature,  including  underwriting  equity  securities  and
insurance,  incidental to financial  activities or  complementary to a financial
activity.  A multiple  savings and loan holding company is generally  limited to
activities  permissible for bank holding  companies under Section 4(c)(8) of the
Bank Holding Company Act,  subject to the prior approval of the Office of Thrift
Supervision,  and certain additional  activities  authorized by Office of Thrift
Supervision regulations.

      Federal  law  prohibits a savings and loan  holding  company,  directly or
indirectly,  or through  one or more  subsidiaries,  from  acquiring  control of
another savings  institution or holding company  thereof,  without prior written
approval of the Office of Thrift Supervision.  It also prohibits the acquisition
or  retention  of,  with  specified  exceptions,  more  than  5% of  the  equity
securities of a company  engaged in activities  that are not closely  related to
banking  or  financial  in  nature  or  acquiring  or  retaining  control  of an
institution that is not federally insured. In evaluating applications by holding
companies to acquire savings institutions, the Office of Thrift Supervision must
consider the financial and managerial resources, future prospects of the savings
institution involved, the effect of the acquisition on the risk to the insurance
fund, the convenience and needs of the community and competitive factors.


                                       27
<PAGE>

The USA PATRIOT Act

      In  response  to the  events  of  September  11,  2001,  the  Uniting  and
Strengthening  America by Providing  Appropriate Tools Required to Intercept and
Obstruct  Terrorism  Act of 2001, or the USA PATRIOT Act, was signed into law on
October 26, 2001. The USA PATRIOT Act gives the federal government new powers to
address terrorist threats through enhanced domestic security measures,  expanded
surveillance  powers,  increased  information  sharing and broadened  anti-money
laundering requirements. By way of amendments to the Bank Secrecy Act, Title III
of the USA PATRIOT Act takes measures intended to encourage  information sharing
among bank regulatory  agencies and law  enforcement  bodies.  Further,  certain
provisions  of Title III  impose  affirmative  obligations  on a broad  range of
financial  institutions,  including banks,  thrifts,  brokers,  dealers,  credit
unions,  money  transfer  agents  and  parties  registered  under the  Commodity
Exchange Act.

      Among  other  requirements,  Title III of the USA  PATRIOT Act imposes the
following requirements with respect to financial institutions:

      o     Pursuant to Section 352, all financial  institutions  must establish
            anti-money   laundering  programs  that  include,  at  minimum:  (i)
            internal   policies,   procedures,   and  controls;   (ii)  specific
            designation of an anti-money  laundering  compliance officer;  (iii)
            ongoing employee  training  programs;  and (iv) an independent audit
            function to test the anti-money laundering program.

      o     Section 326  authorized the Secretary of the Department of Treasury,
            in conjunction with other bank regulators, to issue regulations that
            provide   for   minimum   standards   with   respect   to   customer
            identification  at the time  new  accounts  are  opened.  The  rules
            require  financial  institutions  to establish a program  specifying
            procedures  for obtaining  identifying  information  from  customers
            seeking to open new accounts.  This identifying information would be
            essentially  the  same  information   currently   obtained  by  most
            financial institutions for individual customers.

      o     Section  312  requires   financial   institutions   that  establish,
            maintain,   administer,   or  manage  private  banking  accounts  or
            correspondence  accounts in the United States for non-United  States
            persons  or their  representatives  (including  foreign  individuals
            visiting the United States) to establish appropriate, specific, and,
            where necessary,  enhanced due diligence policies,  procedures,  and
            controls designed to detect and report money laundering.

      o     Financial    institutions   are   prohibited   from    establishing,
            maintaining,  administering or managing  correspondent  accounts for
            foreign  shell  banks  (foreign  banks  that do not have a  physical
            presence  in any  country),  and will be subject  to certain  record
            keeping  obligations  with  respect  to  correspondent  accounts  of
            foreign banks.

      o     Bank  regulators  are  directed  to  consider  a  holding  company's
            effectiveness  in combating money  laundering when ruling on Federal
            Reserve Act and Bank Merger Act applications.


                                       28
<PAGE>

Sarbanes-Oxley Act of 2002

      On July 30, 2002, the President signed into law the  Sarbanes-Oxley Act of
2002  ("Sarbanes-Oxley"),  which  implemented  legislative  reforms  intended to
address  corporate and accounting  fraud. In addition to the  establishment of a
new  accounting  oversight  board that enforces  auditing,  quality  control and
independence standards and is funded by fees from all publicly traded companies,
Sarbanes-Oxley  places certain restrictions on the scope of services that may be
provided  by  accounting  firms to  their  public  company  audit  clients.  Any
non-audit services provided to a public company audit client require preapproval
by the company's  audit  committee.  In addition,  Sarbanes-Oxley  makes certain
changes to the  requirements  for audit partner rotation after a period of time.
Sarbanes-Oxley  requires chief executive officers and chief financial  officers,
or their  equivalent,  to certify to the accuracy of periodic reports filed with
the Securities and Exchange Commission,  subject to civil and criminal penalties
if they  knowingly or  willingly  violate this  certification  requirement.  The
Company's  Chief  Executive  Officer  and Chief  Financial  Officer  have signed
certifications  to this Form 10-K as required by  Sarbanes-Oxley.  In  addition,
under  Sarbanes-Oxley,  counsel is  required  to report  evidence  of a material
violation of the  securities  laws or a breach of fiduciary duty by a company to
its chief  executive  officer or its chief legal  officer,  and, if such officer
does not appropriately  respond,  to report such evidence to the audit committee
or other similar committee of the board of directors or the board itself.

      Under  Sarbanes-Oxley,  longer prison terms apply to corporate  executives
who violate  federal  securities  laws; the period during which certain types of
suits can be brought against a company or its officers is extended;  and bonuses
issued  to  top  executives  prior  to  restatement  of  a  company's  financial
statements  are now  subject  to  disgorgement  if such  restatement  was due to
corporate misconduct.  Executives are also prohibited from trading the company's
securities  during  retirement  plan  "blackout"  periods,  and loans to company
executives  (other than loans by  financial  institutions  permitted  by federal
rules and regulations)  are restricted.  In addition,  a provision  directs that
civil penalties levied by the Securities and Exchange  Commission as a result of
any judicial or  administrative  action under  Sarbanes-Oxley  be deposited to a
fund for the benefit of harmed  investors.  The Federal  Accounts  for  Investor
Restitution  provision also requires the  Securities and Exchange  Commission to
develop methods of improving  collection rates. The legislation  accelerates the
time  frame for  disclosures  by  public  companies,  as they  must  immediately
disclose  any  material  changes in their  financial  condition  or  operations.
Directors and executive officers must also provide  information for most changes
in ownership in a company's securities within two business days of the change.

      Sarbanes-Oxley  also  increases  the  oversight  of, and codifies  certain
requirements  relating  to audit  committees  of public  companies  and how they
interact with the company's "registered public accounting firm." Audit Committee
members must be independent and are absolutely barred from accepting consulting,
advisory or other compensatory fees from the issuer. In addition, companies must
disclose  whether at least one member of the  committee  is an "audit  committee
financial  expert"  (as such term is  defined  by the  Securities  and  Exchange
Commission) and if not, why not. Under  Sarbanes-Oxley,  a company's  registered
public accounting firm is prohibited from performing  statutorily mandated audit
services  for a  company  if  such  company's  chief  executive  officer,  chief
financial officer,  comptroller,  chief accounting officer or any person serving
in equivalent  positions had been employed by such firm and  participated in the
audit of such company during the one-year period  preceding the audit initiation
date.  Sarbanes-Oxley also prohibits any officer or director of a company or any
other person acting under their direction from taking any action to fraudulently
influence,  coerce,  manipulate or mislead any independent accountant engaged in
the audit of the company's financial statements for the purpose of rendering the
financial  statements  materially  misleading.  Sarbanes-Oxley also requires the
Securities and Exchange Commission to prescribe rules requiring inclusion of any
internal  control  report and  assessment


                                       29
<PAGE>

by management in the annual report to shareholders.  Sarbanes-Oxley requires the
company's  independent  registered  public accounting firm that issues the audit
report to  attest to and  report on  management's  assessment  of the  company's
internal   controls  over   financial   reporting.   The  Company  has  included
management's  report on internal control over financial reporting and the report
of the Company's independent  registered public accounting firm in the March 31,
2005 Annual Report to Stockholders.

Executive Officers of the Company

      Listed  below  is  information,  as of  March  31,  2005,  concerning  the
Company's  executive  officers.  There  are no  arrangements  or  understandings
between the Company and any of the persons  named below with respect to which he
was or is to be selected as an officer.

Name                      Age    Position
----                      ---    --------
Bruno J. Gioffre          70     Chairman of the Board.

Richard P. McStravick     56     President and Chief Executive Officer.

Anthony J. Fabiano        44     Chief Financial Officer and Accounting
                                 Officer.


                                       30
<PAGE>

ITEM 2. PROPERTIES

      The  following  table  provides  certain  information  with respect to the
Bank's  offices at March 31,  2005.  The net book  value for  leased  properties
represents the amortized cost of leasehold improvements.

                                   Leased or
                                  Owned, Lease    Year Acquired  Net Book Value
            Location             Expiration Date    or Leased   of Real Property
--------------------------------------------------------------------------------
                                                                 (In Thousands)
Corporate Office                     Leased
1311 Mamaroneck Avenue              4/1/2010          2003            $ 67
White Plains, New York 10605

Branch Office                         Owned           1954             493
300 Mamaroneck Avenue
Mamaroneck, New York 10543

Branch Office                         Owned           1961             612
389 Halstead Avenue
Harrison, New York 10528

Branch Office                         Owned           1972             980
115 South Ridge Street
Rye Brook, New York 10573

Branch Office                        Leased           1998             111
180 South Main Street              12/31/2006
New City, New York 10956

Branch Office                        Leased           1998             191
100 East Putnam Avenue             11/30/2008
Cos Cob, Connecticut 06807

Branch Office                         Owned           2000             420
1019 Park Street
Peekskill, New York 10566

Branch Office                        Leased           2000              41
1961 Commerce Street               12/31/2012
Yorktown Heights, New York 10598

Branch Office                        Leased           2000             649
Cortland Town Center               10/14/2017
Mohegan Lake, New York 10547

Branch Office                        Leased
88 Fourth Street                    2/8/2009          2001              13
New Rochelle, New York 10801

Branch Office                        Leased
Somers Commons                      5/31/2022         2001             222
Baldwin Place, New York 10589

Branch Office                        Leased           2003             315
599 Newfield Avenue                 6/30/2008
Stamford, Connecticut 06905

Branch Office                        Leased           2004              46
247 Federal Road                    4/19/2009
Brookfield, Connecticut 06804

Branch Office                        Leased           2004             497
Shoprite Shopping Center            8/12/2014
Carmel, New York 10512

Branch Office                        Leased           2004             295
146 Greenwood Avenue               10/15/2014
Bethel, Connecticut 06801

      The total net book value of the Bank's  premises,  land and  equipment was
approximately $6.2 million at March 31, 2005.

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.


                                       31
<PAGE>

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

      None

                                    PART II

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

      (a) and (b)  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.

      Issuer purchases of equity  securities  during the quarter ended March 31,
2005 are as follows:

                                                                    Maximum
                                                     Total number  number of
                                                      of shares      shares
                                                      purchased     that may
                                                       under a       yet be
                                           Average     publicly    purchased
                           Total number    price      announced      under
                             of shares      paid      repurchase   repurchase
                             purchased    per share    plan(1)      plan(1)
                             ---------    ---------  ------------  ----------
January 1 - January 31             --         --           --      658,844
February 1 - February 28      250,000      15.05      250,000      408,844
March 1 - March 31                 --         --           --      408,844

(1)   On June 11,  2004,  the Company  announced a program to  repurchase  up to
      658,844 shares of its common stock. This program has no expiration date.


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  15(a)(1)   hereof  are
incorporated by reference hereunder.

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

      None.


                                       32
<PAGE>

ITEM 9A. CONTROLS AND PROCEDURES

      The Company's  Chief Executive  Officer and Chief  Financial  Officer have
conducted an evaluation and concluded that the Company's disclosure controls and
procedures  (as  defined by the  Securities  Exchange  Act Rules  13a-14(c)  and
15d-14(c))  as of March  31,  2005 are  effective  to  ensure  that  information
required to be disclosed in the reports that the Company  files or submits under
the  Securities  Exchange Act of 1934 is  recorded,  processed,  summarized  and
reported as and when required by the Securities and Exchange  Commission's rules
and forms.

      There were no significant  changes made in the Company's internal controls
over financial  reporting during the three months ended March 31, 2005 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

      The Management Report on Internal Control Over Financial Reporting and the
related Report of Independent Registered Public Accounting Firm are incorporated
herein by reference to the Company's Annual Report to Stockholders.

ITEM 9B. Other Information

      None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      Information  concerning Directors of the Company is incorporated herein by
reference from the Company's  definitive Proxy Statement dated July 7, 2005 (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 AND
         RELATED STOCKHOLDER MATTERS

      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  Holders
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."


                                       33
<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      Information  concerning fees paid to the Company's principal accountant is
incorporated by reference from the Company's Proxy  Statement,  specifically the
section captioned  "Proposal  II-Ratification  of Appointment of the Independent
Registered Public Accounting Firm."

                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

      (a)(1) Financial Statements

                  o     Report of Independent Registered Public Accounting Firm

                  o     Consolidated Balance Sheets at March 31, 2005 and 2004

                  o     Consolidated  Statements  of Income for the Years  Ended
                        March 31, 2005, 2004 and 2003

                  o     Consolidated  Statements  of  Changes  in  Stockholders'
                        Equity for the Years Ended March 31, 2005, 2004 and 2003

                  o     Consolidated  Statements  of Cash  Flows  for the  Years
                        Ended March 31, 2005, 2004 and 2003

                  o     Notes to Consolidated Financial Statements.

      (a)(2) Financial Statement Schedules

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

      (a)(3) Exhibits

                  3.1   Federal   Charter  of  Sound   Federal   Bancorp,   Inc.
                        (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,  Inc.  (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)) 36

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

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


                                       34
<PAGE>

                  10.3a Employment    Agreement    with    Richard    McStravick
                        (Incorporated  by reference to the  Company's  Form 10-K
                        for the year ended March 31, 2004)

                  10.3b Employment    Agreement    with   Anthony   J.   Fabiano
                        (Incorporated  by reference to the  Company's  Form 10-K
                        for the year ended March 31, 2004)

                  10.4  Sound Federal  Bancorp 2004 Incentive Stock Benefit Plan
                        (Incorporated by reference to the Company's Registration
                        Statement  on Form S-8  (File  No.  333-112816  filed on
                        February 13, 2004))

                  10.5  Supplemental   Executive   Agreement   for   Richard  P.
                        McStravick  (Incorporated  by reference to the Company's
                        Form 10-Q for the quarter ended December 31, 2003)

                  10.6  Supplemental  Executive Agreement for Anthony J. Fabiano
                        (Incorporated  by reference to the  Company's  Form 10-Q
                        for the quarter ended December 31, 2003)

                  10.7  Non-qualified    Supplemental    Executive    Retirement
                        Agreement  for Richard P.  McStravick  (Incorporated  by
                        reference to the Company's  Form 10-K for the year ended
                        March 31, 2004)

                  10.8  Non-qualified    Supplemental    Executive    Retirement
                        Agreement  for  Anthony  J.  Fabiano   (Incorporated  by
                        reference to the Company's  Form 10-K for the year ended
                        March 31, 2004)

                  13    2005 Annual Report to Stockholders

                  14    Code  of  Ethics   (Incorporated  by  reference  to  the
                        Company's Form 10-K for the year ended March 31, 2004)

                  21    Subsidiaries of the Registrant

                  23    Consent of KPMG LLP

                  31.1  Certification  of Chief  Executive  Officer  pursuant to
                        Section 302 of the Sarbanes-Oxley Act of 2002

                  31.2  Certification  of Chief  Financial  Officer  pursuant to
                        Section 302 of the Sarbanes-Oxley Act of 2002

                  32    Certification  of  Chief  Executive  Officer  and  Chief
                        Financial   Officer  pursuant  to  Section  906  of  the
                        Sarbanes-Oxley Act of 2002


                                       35
<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, INC.

Date: June 10, 2005                       /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.

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

Date: June 10, 2005                         Date: June 10, 2005

By: /s/ Anthony J. Fabiano                  By: /s/ Roberta I. Bernhardt
    --------------------------------            --------------------------------
    Anthony J. Fabiano, Chief                   Roberta I. Bernhardt, Director
    Financial Officer and Accounting
    Officer

Date: June 10, 2005                         Date: June 10, 2005

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

Date: June 10, 2005                         Date: June 10, 2005

By: /s/ Joseph A. Lanza                     By: /s/ Eldorus Maynard
    --------------------------------            --------------------------------
    Joseph A. Lanza, Director                   Eldorus Maynard, Director

Date: June 10, 2005                         Date: June 10, 2005

By: /s/ James Staudt                        By: /s/ Samuel T. Telerico
    --------------------------------            --------------------------------
    James Staudt, Director                      Samuel T. Telerico, Director

Date: June 10, 2005                         Date: June 10, 2005


                                       36