<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 [FEE REQUIRED] For the Fiscal Year Ended March 31, 2002

                                       OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 [NO FEE REQUIRED]
    For the transition period from ___________________ to ______________________


                        Commission File Number: 000-24811

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

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


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

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

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

                                      None
                                      ----

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

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

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days.
YES      X        NO __________
     -----------

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

     As of June 17, 2002, there were issued and outstanding 4,775,292 shares of
the Registrant's Common Stock. The aggregate value of the voting stock held by
non-affiliates of the Registrant, computed by reference to the average bid and
asked prices of the Common Stock as of June 17, 2002 ($23.46) was $34,090,206.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.  Sections of Annual Report to Stockholders for the fiscal year ended March
    31, 2002 (Parts II and IV).
2.  Proxy Statement for the 2002 Annual Meeting of Stockholders (Parts I and
    III).




<PAGE>

                                     PART I

ITEM 1.  BUSINESS

General

         Sound Federal Bancorp. Sound Federal Bancorp (the "Company") is a
federal corporation which was organized in October 1998. The principal asset of
the Company is its investment in Sound Federal Savings and Loan Association (the
"Bank"). The Company is majority owned by Sound Federal, MHC, a
federally-chartered mutual holding company (the "Mutual Holding Company"). On
October 8, 1998, the Company sold 2,299,508 shares of its common stock to the
public, issued 2,810,510 shares of common stock to the Mutual Holding Company,
and contributed 102,200 shares of common stock to the Sound Federal Savings and
Loan Association Charitable Foundation. At March 31, 2002, there were 4,775,292
outstanding shares. At March 31, 2002, the Company had total consolidated assets
of $624.0 million, total deposits of $519.9 million, and stockholders' equity of
$61.0 million.

         Sound Federal Savings and Loan Association. The Bank is a federally
chartered savings association headquartered in Mamaroneck, New York. The Bank's
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"). The
Bank was organized as a New York chartered savings bank in 1891 and became a
federally chartered savings association in 1934. In July 2000, the Company and
the Bank completed the acquisition of Peekskill Financial Corporation and its
wholly owned subsidiary, First Federal Savings Bank ("Peekskill") (the
"Acquisition"). At March 31, 2002, the Bank operated from nine locations in New
York and Connecticut.

         In February 2001, the Bank formed Mamaroneck Advisors, Inc.
("Mamaroneck Advisors"), as a wholly-owned subsidiary. Mamaroneck Advisors was
formed to offer investment and insurance products and services to the general
public in the Bank's market areas. Products offered by Mamaroneck Advisors
primarily include fixed and variable rate annuities and mutual funds. Management
believes that offering these products provides a wider range of services to the
Bank's customers and may help to attract new customers who wish to use a
community bank for all of their financial needs.

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

Recent Developments

         On June 13, 2002, the Board of Directors of the Mutual Holding Company
adopted a Plan of Conversion and Reorganization (the "Plan") pursuant to which
the Mutual Holding Company will convert to stock form. Under the Plan, the
ownership interest in the Company that is held by the Mutual Holding Company
will be offered to eligible depositors and others in a subscription and
community offering. The conversion of the Mutual Holding Company is subject to
regulatory, member and stockholder approval. It is expected that the conversion
of the Mutual Holding Company will be completed during the fourth quarter of
2002.

                                       1

<PAGE>

Market Area

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

Lending Activities

      Historically, the Bank's principal lending activity has been the
origination of fixed-rate first mortgage loans for the purchase or refinancing
of one-to-four family residential real property. In fiscal 2002, the Bank began
to originate adjustable-rate mortgage loans with fixed-rates for initial terms
of three, five and seven years. After the initial terms, the interest rate on
the loan adjusts annually. The Bank has thus far retained all loans that it has
originated. One-to-four family residential mortgage loans represented $334.7
million, or 79.7%, of the Bank's loan portfolio at March 31, 2002. Home equity
lines of credit represented $47.9 million, or 11.4%, of the Bank's loan
portfolio at March 31, 2002. The Bank also offers multi-family mortgage loans,
commercial mortgage loans and construction loans. Multi-family mortgage loans
totaled $8.3 million, or 2.0% of the loan portfolio, at March 31, 2002.
Commercial mortgage loans totaled approximately $23.7 million, or 5.6% of the
loan portfolio, at March 31, 2002. Construction loans totaled $3.7 million, or
0.9% of the loan portfolio, at March 31, 2002. The Bank also makes consumer
loans, which primarily consist of automobile, passbook, home improvement and
secured personal loans. Consumer loans totaled $1.5 million, or 0.4% of the loan
portfolio, at March 31, 2002.

                                       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,
                                               ---------------------------------------------------------------------------------
                                                           2002                           2001                    2000
                                               ---------------------------   --------------------------  -----------------------
                                                   Amount        Percent          Amount       Percent     Amount      Percent
                                               -------------   -----------   --------------   ---------  -----------  ----------
                                                                                                        (Dollars in Thousands)
<S>                                            <C>             <C>            <C>             <C>        <C>          <C>
Mortgage loans:
   One- to four-family.......................    $ 334,683          79.7%       $ 221,617         75.1%    $138,375       76.1%
   Home equity lines of credit...............       47,889          11.4           47,315         16.0       24,337       13.4
   Multi-family..............................        8,347           2.0            3,959          1.3        4,621        2.5
   Commercial................................       23,701           5.6           16,771          5.7       10,795        5.9
   Construction..............................        3,733           0.9            3,659          1.2        2,922        1.6
                                                 ---------      --------        ---------     --------     --------   --------
      Total mortgage loans...................      418,353          99.6          293,321         99.3      181,050       99.5
                                                 ---------      --------        ---------     --------     --------   --------

Consumer loans:
   Automobile loans..........................          785           0.2            1,154          0.4          467        0.3
   Other/(1)/................................          684           0.2              746          0.3          353        0.2
                                                 ---------      --------        ---------     --------     --------   --------
      Total consumer loans...................        1,469           0.4            1,900          0.7          820        0.5
                                                 ---------      --------        ---------     --------     --------   --------

      Total loans............................      419,822         100.0%         295,221        100.0%     181,870      100.0%
                                                                ========                      ========                ========

Allowance for loan losses....................       (2,221)                        (2,047)                   (1,188)
Deferred loan origination costs (fees), net..          767                            633                       250
                                                 ---------                      ---------                  --------
   Total loans, net..........................    $ 418,368                      $ 293,807                  $180,932
                                                 =========                      =========                  ========


<CAPTION>
                                                          -----------------------------------------------
                                                                   1999                    1998
                                                          ----------------------    ---------------------
                                                            Amount      Percent      Amount     Percent
                                                          -----------  ---------    --------   ----------
<S>                                                        <C>         <C>        <C>        <C>
Mortgage loans:
   One- to four-family..................................    $119,015       82.3%  $109,207       84.1%
   Home equity lines of credit..........................      16,441       11.4     13,138       10.1
   Multi-family.........................................         396        0.3        412        0.3
   Commercial...........................................       5,930        4.1      3,811        3.0
   Construction.........................................       1,821        1.3      1,227        0.9
                                                            --------   --------   --------   --------
      Total mortgage loans..............................     143,603       99.4    127,795       98.4
                                                            --------   --------   --------   --------

Consumer loans:
   Automobile loans.....................................         609        0.4      1,011        0.8
   Other/(1)/...........................................         395        0.2      1,016        0.8
                                                            --------   --------   --------   --------
      Total consumer loans..............................       1,004        0.6      2,027        1.6
                                                            --------   --------   --------   --------

      Total loans.......................................     144,607      100.0%   129,822      100.0%
                                                                       ========              ========

Allowance for loan losses...............................      (1,094)                 (984)
Deferred loan origination costs (fees), net.............          23                  (280)
                                                            --------              --------
   Total loans, net.....................................    $143,536              $128,558
                                                            ========              ========
</TABLE>

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

                                       3

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                At March 31,
                                                 -------------------------------------------------------------------------
                                                          2002                   2001                     2000
                                                 ---------------------- -----------------------  -------------------------
                                                   Amount      Percent    Amount       Percent      Amount      Percent
                                                 ----------  ---------- ----------    ---------  -----------  ------------
                                                                                            (Dollars in Thousands)
<S>                                             <C>           <C>       <C>         <C>         <C>             <C>
Fixed Rate Loans
   Mortgage loans:
      One- to four-family ....................   $ 272,203      64.8%  $  215,202      72.9%    $   135,912       74.7%
      Home equity lines of credit ............      47,724      11.4       46,908      15.9          23,940       13.2
      Multi-family ...........................       8,347       2.0        3,959       1.3           4,621        2.5
      Commercial .............................      23,296       5.5       16,771       5.7          10,740        5.9
      Construction ...........................       3,733       0.9        3,659       1.2           2,922        1.6
                                                 ---------    ------   ----------    ------     -----------     ------
        Total mortgage loans .................     355,303      84.6      286,999      97.0         178,135       97.9
   Consumer loans /(1)/ ......................       1,469       0.4        1,900       0.7             820        0.5
                                                 ---------    ------   ----------    ------     -----------     ------
   Total fixed rate loans ....................     356,772      85.0      288,399      97.7         178,955       98.4
                                                 ---------    ------   ----------    ------     -----------     ------

Adjustable Rate Loans
   Mortgage loans:
      One- to four-family ....................      62,480      14.9        6,415       2.2           2,463        1.4
      Home equity lines of credit ............         165        --          407       0.1             397         .2
      Commercial .............................         405       0.1           --        --              55         --
                                                 ---------    ------   ----------    ------     -----------     ------
        Total adjustable rate loans ..........      63,050      15.0        6,822       2.3           2,915        1.6
                                                 ---------    ------   ----------    ------     -----------     ------
Total loans ..................................     419,822     100.0%     295,221     100.0%        181,870      100.0%
                                                              ------                 ======                     ======
Allowance for loan losses ....................      (2,221)                (2,047)                   (1,188)
Deferred loan origination costs (fees), net ..         767                    633                       250
                                                 ---------             ----------               -----------
   Total loans, net ..........................   $ 418,368             $  293,807               $   180,932
                                                 =========             ==========               ===========

<CAPTION>
                                                                   At March 31,
                                                -------------------------------------------------
                                                           1999                    1998
                                                ------------------------   ----------------------
                                                    Amount      Percent      Amount     Percent
                                                ------------   ---------   ----------  ----------

<S>                                              <C>            <C>        <C>         <C>
Fixed Rate Loans
   Mortgage loans:
      One- to four-family ....................   $   116,113     80.3%     $  103,887      80.0%
      Home equity lines of credit ............        15,590     10.8          12,094       9.3
      Multi-family ...........................           396      0.3             412       0.3
      Commercial .............................         5,930      4.1           3,811       2.9
      Construction ...........................         1,821      1.3           1,227       1.0
                                                 -----------   ------      ----------    ------
        Total mortgage loans .................       139,850     96.8         121,431      93.5
   Consumer loans /(1)/ ......................         1,004      0.6           2,027       1.6
                                                 -----------   ------      ----------    ------
   Total fixed rate loans ....................       140,854     97.4         123,458      95.1
                                                 -----------   ------      ----------    ------

Adjustable Rate Loans
   Mortgage loans:
      One- to four-family ....................         2,902      2.0           5,320       4.1
      Home equity lines of credit ............           851      0.6           1,044       0.8
      Commercial .............................            --       --              --        --
                                                 -----------   ------      ----------    ------
        Total adjustable rate loans ..........         3,753      2.6           6,364       4.9
                                                 -----------   ------      ----------    ------
Total loans ..................................       144,607    100.0%        129,822     100.0%
                                                               ======                    ======
Allowance for loan losses ....................        (1,094)                    (984)
Deferred loan origination costs (fees), net ..            23                     (280)
                                                 -----------               ----------
   Total loans, net ..........................   $   143,536               $  128,558
                                                 ===========               ==========
</TABLE>

______________________________

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

                                       4

<PAGE>

         Loan Maturity Schedule. The following table summarizes the contractual
maturities of the Bank's loan portfolio at March 31, 2002. Loans with adjustable
or renegotiable interest rates are shown as maturing in the period during which
the contract is due. The table reflects the entire unpaid principal balance of a
loan in the maturity period that includes the final payment date, and
accordingly, does not reflect the effects of scheduled payments, possible
prepayments or enforcement of due-on-sale clauses.

<TABLE>
<CAPTION>
                                                               Multi-Family, Commercial,
                                     One-to-Four Family/(1)/   Construction and Consumer       Total
                                    ------------------------- --------------------------- ----------------------
                                                   Weighted                   Weighted                 Weighted
                                                    Average                   Average                   Average
                                       Amount        Rate         Amount        Rate        Amount        Rate
                                      --------     ---------    ---------    ---------    ---------    ---------
                                                                (Dollars in Thousands)
<S>                                 <C>            <C>          <C>          <C>          <C>          <C>
Due During the Years Ending
March 31, 2003/(2)/ ..............     $   959         7.65%     $ 5,370        7.27%      $  6,329       7.33%
2004 .............................       1,452         8.29        1,800        7.58          3,252       7.89
2005 .............................         854         8.09        2,110        7.62          2,964       7.76
2006 to 2008 .....................       5,530         7.45        3,650        7.90          9,180       7.63
2009 to 2012 .....................      18,804         7.35       16,852        8.23         35,656       7.77
2013-2017 ........................      74,771         6.52        2,512        7.96         77,283       6.57
2018 and following ...............     280,202         5.96        4,956        7.54        285,158       5.99
                                      --------                   -------                   --------
   Total .........................    $382,572        6.18%      $37,250        7.89%      $419,822       6.33%
                                      ========                   =======                   ========
</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, 2002 that are contractually due after March
31, 2003.

<TABLE>
<CAPTION>
                                                               Fixed      Adjustable      Total
                                                              --------     --------     ---------
                                                                           (In Thousands)
   <S>                                                        <C>         <C>           <C>
   One-to-four family ....................................    $319,133     $ 62,480     $ 381,613
   Multi-family, commercial, construction and consumer ...      31,880           --        31,880
                                                              --------     --------     ---------
      Total ..............................................    $351,013     $ 62,480     $ 413,493
                                                              ========     ========     =========
</TABLE>

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

         The Bank primarily originates fixed-rate loans; however, the Bank also
offers adjustable rate mortgage ("ARM") loans with a fixed rate for initial
terms of three, five and seven years and then subsequent one year adjustment
periods. At March 31, 2002, 81.3% of the Bank's one-to-four family residential
loans had fixed interest rates. The interest rate on ARM loans is indexed to the
one year constant maturity Treasury bill. The Bank's ARM loans currently provide
for maximum rate adjustments of 2.00% per year and 5.00% over the term of the
loan. The Bank does not offer ARM loans with initial interest rates that are
below market, referred to as "teaser rates." Residential ARM loans amortize over
terms of up to 30 years.

         ARM loans decrease the risk associated with changes in market interest
rates by periodically repricing, but involve other risks because as interest
rates increase, the underlying payments by the borrower increase, thus
increasing the potential for default by the borrower. At the same time, the
marketability of the

                                       5

<PAGE>

underlying collateral may be adversely affected by higher interest rates. Upward
adjustment of the contractual interest rate is also limited by the maximum
periodic and lifetime interest rate adjustment permitted by the terms of the ARM
loans, and, therefore, is potentially limited in effectiveness during periods of
rapidly rising interest rates. At March 31, 2002, 18.7% of the Bank's
one-to-four family residential loans had adjustable interest rates.

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

         At March 31, 2002, approximately $334.7 million, or 79.7% of the Bank's
loan portfolio, consisted of one-to-four family residential loans. Approximately
$690,000 of such loans (representing nine loans) were nonperforming loans at
that date. See "Nonperforming and Problem Assets."

         Home Equity Lines of Credit. The Bank offers home equity lines of
credit that are secured by the borrower's primary residence. The borrower is
permitted to draw on the home equity line of credit during the first five years
after it is originated and may repay the outstanding balance over a term not to
exceed 20 years from the date the line of credit is originated. Home equity
lines of credit are generally underwritten under the same criteria that the Bank
uses to underwrite one-to-four family fixed rate loans. Home equity lines of
credit may be underwritten with a loan to value ratio of 80% when combined with
the principal balance of the existing mortgage loan, however, the maximum
principal amount of a home equity line of credit may not exceed $300,000 unless
approved by the Board of Directors. The Bank appraises the property securing the
loan at the time of the loan application in order to determine the value of the
property securing the home equity line of credit. At March 31, 2002, the
outstanding balances of home equity lines of credit totaled $47.9 million, or
11.4% of the Bank's loan portfolio.

         Commercial Mortgage Loans. At March 31, 2002, $23.7 million, or 5.6%,
of the total loan portfolio consisted of commercial mortgage loans. Commercial
mortgage loans are secured by office buildings, private schools, religious
facilities and other commercial properties. The Bank generally originates
fixed-rate commercial mortgage loans with maximum terms of up to 20 years. The
maximum loan-to-value ratio of commercial mortgage loans is 75%. At March 31,
2002, the largest commercial mortgage loan had a principal balance of $1.8
million and was secured by a combination of office building and retail stores.
As of March 31, 2002, there were no nonperforming commercial mortgage loans.

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

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

                                       6

<PAGE>

         Multi-Family Mortgage Loans. Loans secured by multi-family real estate
totaled approximately $8.3 million, or 2.0% of the total loan portfolio at March
31, 2002. Multi-family mortgage loans generally are secured by multi-family
rental properties (including mixed-use buildings and walk-up apartments). At
March 31, 2002, the Bank had 16 multi-family mortgage loans, the largest of
which had a principal balance of $1.4 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.

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

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

         Construction Lending. To a limited extent, the Bank originates
residential construction loans to local home builders, generally with whom it
has an established relationship, and to individuals who have a contract with a
builder for the construction of their residence. Construction loans are
disbursed as certain portions of the project are completed. The Bank's
construction loans are secured by property located in the Bank's market area. At
March 31, 2002, the Bank had construction loans totaling $3.7 million, or 0.9%
of total loans.

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

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

         Construction loans are generally considered to involve a higher degree
of risk than single-family permanent mortgage loans because of the inherent
difficulty in estimating both a property's value at completion of the project
and the estimated cost of the project. If the estimate of construction costs is
inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the project. If the estimate of
value upon completion is inaccurate, the value of the property

                                       7

<PAGE>

may be insufficient to assure full repayment. Projects may also be jeopardized
by disagreements between borrowers and builders and by the failure of builders
to pay subcontractors. Loans to builders to construct homes for which no
purchaser has been identified carry more risk because the repayment of the loan
depends on the builder's ability to sell the property prior to the time that the
construction loan is due. The Bank has attempted to minimize the foregoing risks
by, among other things, limiting its construction lending primarily to
residential properties and generally requiring personal guarantees from the
principals of its corporate borrowers.

         Consumer Lending. The Bank's consumer loans primarily consist of
secured personal loans, passbook loans and home improvement loans. At March 31,
2002, consumer loans totaled $1.5 million, or 0.4% of the total loan portfolio.

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

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

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

         The loan approval process is intended to assess the borrower's ability
to repay the loan, the viability of the loan, and the adequacy of the value of
the property that will secure the loan. To assess the borrower's ability to
repay, the Bank reviews the employment and credit history and information on the
historical and projected income and expenses of borrowers. Loans of up to $1.0
million may be approved by two Lending Officers acting together. All loans in
excess of $1.0 million must be approved by the Board of Directors. In addition,
the Board of Directors reviews and confirms all loan commitments. The Bank will
generally not originate a loan with a principal balance in excess of $2.0
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%.

                                       8

<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 or sell any loans during the periods indicated.

<TABLE>
<CAPTION>
                                                                     Years Ended March 31,
                                                             -----------------------------------
                                                                2002         2001         2000
                                                             ---------    ---------    ---------
                                                                       (In Thousands)
<S>                                                          <C>          <C>          <C>
Unpaid principal balances at beginning of year ..........    $ 295,221    $ 181,870    $ 144,946
                                                             ---------    ---------    ---------
Loans transferred in Acquisition ........................           --       67,845           --

Loans originated by type:
  Fixed rate:
    Mortgage loans:
      One-to-four family ................................      107,782       35,623       32,064
      Advances under home equity lines of credit ........       27,214       34,890       16,676
      Multi-family ......................................        4,823          440        4,404
      Commercial ........................................       15,288        5,887        4,466
      Construction ......................................        4,892        4,216        3,678
    Consumer loans ......................................        1,244        1,471          679
                                                             ---------    ---------    ---------
      Total fixed rate ..................................      161,243       82,527       61,967

  Adjustable rate mortgage loans:
    One-to-four family ..................................       58,609        4,114           --
    Advances under home equity lines of credit ..........           --           --           --
    Commercial ..........................................           --           --           55
                                                             ---------    ---------    ---------
      Total loans originated ............................      219,852       86,641       62,022
                                                             ---------    ---------    ---------

Principal repayments:
  Mortgage loans ........................................      (93,308)     (39,925)     (24,111)
  Consumer loans ........................................       (1,675)        (758)        (863)
                                                             ---------    ---------    ---------
    Total principal repayments ..........................      (94,983)     (40,683)     (24,974)
                                                             ---------    ---------    ---------

Charge-offs .............................................          (15)        (162)          (6)
Transfers to real estate owned ..........................         (253)        (290)        (118)
                                                             ---------    ---------    ---------
Unpaid principal balances at end of year ................      419,822      295,221      181,870

Allowance for loan losses ...............................       (2,221)      (2,047)      (1,188)
Deferred loan origination costs (fees), net .............          767          633          250
                                                             ---------    ---------    ---------
Net loans at end of year ................................    $ 418,368    $ 293,807    $ 180,932
                                                             =========    =========    =========
</TABLE>

Nonperforming and Problem Assets

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

                                       9

<PAGE>

     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,
                                               ----------------------------------------------
                                                2002      2001      2000      1999      1998
                                               ------    ------    ------    ------    ------
                                                            (Dollars in Thousands)
<S>                                            <C>       <C>       <C>       <C>       <C>
Nonaccrual loans:
  Mortgage loans:
    One-to-four family/(1)/ .................  $  755    $  933    $  969    $1,077    $1,721
    Commercial ..............................      --        --        --        --       236
  Consumer loans ............................      --        --        --        14         1
                                               ------    ------    ------    ------    ------
    Total ...................................     755       933       969     1,091     1,958

Real estate owned:
  One-to-four family properties .............     114       197        55       288       129
                                               ------    ------    ------    ------    ------

    Total nonperforming assets ..............  $  869    $1,130    $1,024    $1,379    $2,087
                                               ======    ======    ======    ======    ======

Ratios:
  Nonperforming loans to total loans ........    0.18%     0.31%     0.53%     0.75%     1.50%
  Nonperforming assets to total assets ......    0.14%     0.20%     0.31%     0.47%     0.82%
</TABLE>

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

     For the year ended March 31, 2002, gross interest income that would have
been recorded had the nonaccrual loans been current in accordance with their
original terms amounted to $67,000. Interest amounts on such loans that were
included in interest income totaled $20,000 for the year ended March 31, 2002.

     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, 2002
-----------------
  Mortgage loans:
    One-to-four family .........          10   $  1,115         11   $    755         21   $  1,870
  Consumer loans ...............          --         --         --         --         --         --
                                    --------   --------   --------   --------   --------   --------
     Total .....................          10   $  1,115         11   $    755         21   $  1,870
                                    ========   ========   ========   ========   ========   ========

At March 31, 2001
-----------------
  Mortgage loans:
    One-to four-family .........           8   $    508         14   $    933         22   $  1,441
  Consumer loans ...............          --         --         --         --         --         --
                                    --------   --------   --------   --------   --------   --------
     Total .....................           8   $    508         14   $    933         22   $  1,441
                                    ========   ========   ========   ========   ========   ========

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

                                       10

<PAGE>

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

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

     At March 31, 2002, the Bank's assets classified as substandard totaled
$869,000 representing all loans delinquent for 90 days or more and foreclosed
properties. At March 31, 2002 the Bank had no assets classified as doubtful or
loss. The loan portfolio is reviewed on a regular basis to determine whether any
loans require classification in accordance with applicable regulations.

Allowance for Loan Losses

     Management regularly reviews the Bank's loan portfolio and makes provisions
for loan losses in order to maintain the adequacy of the allowance for loan
losses. All loan losses are charged to the allowance and all recoveries are
credited to it. Additions to the allowance for loan losses are provided by
charges to income based on various factors which, in management's judgment,
deserve current recognition in estimating probable loan losses. The allowance
for loan losses consists of amounts specifically allocated to nonperforming
loans and potential problem loans (if any) as well as allowances determined for
each major loan category. Loan categories, such as one-to-four family
residential mortgages and home equity lines of credit (which represent a
combined 91.1% of the Bank's total loans at March 31, 2002) are generally
evaluated on an aggregate or "pool" basis. The Bank's allowance for loan losses
is predominately determined on a pool basis by applying loss factors to the
current balances of the various loan categories. The loss factors are determined
by management based on an evaluation of historical loss experience, delinquency
trends, volume and type of lending conducted, and the impact of current economic
conditions in the Bank's market area. The carrying values of loans are
periodically evaluated and the allowance is adjusted accordingly. While
management uses the best information available to make evaluations, future
adjustments to the allowance may be necessary if conditions differ substantially
from the assumptions used in making the evaluations.

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

                                       11

<PAGE>

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

<TABLE>
<CAPTION>
                                                                       Years Ended March 31,
                                                       ---------------------------------------------------
                                                         2002       2001       2000       1999       1998
                                                       -------    -------    -------    -------    -------
                                                                      (Dollars in Thousands)
<S>                                                    <C>        <C>        <C>        <C>        <C>
Balance at beginning of year ........................  $ 2,047    $ 1,188    $ 1,094    $   984    $   845
                                                       -------    -------    -------    -------    -------
Allowance transferred in Acquisition ................       --        784         --         --         --


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

Recoveries:
  One-to-four family mortgage loans .................       14         29         --         --         --

Net charge-offs .....................................       (1)      (133)        (6)      (162)       (16)
Provision for loan losses ...........................      175        208        100        272        155
                                                       -------    -------    -------    -------    -------
Balance at end of year ..............................    2,221    $ 2,047    $ 1,188    $ 1,094    $   984
                                                       =======    =======    =======    =======    =======

Ratios:
  Allowance for loan losses to nonperforming loans ..    294.2%     219.4%     122.6%    100.27%     50.26%
  Allowance for loan losses to total loans ..........     0.53%      0.69%      0.65%      0.75%      0.75%
</TABLE>

                                       12

<PAGE>

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

<TABLE>
<CAPTION>
                                                                      At March 31,
                         -----------------------------------------------------------------------------------------------------
                                      2002                               2001                               2000
                         --------------------------------   -------------------------------   --------------------------------
                                               Percent of                        Percent of                         Percent of
                                                Loans in                          Loans in                           Loans in
                                      Loan        Each                   Loan       Each                   Loan        Each
                                    Balances    Category               Balances   Category               Balances    Category
                         Loan Loss     by       to Total    Loan Loss     by      to Totals   Loan Loss     by       to Total
                         Allowance  Category     Loans      Allowance  Category     Loans     Allowance  Category     Loans
                         ---------  ---------  ----------   ---------  --------- ----------   ---------  ---------  ----------
                                                                 (Dollars in Thousands)
<S>                      <C>        <C>        <C>          <C>        <C>      <C>           <C>        <C>        <C>
Mortgage loans:
 One-to-four family/(1)/ $   1,090  $ 382,572       91.1%   $   1,009  $ 268,932       91.1%  $     633  $ 162,712       89.5%
 Multi-family ..........       150      8,347        2.0          150      3,959        1.3         125      4,621        2.5
 Commercial ............       741     23,701        5.6          600     16,771        5.7         300     10,795        5.9
 Construction ..........        90      3,733        0.9           90      3,659        1.2          70      2,922        1.6
 Consumer ..............       150      1,469        0.4          198      1,900        0.7          60        820        0.5
                         ---------  ---------  ---------    ---------  ---------  ---------   ---------  ---------  ---------
    Total .............. $   2,221  $ 419,822      100.0%   $   2,047  $ 295,221      100.0%  $   1,188  $ 181,870      100.0%
                         =========  =========  =========    =========  =========  =========   =========  =========  =========

<CAPTION>
                                                     At March 31,
                         -------------------------------------------------------------------
                                      1999                               1998
                         --------------------------------   -------------------------------
                                               Percent of                        Percent of
                                                Loans in                          Loans in
                                      Loan        Each                   Loan       Each
                                    Balances    Category               Balances   Category
                         Loan Loss     by       to Total    Loan Loss     by      to Totals
                         Allowance  Category     Loans      Allowance  Category     Loans
                         ---------  ---------  ----------   ---------  --------- ----------
                                               (Dollars in Thousands)
<S>                      <C>        <C>        <C>          <C>        <C>      <C>
Mortgage loans:
 One-to-four family/(1)/ $     718  $ 135,456       93.7%   $     668  $ 122,345       94.2%
 Multi-family ..........        26        396        0.3           27        412        0.3
 Commercial ............       237      5,930        4.1          152      3,811        3.0
 Construction ..........        43      1,821        1.3           36      1,227        0.9
 Consumer ..............        70      1,004        0.6          101      2,027        1.6
                         ---------  ---------  ---------    ---------  ---------  ---------
    Total .............. $   1,094  $ 144,607      100.0%   $     984  $ 129,822      100.0%
                         =========  =========  =========    =========  =========  =========
</TABLE>

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

                                       13

<PAGE>

Investment Activities

     The Bank's investments include mortgage-backed securities, collateralized
mortgage obligations, U.S. Government and agency securities, federal funds sold,
mutual funds and FHLB stock. Management invests a significant portion of the
Bank's assets in short-term investments and adjustable rate mortgage-backed
securities in order to increase the Bank's ability to reinvest assets in higher
yielding securities in a rising interest rate environment. Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, requires entities to recognize all
derivatives as either assets or liabilities in the balance sheet at fair value.
If certain conditions are met, a derivative may be specifically designated as a
fair value hedge, a cash flow hedge, or a foreign currency hedge. A specific
accounting treatment applies to each type of hedge. Entities may reclassify
securities from the held-to-maturity category to the available for-sale category
at the time of adopting SFAS No. 133. As amended, SFAS No. 133 became effective
for all fiscal quarters of fiscal years beginning after June 15, 2000 (as of
April 1, 2001 for the Company). The Company adopted SFAS No. 133 on April 1,
2001 and reclassified held to maturity securities to the available for sale
portfolio. The Company has not engaged in derivatives and hedging activities
covered by the new standard, 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 $104.1 million, or 16.7% of total
assets at March 31, 2002. Of this amount, $74.7 million of mortgage-backed
securities had adjustable rates of interest and $29.4 million had fixed rates of
interest. Mortgage-backed securities are created by the pooling of mortgages and
the issuance of a security with an interest rate that is less than the interest
rate on the underlying mortgages. The Bank's mortgage-backed securities are
insured or guaranteed by Fannie Mae, Ginnie Mae or Freddie Mac. Mortgage-backed
securities increase the liquidity and the credit quality of the Bank's assets.
The Bank has not invested in privately issued mortgage-backed securities.

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

     At March 31, 2002, the carrying value of the Bank's investment securities
other than mortgage-backed securities included $29.2 million in U.S. Government
and agency 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 that are guaranteed by the U.S. Government with contractual terms
of up to 30 years. The U.S. Government and agency securities typically have call
dates of six months to three years. At March 31, 2002, the Bank had invested
$15.9 million in three mutual funds that provide a rate of return that adjusts
daily. The first mutual fund, in which the Bank has a $1.0 million investment,
invests primarily in repurchase agreements secured by U.S. Government and agency
securities and federal funds. The average maturities of the underlying
securities can be from one to seven days, but primarily are overnight. The
second mutual fund, in which the Bank has a $13.0 million investment, is an
adjustable rate mortgage fund that invests primarily in securities backed by or
representing an interest in mortgages on residential properties meeting the
definition of such assets for purposes of the qualified thrift lender test under
OTS regulations. The third mutual fund, in which the Bank has a $1.9 million
investment, invests in mortgage-backed securities which are collateralized by
mortgages on properties located in the Bank's primary lending area.

                                       14

<PAGE>

These mutual fund investments are permissible investments as set forth in the
Bank's investment policy. The securities were purchased, as part of the Bank's
ongoing interest rate risk management process, to provide interest earning
liquid funds and an adjustable interest rate.

         A significant portion of the Bank's assets are invested in federal
funds sold and an interest-earning checking account at the Federal Home Loan
Bank of New York. At March 31, 2002, $19.8 million, or 3.2% of total assets,
were invested in such instruments.

         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,
                                                --------------------------------------------------------------------------
                                                         2002                      2001                      2000
                                                ----------------------    ----------------------    ----------------------
                                                Amortized      Fair       Amortized      Fair       Amortized      Fair
                                                  Cost         Value         Cost        Value        Cost         Value
                                                ---------    ---------    ---------    ---------    ---------    ---------
                                                                              (In Thousands)
<S>                                             <C>          <C>          <C>          <C>          <C>          <C>
Mortgage-backed securities:
Adjustable rate:
   Collateralized mortgage obligations .....    $      --    $      --    $   1,518    $   1,526    $      --    $      --
   Ginnie Mae ..............................       45,867       46,496       37,294       38,032       10,493       10,370
   Fannie Mae ..............................       17,154       17,285       12,008       12,196        5,515        5,500
   Freddie Mac .............................       10,789       10,892        7,035        7,188        4,202        4,120
Fixed rate:
   Collateralized mortgage obligations .....       13,238       14,259       28,316       30,048           --           --
   Ginnie Mae ..............................        1,246        1,298        1,384        1,413          916          865
   Fannie Mae ..............................        3,518        3,731        5,667        5,992        1,621        1,545
   Freddie Mac .............................        9,824       10,173       18,848       19,536        2,738        2,580
                                                ---------    ---------    ---------    ---------    ---------    ---------
Total mortgage-backed securities ...........      101,636      104,134      112,070      115,931       25,485       24,980

U.S. Government agency securities ..........       29,788       29,229       32,804       32,649       35,891       34,417
Mutual fund investments ....................       16,000       15,946        8,000        7,996        3,000        2,968
Municipal securities .......................          845          922          840          950           --           --
                                                ---------    ---------    ---------    ---------    ---------    ---------
    Total securities available-for-sale ....    $ 148,269    $ 150,231    $ 153,714    $ 157,526    $  64,376    $  62,365
                                                             =========                 =========                 =========

Other earning assets:
   Federal funds sold ......................        3,000                 $  35,000                 $  25,000
   Other overnight deposits ................       16,847                     2,491                    10,075
   FHLB stock ..............................        4,141                     3,745                     2,195
                                                ---------                 ---------                 ---------
     Total .................................    $ 172,257                 $ 194,950                 $ 101,646
                                                =========                 =========                 =========
</TABLE>

         The following table sets forth the composition of the Company's
securities classified as held to maturity at the dates indicated. At March 31,
2002 the Company did not have any securities classified as held to maturity.

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

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

                                       15

<PAGE>

         The composition and contractual maturities of mortgage-backed
securities and other debt securities at March 31, 2002 are indicated in the
following table. There were no securities classified as held to maturity at
March 31, 2002. The table does not reflect the impact of prepayments or
redemptions which may occur.

<TABLE>
<CAPTION>
                                                                        More than One Year   More than Five Years
                                                   One Year or Less     through Five Years     through Ten Years
                                                ---------------------  ---------------------  ---------------------
                                                            Weighted               Weighted               Weighted
                                                Amortized    Average   Amortized    Average   Amortized    Average
                                                   Cost       Yield       Cost       Yield       Cost       Yield
                                                ---------   ---------  ---------   ---------  ---------   ---------
                                                                                              (Dollars in Thousands)
<S>                                             <C>         <C>        <C>         <C>        <C>         <C>
Available for sale:
Collateralized mortgage obligations .........          --         --         --          --     $  395        7.00%
Mortgage-backed securities:
   Ginnie Mae ...............................     $     3       6.50%   $   336        8.26%       142        8.78
   Fannie Mae ...............................       2,000       5.34      2,217        5.99      2,212        7.01
   Freddie Mac ..............................         870       7.83      6,245        7.12         52        9.36
                                                  -------               -------                -------

     Total mortgage-backed securities .......       2,873       6.09      8,798        6.88      2,801        7.16

Other debt securities:
   Federal agency obligations ...............      13,998       5.59      2,999        5.95      4,880        5.86
   Municipal securities .....................          --         --         --          --         --          --
                                                  -------               -------                -------

     Total securities available-for-sale ....     $16,871       5.68%   $11,797        6.64%   $ 7,681        6.33%
                                                  =======               =======                =======

<CAPTION>

                                                   More than Ten Years        Total Securities
                                                  ---------------------  -------------------------------
                                                              Weighted                         Weighted
                                                  Amortized    Average   Amortized    Fair      Average
                                                     Cost       Yield       Cost      Value      Yield
                                                  ---------   ---------  ---------   --------  ---------

<S>                                               <C>         <C>        <C>         <C>       <C>
Available for sale:
Collateralized mortgage obligations .........     $ 12,843       6.14%   $ 13,238   $ 14,259      6.17%
Mortgage-backed securities:
   Ginnie Mae ...............................       46,632       6.25      47,113     47,794      6.27
   Fannie Mae ...............................       14,243       5.39      20,672     21,016      5.62
   Freddie Mac ..............................       13,446       6.24      20,613     21,065      6.58
                                                  --------               --------   --------

     Total mortgage-backed securities .......       87,164       6.09     101,636    104,134      6.19

Other debt securities:
   Federal agency obligations ...............        7,911       4.31      29,788     29,229      5.33
   Municipal securities .....................          845       5.79         845        922      5.79
                                                  --------               --------   --------

     Total securities available-for-sale ....     $ 95,920       5.94%   $132,269   $134,285      5.99%
                                                  ========               ========   ========
</TABLE>

                                       16

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                 Years Ended March 31,
                                                                       ---------------------------------------
                                                                          2002           2001           2000
                                                                       ----------     ----------     ---------
                                                                                    (In Thousands)
<S>                                                                    <C>            <C>            <C>
Amortized cost at beginning of year ...............................    $  137,247     $   57,695     $  58,318
Transferred in acquisition ........................................            --         97,784            --
Purchases of mortgage-backed securities ...........................        28,944         15,075        13,257
Principal repayments ..............................................       (65,392)       (33,538)      (13,660)
Premium amortization and discount accretion, net ..................           837            231          (220)
                                                                       ----------     ----------     ---------
Amortized cost at end of year .....................................    $  101,636     $  137,247     $  57,695
                                                                       ==========     ==========     =========
</TABLE>

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. The
Bank used $20.0 million of borrowings during fiscal 2002 to fund a portion of
the loan originations. In addition, the Bank assumed certain of Peekskill's
borrowings at the time of the Acquisition with a remaining balance of $14.8
million at March 31, 2002. For further information regarding these borrowings
see Note 9 to the Notes to Consolidated Financial Statements.

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

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

         The flow of deposits is influenced significantly by general economic
conditions, changes in money markets and other prevailing interest rates and
competition. The variety of deposit accounts offered allows the Bank to be
competitive in obtaining funds and responding to changes in consumer demand. In
recent years, the Bank has become more susceptible to short-term fluctuations in
deposit flows as customers have become more interest rate conscious. Deposits
are priced to reflect the Bank's interest rate risk management and profitability
objectives. Based on experience, management believes that passbook accounts and
money market accounts are relatively stable sources of deposits. However, the
ability to attract and maintain certificates of deposit, and the rates paid on
these deposits, have been and will continue to be significantly affected by
market conditions. At March 31, 2002, $312.3 million, or 60.1% of the Bank's
deposit accounts were certificates of deposit, of which $268.1 million have
maturities of one year or less.

                                       17

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                At March 31,
                                              ---------------------------------------------------------------------------------
                                                         2002                       2001                        2000
                                              -------------------------- -------------------------  ---------------------------
                                                                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 ...............   $118,578    22.8%   1.00%  $108,371   22.9%   2.00%   $ 60,567     22.0%   2.00%
  Money market accounts ...................     36,012     6.9    1.43     28,333    6.0    2.60      18,583      6.7    1.77
  NOW accounts ............................     47,578     9.2    0.76     38,710    8.2    1.27      26,664      9.7    1.53
  Commercial checking .....................      5,436     1.0      --      2,390    0.5    1.91          --       --      --
                                              --------   -----           --------  -----            --------    -----
    Total..................................    207,604    39.9    0.99    177,804   37.6      --     105,814     38.4    1.84
                                              --------   -----           --------  -----            --------    -----

Certificates of deposit maturing:
  Within one year .........................    268,116    51.6    3.24    272,570   57.6    6.01     158,085     57.3    5.23
  After one but within three years ........     37,622     7.2    3.66     20,619    4.4    5.41      10,653      3.9    5.69
  After three years .......................      6,563     1.3    4.62      2,553    0.4    4.85       1,220      0.4    3.88
                                              --------   -----           --------  -----            --------    -----
    Total..................................    312,301    60.1    3.32    295,742   62.4    5.96     169,958     61.6    5.25
                                              --------   -----           --------  -----            --------    -----

Total deposits ............................   $519,905   100.0%   2.39%  $473,546  100.0%   4.44%   $275,772    100.0%   3.94%
                                              ========   =====           ========  =====            ========    =====
</TABLE>


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

<TABLE>
<CAPTION>
                                                                                  Years Ended March 31,
                                                                       ---------------------------------------
                                                                          2002            2001           2000
                                                                       ---------      ---------      ---------
                                                                               (Dollars in Thousands)
<S>                                                                    <C>            <C>            <C>
Balance at beginning of year ......................................    $ 473,546      $ 275,772      $ 237,279
Deposits assumed in acquisition ...................................           --        152,361             --
Deposits ..........................................................      761,735        502,757        349,460
Withdrawals .......................................................     (732,730)      (475,352)      (320,788)
Interest credited .................................................       17,354         18,008          9,821
                                                                       ---------      ---------      ---------

Balance at end of year ............................................    $ 519,905      $ 473,546      $ 275,772
                                                                       =========      =========      =========

Net increase during the year:
   Amount .........................................................    $  46,359      $ 197,774      $  38,493
   Percent ........................................................          9.8%          71.7%          16.2%
                                                                       =========      =========      =========
</TABLE>

         The following table indicates the amount of the Bank's certificates of
deposits by time remaining until maturity as of March 31, 2002.

<TABLE>
<CAPTION>
                                                                              Maturity
                                                         ------------------------------------------------
                                                         3 Months     Over 3 to 6  Over 6 to 12  Over 12
                                                         or Less         Months       Months     Months       Total
                                                         --------     -----------  ------------  --------    --------
                                                                             (In Thousands)
<S>                                                      <C>          <C>          <C>           <C>         <C>
Certificates of deposit less than $100,000 ..........    $ 55,656     $    83,388  $     79,040  $ 34,760    $252,844

Certificates of deposit of $100,000 or more/(1)/.....      11,807          15,168        23,058     9,424      59,457
                                                         --------     -----------  ------------  --------    --------

Total of certificates of deposit ....................    $ 67,463     $    98,556  $    102,098  $ 44,184    $312,301
                                                         ========     ===========  ============  ========    ========
</TABLE>

______________________
/(1)/ The weighted average interest rates for these accounts, by maturity
      period, are 2.96% for 3 months or less; 3.12% for 3 to 6 months; 3.23% for
      6 to 12 months; and 3.70% for over 12 months. The overall weighted average
      rate for accounts of $100,000 or more was 3.22%.

                                       18

<PAGE>

Competition

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

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

Service Corporation Subsidiaries

         The Bank has three active subsidiaries, Sound REIT, Inc., First Federal
REIT, Inc. and Mamaroneck Advisors. In April 1999, Sound REIT, Inc. was
incorporated as a special purpose real estate investment trust under New York
law. Sound REIT, Inc. was funded with $74.2 million in mortgage loans and
mortgage-related assets contributed by the Bank. At March 31, 2002, Sound REIT,
Inc. held $54.1 million in mortgage loan and mortgage-related assets.

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

         In February 2001, Mamaroneck Advisors was incorporated as a New York
corporation for the purpose of providing investment and insurance products to
the Bank's customers. For the year ended March 31, 2002, Mamaroneck Advisors had
net income of $47,000. Mamaroneck Advisors did not have any meaningful
operations in fiscal 2001.

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

Employees

         As of March 31, 2002, the Bank employed 84 persons on a full-time basis
and 21 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.

                                       19

<PAGE>

Regulation

         General. As a federally chartered, FDIC-insured savings association,
the Bank is subject to extensive regulation by the OTS and the FDIC. For
example, the Bank must obtain OTS approval before it engages in certain
activities and must file reports with the OTS regarding its activities and
financial condition. The OTS periodically examines the Bank's books and records
and, in conjunction with the FDIC in certain situations, has examination and
enforcement powers. This supervision and regulation are intended primarily for
the protection of depositors and the FDIC insurance funds. The Bank's
semi-annual assessment paid to the OTS, which is based upon a specified
percentage of assets, is approximately $112,000.

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

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

         As a member, the Bank is required to purchase and maintain stock in the
FHLB of New York in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts, or similar obligations at
the beginning of each year. At March 31, 2002, the Bank's investment in stock of
the FHLB of New York was $4.1 million. The FHLB imposes various limitations on
advances such as limiting the amount of certain types of real estate-related
collateral to 30% of a member's capital and limiting total advances to a member.
Interest rates charged for advances vary depending upon maturity, the cost of
funds to the FHLB of New York and the purpose of the borrowing.

         The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. For the fiscal year ended March 31, 2002, dividends paid by the
FHLB of New York to the Bank were approximately $206,000 representing an annual
rate of 5.54%.

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

                                       20

<PAGE>

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

         Savings Association Regulatory Capital. Savings associations are
subject to three separate minimum capital-to-assets requirements: (i) a leverage
ratio requirement, (ii) a tangible capital requirement, and (iii) a risk-based
capital requirement. The leverage capital rule at March 31, 2002 generally
requires that savings associations maintain "core capital" of at least 4% of
total assets. Core capital is generally defined as common shareholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
related surplus, certain minority equity interests in subsidiaries, qualifying
supervisory goodwill, purchased mortgage servicing rights and purchased credit
card relationships (subject to certain limits) less nonqualifying intangibles.
Under the tangible capital requirement, a savings association must maintain
tangible capital (core capital less all intangible assets except a limited
amount of purchased mortgage servicing rights and credit card relationships) of
at least 1.5% of total assets. Under the risk-based capital requirements, a
minimum amount of capital must be maintained by a savings association to account
for the relative risks inherent in the type and amount of assets held by the
savings association. The risk-based capital requirement requires a savings
association to maintain capital (defined generally for these purposes as core
capital plus general valuation allowances and permanent or maturing capital
instruments such as preferred stock and subordinated debt, less assets required
to be deducted) equal to 8.0% of risk-weighted assets. Assets are ranked as to
risk in one of four risk-weight categories (0%, 20%, 50% or 100%). A credit
risk-free asset, such as cash, requires no risk-based capital, while an asset
with a potentially greater credit risk, such as a commercial loan, requires a
risk weight of 100%. Moreover, a savings association must deduct from capital,
for purposes of meeting the core capital, tangible capital and risk-based
capital ratio requirements, its entire equity and debt investment in and loans
to a subsidiary engaged in activities not permissible for a national bank (other
than exclusively agency activities for its customers or mortgage banking
subsidiaries). At March 31, 2002, the Bank was in compliance with all capital
requirements imposed by law.

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

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

         Loans-to-One-Borrower. A savings association generally may not make a
loan or extend credit to a single or related group of borrowers in excess of 15%
of unimpaired capital and surplus. Additional amounts may be lent, not in excess
of 10% of unimpaired capital and surplus, if such loans or extensions of

                                       21

<PAGE>

credit are fully secured by readily marketable collateral, including certain
debt and equity securities, but not including real estate. In some cases, a
savings association may lend up to 30% of unimpaired capital and surplus to one
borrower for purposes of developing domestic residential housing, provided that
the association meets its regulatory capital requirements and the OTS authorizes
the association to use this expanded lending authority. At March 31, 2002, the
Bank had no loans to a single or related group of borrowers in excess of its
lending limits. Management does not believe that the loans-to-one-borrower
limits have had a significant impact on the Bank's business operations or
earnings.

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

         A savings association that fails the QTL test must either convert to a
bank charter or operate under certain restrictions. As of March 31, 2002, the
Bank maintained 98.3% of its portfolio assets in qualified thrift investments
and, therefore, met the QTL test.

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

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

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

         Pursuant to Section 10(o) of the HOLA, and OTS regulations and policy,
a mutual holding company and a federally chartered mid-tier holding company may
engage in the following activities: (i) investing in the stock of a savings
association; (ii) acquiring a mutual association through the merger of such
association into a savings association subsidiary of such holding company or an
interim savings association subsidiary of such holding company; (iii) merging
with or acquiring another holding company, one of whose subsidiaries is a
savings association; (iv) investing in a corporation, the capital stock of which
is available

                                       22

<PAGE>

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

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

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

         In addition, OTS regulations require the Mutual Holding Company to
notify the OTS of any proposed waiver of its right to receive dividends. The OTS
reviews dividend waiver notices on a case-by-case basis, and, in general, does
not object to a waiver if: (i) the mutual holding company's board of directors
determines that waiver is consistent with its fiduciary duties to the mutual
holding company's members; (ii) for as long as the savings association
subsidiary is controlled by the mutual holding company, the dollar amount of
dividends waived by the mutual holding company is considered as a restriction in
the retained earnings of the savings association, which restriction, if
material, is disclosed in the public financial statements of the savings
association as a note to the financial statements; (iii) the amount of any
dividend waived by the mutual holding company is available for declaration as a
dividend solely to the mutual holding company, and, in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 5, where the savings association
determines that the payment of such dividend to the mutual holding company is
probable, an appropriate dollar amount is recorded as a liability; and (iv) the
amount of any waived dividend is considered as having been paid by the savings
association in evaluating any proposed dividend under OTS capital distribution
regulations.

                                       23

<PAGE>

Executive Officers of the Company

         Listed below is information, as of March 31, 2002, concerning the
Company's executive officers. There are no arrangements or understandings
between the Company and any of the persons named below with respect to which he
was or is to be selected as an officer.

<TABLE>
<CAPTION>
         Name                      Age                                  Position and Term
         ----                      ---           ------------------------------------------------------------------
<S>                                <C>           <C>
Bruno J. Gioffre                   67            Chairman of the Board.

Richard P. McStravick              53            President and Chief Executive Officer.

Anthony J. Fabiano                 41            Chief Financial Officer and Accounting Officer.
</TABLE>

ITEM 2.         PROPERTIES

Properties

         The following table provides certain information with respect to the
Bank's offices at March 31, 2002.

<TABLE>
<CAPTION>
                                      Leased or Owned,
                                      Lease Expiration           Year Acquired or             Net Book Value of
       Location                              Date                      Leased                   Real Property
---------------------------------------------------------------------------------------------------------------------
                                                                                               (In Thousands)
<S>                                   <C>                        <C>                          <C>
Main Office                                 Owned                       1954                        $597
300 Mamaroneck Avenue
Mamaroneck, New York 10543

Branch Office                               Owned                       1961                         993
389 Halstead Avenue
Harrison, New York 10528

Branch Office                               Owned                       1972                       1,330
115 South Ridge Street
Rye Brook, New York 10573

Branch Office                              Leased                       1998                         149/(2)/
180 South Main Street                    12/31/03/(1)/
New City, New York 10956

Branch Office                              Leased                       1998                         323/(2)/
East Putnam Avenue                       11/30/08/(3)/
Cos Cob, Connecticut 06807
</TABLE>

                                       24

<PAGE>

<TABLE>
<S>                                     <C>                              <C>                         <C>
Branch Office                                Owned                       2000                       482
1019 Park Street
Peekskill, New York 10566

Branch Office                               Leased                       2000                        --/(2)/
1961 Commerce Street                    12/31/02/(4)/
Yorktown Heights, New York
10598

Branch Office                               Leased                       2000                       793/(2)/
Cortland Town Center                    10/14/17/(5)/
Mohegan Lake, New York

Branch Office                               Leased                       2001                       116/(2)/
Somers Commons                          12/31/2021/(6)/
Baldwin Place, New York 10589
</TABLE>

_________________________
/(1)/ The Company holds two five-year options to renew the lease until 12/31/13.
/(2)/ The Company's lease agreement is an operating lease. The net book value at
      March 31, 2002 represents the amortized cost of leasehold improvements.
/(3)/ The Company holds a ten-year option to renew the lease until 11/30/18.
/(4)/ The Company holds a ten-year option to renew the lease until 12/31/12.
/(5)/ The Company holds a ten-year option to renew the lease until 10/14/27.
/(6)/ The Company expects to open this Branch in July 2002.

         The total net book value of the Bank's premises, land and equipment was
approximately $5.5 million at March 31, 2002.

ITEM 3.         LEGAL PROCEEDINGS

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

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

None

                                       25


<PAGE>

                                    PART II

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

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

ITEM 6.  SELECTED FINANCIAL DATA

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

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

     None.

                                    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 8, 2002 (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."

                                       26

<PAGE>


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 Holder
Thereof."

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

                                     PART IV

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

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

     (a)(1) Financial Statements

            .  Independent Auditors' Report
            .  Consolidated Balance Sheets at March 31, 2002 and 2001
            .  Consolidated Statements of Income for the Years Ended
               March 31, 2002, 2001 and 2000
            .  Consolidated Statements of Changes in Stockholders' Equity for
               the Years Ended March 31, 2002, 2001 and 2000
            .  Consolidated Statements of Cash Flows for the Years Ended
               March 31, 2002, 2001 and 2000
            .  Notes to Consolidated Financial Statements.

     (a)(2) Financial Statement Schedules

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

     (a)(3) Exhibits

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

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

            13   2002 Annual Report to Stockholders

                                       27

<PAGE>

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

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

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

     21     Subsidiaries of the Registrant

     23     Consent of KPMG LLP


(b)  Reports on Form 8_K

None.

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

(d)  Not applicable.

                                       28

<PAGE>


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                          SOUND FEDERAL BANCORP

Date: June 24, 2002                   By: /s/ Richard P. McStravick
                                          -------------------------
                                          Richard P. McStravick
                                          President and Chief Executive Officer

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

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

Date: June 24, 2002                   Date: June 24, 2002

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

Date: June 24, 2002                   Date: June 24, 2002

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

Date: June 24, 2002                   Date: June 24, 2002


By: /s/ Samuel T. Telerico            By: /s/ Anthony J. Fabiano
    -------------------------             ----------------------
    Samuel T. Telerico, Director          Anthony J. Fabiano, Chief Financial
                                          Officer and Accounting Officer

Date: June 24, 2002                   Date: June 24, 2002

By: /s/ Eldorus Maynard
    -------------------------
    Eldorus Maynard, Director

Date: June 24, 2002