SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 For the Fiscal Year Ended March 31, 2004 OR

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

      For the transition period from ________________ to ________________

                        Commission File Number: 000-24811

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

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

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

                                 (914) 761-3636
               ---------------------------------------------------
               (Registrant's Telephone Number including area code)

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

                                      None
                                      ----

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

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

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

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

      Indicate by check mark whether the Registrant is an accelerated  filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). YES |X| NO |_|

      As of September  30, 2003,  there were issued and  outstanding  13,170,133
shares of the Registrant's Common Stock. The aggregate value of the voting stock
held by non-affiliates  of the Registrant,  computed by reference to the average
bid and asked prices of the Common Stock as of September  30, 2003  ($14.96) was
$169,064,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.    Sections of Annual Report to Stockholders  for the fiscal year ended March
      31, 2004 (Parts II and IV).

2.    Proxy Statement for the 2004 Annual Meeting of  Stockholders  (Parts I and
      III).
<PAGE>

                                     PART I

ITEM 1. BUSINESS

General

      Sound Federal  Bancorp,  Inc.  Sound Federal  Bancorp,  Inc. is a Delaware
corporation  which was  organized in 2002 and is the  successor to Sound Federal
Bancorp,  a federal  corporation.  In January 2003, Sound Federal Bancorp,  Inc.
became  the  holding  company  parent of Sound  Federal  Savings  following  the
completion  of the "second  step"  mutual-to-stock  conversion  of Sound Federal
Bancorp, MHC. References to the Company include both Sound Federal Bancorp, Inc.
and Sound Federal Bancorp.  The principal asset of the Company is its investment
in Sound Federal  Savings (the "Bank").  The Company raised $70.1 million in net
proceeds in the second step  conversion,  of which $31.8 million was retained by
the Company and $38.3 million was invested in the Bank.  At March 31, 2004,  the
Company  had total  consolidated  assets of $890.5  million,  total  deposits of
$708.3  million,  total  stockholders'  equity of $137.1  million and 13,176,873
shares outstanding.

      The second step conversion was accounted for as a change in corporate form
with no subsequent  change in the historical  carrying  amounts of the Company's
assets and liabilities.  Consolidated  stockholders' equity increased by the net
cash proceeds from the offering.  All references in the  consolidated  financial
statements  and notes thereto to share data  (including the number of shares and
per  share  amounts)  have  been  adjusted  to  reflect  the  additional  shares
outstanding as a result of the offering and the share exchange.

      Sound  Federal  Savings.   The  Bank  is  a  federally  chartered  savings
association  headquartered  in White Plains,  New York. The Bank's  deposits are
insured by the Federal  Deposit  Insurance  Corporation  ("FDIC").  The Bank was
organized  as a New York  chartered  savings bank in 1891 and became a federally
chartered  savings  association in 1934. In October 1998,  the Bank  reorganized
into the mutual holding company form of organization.  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").  At March
31, 2004, the Bank operated from 11 locations in New York and Connecticut.

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

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

Market Area

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

                                       1
<PAGE>

Lending Activities

      Historically,   the  Bank's  principal   lending  activity  has  been  the
origination  of fixed-rate  first mortgage loans for the purchase or refinancing
of one-to-four family residential real property.  In fiscal 2002, the Bank began
to originate  adjustable-rate  mortgage loans with fixed-rates for initial terms
of three,  five, seven and ten years. After the initial terms, the interest rate
on the loans adjusts annually.  The Bank has thus far retained all loans that it
has originated. One-to-four family residential mortgage loans represented $375.7
million,  or 78.3 %, of the Bank's loan portfolio at March 31, 2004. Home equity
lines  of  credit  represented  $35.2  million,  or 7.3 %,  of the  Bank's  loan
portfolio at March 31, 2004. The Bank also offers  multi-family  mortgage loans,
commercial  mortgage loans and construction loans.  Multi-family  mortgage loans
totaled  $8.5  million,  or 1.8% of the  loan  portfolio,  at  March  31,  2004.
Commercial  mortgage loans totaled $43.2 million, or 9.0% of the loan portfolio,
at March 31, 2004. Construction loans totaled $13.7 million, or 2.9% of the loan
portfolio,  at March  31,  2004.  The Bank  also  makes  consumer  loans,  which
primarily consist of secured personal loans and automobile loans. Consumer loans
totaled  $2.6  million,  or 0.5% of the  loan  portfolio,  at  March  31,  2004.
Commercial loans amounted to $798,000,  or 0.2% of the loan portfolio,  at March
31, 2004.

                                       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,
                                     -----------------------------------------------------------------------------------------------
                                           2004                2003                2002                2001               2000
                                     ----------------    ----------------    ----------------    ----------------   ----------------
                                     Amount   Percent    Amount   Percent    Amount   Percent    Amount   Percent   Amount   Percent
                                     ------   -------    ------   -------    ------   -------    ------   -------   ------   -------
                                                                          (Dollars in Thousands)
<S>                                 <C>         <C>     <C>         <C>     <C>         <C>     <C>         <C>     <C>        <C>
Mortgage loans:
  One-to four-family .............  $375,714    78.3%   $343,608    80.2%   $334,683    79.7%   $221,617    75.1%   $138,375   76.1%
  Home equity lines of credit ....    35,185     7.3      44,364    10.4      47,889    11.4      47,315    16.0      24,337   13.4
  Multi-family ...................     8,472     1.8       7,118     1.7       8,347     2.0       3,959     1.3       4,621    2.5
  Commercial .....................    43,153     9.0      27,866     6.5      23,701     5.6      16,771     5.7      10,795    5.9
  Construction ...................    13,723     2.9       4,117     0.9       3,733     0.9       3,659     1.2       2,922    1.6
                                    --------   -----    --------   -----    --------   -----    --------   -----    --------  -----
Total mortgage loans .............   476,247    99.3     427,073    99.7     418,353    99.6     293,321    99.3     181,050   99.5
                                    --------   -----    --------   -----    --------   -----    --------   -----    --------  -----

Consumer loans ...................     2,598     0.5       1,551     0.3       1,469     0.4       1,900     0.7         820    0.5

Commercial loans .................       798     0.2          --      --          --      --          --      --          --     --
                                    --------   -----    --------   -----    --------   -----    --------   -----    --------  -----

    Total loans ..................   479,643   100.0%    428,624   100.0%    419,822   100.0%    295,221   100.0%    181,870  100.0%
                                               =====               =====               =====               =====              =====

Allowance for loan losses ........    (2,712)             (2,442)             (2,221)             (2,047)             (1,188)
Deferred loan origination
 costs, net ......................     1,524               1,502                 767                 633                 250
                                    --------            --------            --------            --------            --------
  Total loans, net ...............  $478,455            $427,684            $418,368            $293,807            $180,932
                                    ========            ========            ========            ========            ========
</TABLE>


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                               At March 31,
                                     -----------------------------------------------------------------------------------------------
                                           2004                2003                2002                2001               2000
                                     ----------------    ----------------    ----------------    ----------------   ----------------
                                     Amount   Percent    Amount   Percent    Amount   Percent    Amount   Percent   Amount   Percent
                                     ------   -------    ------   -------    ------   -------    ------   -------   ------   -------
                                                                          (Dollars in Thousands)
<S>                                 <C>         <C>     <C>         <C>     <C>         <C>     <C>         <C>     <C>        <C>
Fixed rate loans
Mortgage loans:
  One-to four-family ............   $251,916    52.5%   $259,870    60.7%   $272,203    64.8%   $215,202    72.9%   $135,912   74.7%
  Home equity lines of credit ...     30,922     6.4      44,229    10.3      47,724    11.4      46,908    15.9      23,940   13.2
  Multi-family ..................      8,472     1.8       7,118     1.7       8,347     2.0       3,959     1.3       4,621    2.5
  Commercial ....................     41,086     8.6      27,109     6.3      23,296     5.6      16,771     5.7      10,740    5.9
  Construction ..................     13,723     2.9       4,117     0.9       3,733     0.9       3,659     1.2       2,922    1.6
                                    --------   -----    --------   -----    --------   -----    --------   -----    --------  -----
    Total mortgage loans ........    346,119    72.2     342,443    79.9     355,303    84.7     286,499    97.0     178,135   97.9
Consumer loans ..................      2,598     0.5       1,551     0.4       1,469     0.3       1,900     0.7         820    0.5
Commercial loans ................        798     0.2          --      --          --      --          --      --          --     --
                                    --------   -----    --------   -----    --------   -----    --------   -----    --------  -----
Total fixed rate loans ..........    349,515    72.9     343,994    80.3     356,772    85.0     288,399    97.7     178,955   98.4
                                    --------   -----    --------   -----    --------   -----    --------   -----    --------  -----

Adjustable rate loans
Mortgage loans:
  One-to four-family(1) .........    123,798    25.8      83,738    19.5      62,480    14.9       6,415     2.2       2,463    1.4
  Home equity lines of credit ...      4,263     0.9         135      --         165      --         407     0.1         397    0.2
  Commercial ....................      2,067     0.4         757     0.2         405     0.1          --      --          55     --
                                    --------   -----    --------   -----    --------   -----    --------   -----    --------  -----
    Total adjustable rate loans..    130,128    27.1      84,630    19.7      63,050    15.0       6,822     2.3       2,915    1.6
                                    --------   -----    --------   -----    --------   -----    --------   -----    --------  -----

  Total loans ...................    479,643   100.0%    428,624   100.0%    419,822   100.0%    295,221   100.0%    181,870  100.0%
                                               =====               =====               =====               =====              =====

Allowance for loan losses .......     (2,712)             (2,442)             (2,221)             (2,047)             (1,188)
Deferred loan origination
 costs, net .....................      1,524               1,502                 767                 633                 250
                                    --------            --------            --------            --------            --------
  Total loans, net ..............   $478,455            $427,684            $418,368            $293,807            $180,932
                                    ========            ========            ========            ========            ========
</TABLE>
----------
(1)   These loans have fixed rates for initial terms of three,  five,  seven and
      ten years and then subsequent one year rate adjustment periods.


                                       4
<PAGE>

      Loan Maturity  Schedule.  The following  table  summarizes the contractual
maturities of the Bank's loan portfolio at March 31, 2004. Loans with adjustable
or renegotiable  interest rates are shown as maturing in the period during which
the  interest  rate  adjusts.  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                                 Consumer and
                           One-to-Four Family(1)      Mortgage             Construction           Commercial            Total
                           --------------------   -----------------     -----------------     -----------------    -----------------
                                     Weighted              Weighted              Weighted              Weighted             Weighted
                                     Average               Average               Average               Average              Average
                             Amount    Rate       Amount     Rate       Amount     Rate       Amount     Rate      Amount     Rate
                             ------  --------     ------   --------     ------   --------     ------   --------    ------   --------
                                                                 (Dollars in Thousands)
<S>                        <C>         <C>       <C>         <C>       <C>         <C>       <C>         <C>      <C>         <C>
Due During the Years
Ending March 31,
2005(2)                    $  7,221    4.54%     $  3,015    5.64%     $ 12,715    6.24%     $  1,067    6.42%    $ 24,018    5.66%
2006                          3,355    5.40         1,230    6.57         1,008    7.00           122    7.46        5,715    5.98
2007                         23,407    4.90            15    7.00            --      --         1,696    7.02       25,118    5.05
2008 to 2010                 76,231    5.18         1,030    6.56            --      --         1,160    6.23       78,421    5.21
2011 to 2014                 54,978    5.62         6,007    7.11            --      --         5,384    7.44       66,369    5.90
2015 to 2019                121,493    5.44        10,359    7.13            --      --           584    5.84      132,436    5.57
2020 and following          124,214    6.79        21,497    7.00            --      --         1,855    7.20      147,566    6.82
                           --------              --------              --------              --------             --------
   Total                   $410,899    5.78%     $ 43,153    6.93%     $ 13,723    6.30%     $ 11,868    7.05%    $479,643    5.93%
                           ========              ========              ========              ========             ========
</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, 2004 that are  contractually  due after March
31, 2005.

                                                  Fixed    Adjustable     Total
                                                  -----    ----------     -----
                                                         (In Thousands)
One-to-four family .........................    $282,629    $121,049    $403,678
Commercial mortgage ........................      40,138          --      40,138
Construction ...............................       1,008          --       1,008
Multi-family, consumer and commercial ......      10,801          --      10,801
                                                --------    --------    --------
   Total ...................................    $334,576    $121,049    $455,625
                                                ========    ========    ========

      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  originates  fixed-rate  loans,  and also offers  adjustable-rate
mortgage loans with a fixed rate for initial terms of three, five, seven and ten
years and then subsequent one year rate adjustment  periods.  At March 31, 2004,
67.1% of the Bank's  one-to-four family residential loans were fixed-rate loans,
compared  to 75.6% at March  31,  2003.  The  interest  rate on  adjustable-rate
mortgage loans is indexed to the one year constant  maturity  Treasury bill. The
Bank's  adjustable-rate  mortgage  loans  currently  provide  for  maximum  rate
adjustments of 2.00% per year and 5.00% over the term of the loan. The Bank does
not offer  adjustable-rate  mortgage loans with initial  interest rates that are
below  market,  referred  to  as  "teaser  rates."  Residential  adjustable-rate
mortgage loans amortize over terms of up to 30 years.


                                       5
<PAGE>

      Adjustable-rate  mortgage loans decrease the risk  associated with changes
in market  interest  rates by  periodically  repricing,  but involve other risks
because as interest  rates  increase,  the  underlying  payments by the borrower
increase, thus increasing the potential for default by the borrower. At the same
time, the marketability of the underlying  collateral may be adversely  affected
by higher interest rates. Upward adjustment of the contractual  interest rate is
also  limited by the maximum  periodic  and lifetime  interest  rate  adjustment
permitted by the terms of the adjustable-rate mortgage loans, and, therefore, is
potentially  limited in effectiveness  during periods of rapidly rising interest
rates. At March 31, 2004,  32.9% of the Bank's  one-to-four  family  residential
loans had adjustable interest rates.

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

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

      At March 31, 2004, $375.7 million,  or 78.3% of the Bank's loan portfolio,
consisted of one-to-four family residential loans. Approximately $1.4 million of
such loans  (representing  6 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 for a limited  period of time (up to
nine years) after it is originated and may repay the outstanding  balance over a
term not to exceed 24 years from the date the line of credit is originated. Home
equity lines of credit are generally  underwritten  under the same criteria that
the Bank uses to  underwrite  one-to-four  family fixed rate loans.  Home equity
lines of  credit  may be  underwritten  with a loan to  value  ratio of 80% when
combined with the principal balance of the existing mortgage loan, however,  the
maximum principal amount of a home equity line of credit may not exceed $500,000
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 the time we
close a home equity line of credit,  we file a mortgage to protect our  security
interest  in the  underlying  collateral.  At March 31,  2004,  the  outstanding
balances of home equity lines of credit  totaled $35.2  million,  or 7.3% of the
Bank's loan portfolio.  Non-performing home equity lines of credit were $617,000
at March 31, 2004.

      Commercial  Mortgage Loans. At March 31, 2004, $43.2 million,  or 9.0%, of
the total loan  portfolio  consisted of commercial  mortgage  loans.  Commercial
mortgage loans are secured by office buildings,  religious  facilities and other
commercial  properties.  The Bank  generally  originates  fixed-rate  commercial
mortgage loans with maximum terms of up to 20 years.  The maximum  loan-to-value
ratio of  commercial  mortgage  loans is 75%.  At March 31,  2004,  the  largest
commercial mortgage loan had a principal balance of $2.8 million and was secured
by a combination of retail stores,  professional  offices and residential units.
As of March 31, 2004, 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 in most cases from commercial mortgage borrowers.


                                       6
<PAGE>

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

      Multi-Family  Mortgage Loans.  Loans secured by  multi-family  real estate
totaled  $8.5  million,  or 1.8% of the total loan  portfolio at March 31, 2004.
Multi-family  mortgage  loans  generally  are  secured  by  multi-family  rental
properties (including mixed-use buildings and walk-up apartments).  At March 31,
2004, the Bank had 21 multi-family  mortgage  loans,  the largest of which had a
principal  balance of $1.5 million.  Multi-family  mortgage loans  generally are
offered with both fixed and adjustable  interest rates,  although in the current
interest rate environment the Bank has not recently  originated  adjustable rate
multi-family  loans.  Multi-family  loans are  originated  for terms of up to 30
years.  There were no  non-performing  multi-family  mortgage loans at March 31,
2004.

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

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

      Construction  Lending.  The Bank  originates  construction  loans to local
builders,  generally  with  whom  it has  an  established  relationship,  and to
individuals  who have a contract  with a builder for the  construction  of their
residence.  Construction  loans are disbursed as certain portions of the project
are completed.  The Bank's  construction  loans are secured by  residential  and
commercial  properties located in the Bank's market area. At March 31, 2004, the
Bank had  construction  loans totaling  $13.7  million,  or 2.9% of total loans.
There were no non-performing construction loans at March 31, 2004.

      The  Bank's  construction  loans to home  builders  generally  have  fixed
interest rates, are typically 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


                                       7
<PAGE>

borrowings, of the builder and prior sales of homes in the development. Prior to
making a commitment to fund a construction  loan, the Bank requires an appraisal
of the  property  from a  qualified  appraiser  approved  by the  Bank,  and all
appraisals  are reviewed by  management.  Loan proceeds are  disbursed  after an
inspection of the property based on a percentage of completion.  Monthly payment
of accrued interest is required.

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

      Consumer  Lending.  The Bank's consumer loans primarily consist of secured
personal loans,  passbook loans and home  improvement  loans. At March 31, 2004,
consumer  loans  totaled  $2.6  million,  or 0.5% of the total  loan  portfolio.
Non-performing consumer loans totaled $5,000 at that date.

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

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

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

      Commercial  loans  generally have shorter terms and higher  interest rates
than  mortgage  loans,  but  involve  greater  credit risk than  mortgage  loans
because of the nature of the underlying collateral. Commercial loans amounted to
$798,000 or 0.2% at the total loan  portfolio at March 31,  2004.  There were no
non-performing commercial loans at that date.

      Loan Approval  Procedures  and  Authority.  The loan  approval  process is
intended to assess the  borrower's  ability to repay the loan,  the viability of
the loan,  and the  adequacy of the value of the  property  that will secure the
loan. To assess the borrower's ability to repay, the Bank reviews the


                                       8
<PAGE>

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

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

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


                                       9
<PAGE>

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

                                                For the Year Ended March 31,
                                            -----------------------------------
                                               2004        2003          2002
                                            ---------    ---------    ---------
                                                      (In Thousands)

Unpaid principal balances at
 beginning of year ......................   $ 428,624    $ 419,822    $ 295,221
                                            ---------    ---------    ---------

Loans originated by type:
 Fixed rate:
   Mortgage loans:
      One-to four-family ................      50,853      100,044      107,782
      Advances under home equity lines
       of credit ........................      20,455       26,444       27,214
      Multi-family ......................       1,500          490        4,823
      Commercial ........................      18,456       10,927       15,288
      Construction ......................      17,415       10,606        4,892
   Consumer loans .......................       2,474        1,585        1,244
   Commercial loans .....................         800           --           --
                                            ---------    ---------    ---------
        Total fixed rate ................     111,953      150,096      161,243

Adjustable rate mortgage loans:
   One-to four-family ...................      69,057       65,340       58,609
   Advances under home equity lines
    of credit ...........................       4,263           --           --
   Commercial ...........................       1,380          855           --
                                            ---------    ---------    ---------
      Total loans originated ............     186,653      216,291      219,852
                                            ---------    ---------    ---------

Principal repayments:
   Mortgage loans .......................    (134,205)    (205,761)     (93,308)
   Consumer and commercial loans ........      (1,424)      (1,503)      (1,675)
                                            ---------    ---------    ---------
     Total principal repayments .........    (135,629)    (207,264)     (94,983)
                                            ---------    ---------    ---------

Charge-offs .............................          (5)         (54)         (15)
Transfers to real estate owned ..........          --         (171)        (253)
                                            ---------    ---------    ---------
Unpaid principal balances at
 end of year ............................     479,643      428,624      419,822

Allowance for loan losses ...............      (2,712)      (2,442)      (2,221)
Deferred loan origination
 costs, net .............................       1,524        1,502          767
                                            ---------    ---------    ---------
Net loans at end of year ................   $ 478,455    $ 427,684    $ 418,368
                                            =========    =========    =========

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


                                       10
<PAGE>

interest is fully reserved,  and further income is recognized only to the extent
of interest payments actually received.

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

<TABLE>
<CAPTION>
                                                                                             At March 31,
                                                                 ------------------------------------------------------------------
                                                                  2004           2003           2002           2001           2000
                                                                 ------         ------         ------         ------         ------
                                                                                        (Dollars In Thousands)
<S>                                                              <C>            <C>            <C>            <C>            <C>
Nonaccrual loans:
  Mortgage loans:
   One-to-four family(1) ................................        $1,976         $  467         $  755         $  933         $  969
  Consumer loans ........................................             5             10             --             --             --
                                                                 ------         ------         ------         ------         ------
   Total ................................................         1,981            477            755            933            969

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

  Total nonperforming assets ............................        $1,981         $  477         $  869         $1,130         $1,024
                                                                 ======         ======         ======         ======         ======

Ratios:
Nonperforming loans to total loans ......................          0.41%          0.11%          0.18%          0.31%          0.53%

Nonperforming assets to total assets ....................          0.22%          0.06%          0.14%          0.20%          0.31%
</TABLE>

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

      For the year ended March 31, 2004,  gross interest  income that would have
been recorded had the  nonaccrual  loans been current in  accordance  with their
original  terms amounted to $124,000.  Interest  amounts on such loans that were
included in interest income totaled $71,000 for the year ended March 31, 2004.


                                       11
<PAGE>

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

<TABLE>
<CAPTION>
                                                                      Loans Delinquent For:
                                                         -----------------------------------------------
                                                              60-89 Days               90 Days and Over                Total
                                                         -------------------          ------------------         ------------------
                                                         Number       Amount          Number      Amount         Number      Amount
                                                         ------       ------          ------      ------         ------      ------
                                                                                    (Dollars in Thousands)
<S>                                                         <C>       <C>               <C>       <C>               <C>       <C>
At March 31, 2004
   Mortgage loans:
     One-to four-family ........................             8        $1,412             6        $1,359            14        $2,771
     Home equity lines of credit ...............            --            --             6           617             6           617
   Consumer loans ..............................            --            --             7             5             7             5
                                                           ---        ------           ---        ------           ---        ------
     Total .....................................             8        $1,412            19        $1,981            27        $3,393
                                                           ===        ======           ===        ======           ===        ======

At March 31, 2003
   Mortgage loans:
     One-to four-family ........................            10        $  917             5        $  449            15        $1,366
     Home equity lines of credit ...............             2           228             1            18             3           246
   Consumer loans ..............................             2             1             5            10             7            11
                                                           ---        ------           ---        ------           ---        ------
     Total .....................................            14        $1,146            11        $  477            25        $1,623
                                                           ===        ======           ===        ======           ===        ======

At March 31, 2002
   Mortgage loans:
     One-to four-family ........................             9        $1,040             9        $  690            18        $1,730
     Home equity lines of credit ...............             1            75             2            65             3           140
   Consumer loans ..............................            --            --            --            --            --            --
                                                           ---        ------           ---        ------           ---        ------
     Total .....................................            10        $1,115            11        $  755            21        $1,870
                                                           ===        ======           ===        ======           ===        ======
</TABLE>

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

      In addition  to the  adverse  classifications  described  above,  the Bank
separately  classifies  loans that are  delinquent for between 60 and 89 days as
"special  mention." At March 31, 2004,  $1.4 million of loans were classified as
special mention.

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


                                       12
<PAGE>

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

                                                     At March 31,
                                       ----------------------------------------
                                       2004     2003     2002     2001     2000
                                       ----     ----     ----     ----     ----
                                                   (In Thousands)

Substandard loans:
  One-to-four family(1) ...........   $1,976   $  467   $  755   $  933   $  790
  Consumer ........................       --       10       --       --       --

Doubtful loans:
  One-to-four family ..............       --       --       --       --      179
  Consumer ........................        5       --       --       --       --
                                      ------   ------   ------   ------   ------
Total classified loans ............    1,981      477      755      933      969

Real estate owned:
  Substandard .....................       --       --      114      197       --
  Doubtful ........................       --       --       --       --       55
                                      ------   ------   ------   ------   ------
  Total classified assets .........   $1,981   $  477   $  865   $1,130   $1,024
                                      ======   ======   ======   ======   ======

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

Allowance for Loan Losses

      Management   regularly   reviews  the  Bank's  loan  portfolio  and  makes
provisions  for loan losses in amounts  required to maintain the  allowance  for
loan losses in accordance with generally  accepted  accounting  principles.  All
loan losses are charged to the allowance and all  recoveries are credited to it.
Additions  to the  allowance  for loan losses are  provided by charges to income
based on various  factors  which,  in  management's  judgment,  deserve  current
recognition  in  estimating  losses  in the  loan  portfolio  and  that are both
probable  and  estimable.  The  allowance  for loan  losses  consists of amounts
specifically  allocated to nonperforming  loans and potential  problem loans (if
any) as well as  allowances  determined  for  each  major  loan  category.  Loan
categories,  such as one-to-four  family  residential  mortgages and home equity
lines of credit  (which  represent a combined  85.6% of our total loans at March
31, 2004) are generally  evaluated on an aggregate or "pool"  basis.  The Bank's
allowance  for  loan  losses  is  predominantly  determined  on a pool  basis by
applying  loss factors to the current  balances of the various loan  categories.
The loss factors are  determined  by  management  based on an  evaluation of our
historical  loss  experience,  delinquency  trends,  volume  and type of lending
conducted, and the impact of current economic conditions in our market area. The
carrying  values  of loans  are  periodically  evaluated  and the  allowance  is
adjusted  accordingly.  While management uses the best information  available to
make  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.


                                       13
<PAGE>

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

<TABLE>
<CAPTION>
                                                      For the Years Ended March 31,
                                           -------------------------------------------------------
                                             2004       2003        2002        2001        2000
                                           -------     -------     -------     -------     -------
                                                          (Dollars In Thousands)
<S>                                        <C>         <C>         <C>         <C>         <C>
Balance at beginning of year ...........   $ 2,442     $ 2,221     $ 2,047     $ 1,188     $ 1,094
                                           -------     -------     -------     -------     -------

Provision for loan losses ..............       275         275         175         208         100

Allowance transferred in acquisition
  of Peekskill .........................        --          --          --         784          --

Charge-offs:
  One-to-four family mortgage loans ....        --         (54)        (15)       (162)         (6)
  Consumer loans .......................        (5)         --          --          --          --

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

  Net charge-offs ......................        (5)        (54)         (1)       (133)         (6)
                                           -------     -------     -------     -------     -------

  Balance at end of year ...............   $ 2,712     $ 2,442     $ 2,221     $ 2,047     $ 1,188
                                           =======     =======     =======     =======     =======

Ratios:
Allowance for loan losses to
  nonperforming loans ..................    136.90%     511.95%     294.17%     219.40%     122.60%
Allowance for loan losses to
  total loans ..........................      0.57%       0.57%       0.53%       0.69%       0.65%
</TABLE>


                                       14
<PAGE>

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

<TABLE>
<CAPTION>
                                                                          At March 31,
                          ----------------------------------------------------------------------------------------------------------
                                         2004                                 2003                               2002
                          ---------------------------------   -----------------------------------   --------------------------------
                                                   Percent                               Percent                            Percent
                                                   of Loans                              of Loans                           of Loans
                                                    in Each                               in Each                            in Each
                                        Loan       Category                   Loan       Category                 Loan      Category
                          Loan Loss   Balances     to Total   Loan Loss     Balances     to Total   Loan Loss   Balances    to Total
                          Allowance  by Category     Loans    Allowance    by Category     Loans    Allowance  by Category    Loans
                          ---------  -----------   --------   ---------    -----------   --------   ---------  -----------  --------
                                                                     (Dollars in Thousands)
<S>                       <C>          <C>           <C>       <C>          <C>           <C>       <C>          <C>           <C>
Mortgage loans:
  One-to-four family(1)   $  1,327     $410,899      85.6%     $  1,224     $387,972      90.6%     $  1,090     $382,572      91.1%
  Multi-family ........        150        8,472       1.8           150        7,118       1.7           150        8,347       2.0
  Commercial ..........        935       43,153       9.0           828       27,866       6.5           741       23,701       5.6
  Construction ........        100       13,723       2.9            90        4,117       0.9            90        3,733       0.9
Consumer loans ........        150        2,598       0.5           150        1,551       0.3           150        1,469       0.4
Commercial loans ......         50          798       0.2            --           --        --            --           --        --
                          --------     --------     -----      --------     --------     -----      --------     --------     -----
     Total ............   $  2,712     $479,643     100.0%     $  2,442     $428,624     100.0%     $  2,221     $419,822     100.0%
                          ========     ========     =====      ========     ========     =====      ========     ========     =====
<CAPTION>

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

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

Investment Activities

      The Bank's investments include mortgage-backed securities,  collateralized
mortgage obligations, U.S. Government and agency securities, federal funds sold,
mutual funds, securities issued by government sponsored enterprises ("GSEs") and
FHLB stock.  Management  invests a  significant  portion of the Bank's assets in
short-term  investments and adjustable rate mortgage-backed  securities in order
to increase the Bank's ability to reinvest assets in higher yielding  securities
in a rising interest rate environment.  Under Statement of Financial  Accounting
Standards  ("SFAS") No. 133,  Accounting for Derivative  Instruments and Hedging
Activities,   entities  were  permitted  to  reclassify   securities   from  the
held-to-maturity  category to the  available-for-sale  category at the  adoption
date. The Company adopted SFAS No. 133 on April 1, 2002 and  reclassified all of
its held-to-maturity securities to the available-for-sale portfolio. The Company
has not engaged in derivative or hedging activities covered by SFAS No. 133, 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 $255.9 million, or 28.7% of total
assets at March 31, 2004.  Of this  amount,  $141.6  million of  mortgage-backed
securities had  adjustable  rates of interest and $114.3 million had fixed rates
of interest.


                                       15
<PAGE>

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

      Collateralized  mortgage  obligations  ("CMOs") are typically  issued by a
special-purpose entity, which may be organized in a variety of legal forms, such
as a trust,  a corporation  or a  partnership.  The entity  aggregates  pools of
pass-through securities, which are used to collateralize the CMO. Once combined,
the cash flows are divided into  "tranches"  or "classes" of  individual  bonds,
thereby  creating  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
CMOs are either guaranteed by Freddie Mac or Fannie Mae.

      We invest in CMOs as part of our overall investment and interest-rate risk
management policies. The CMOs in our portfolio at March 31, 2004 were fixed-rate
securities  and, as a result,  their fair value may  decrease as interest  rates
increase. In addition, they are susceptible to faster than anticipated repayment
speeds if the  borrowers on the  underlying  mortgage  loans prepay those loans.
However,  the CMO  structure  provides for more  stability  than the  underlying
pass-through  mortgage pools in forecasting cash flows. As a result,  they are a
component of our cash management strategies.

      At March 31, 2004, the carrying value of the Bank's investment  securities
other than mortgage-backed  securities included $59.8 million in U.S. Government
and agency securities and GSE's, which consisted of fixed rate Federal Home Loan
Bank,  Federal Farm Credit and Fannie Mae issues with  maturities of 20 years or
less, as well as adjustable  rate Small  Business  Administration  participation
certificates  with  contractual  terms  of  up  to 30  years.  These  securities
typically have call dates of six months to three years.

      At March 31, 2004,  the Bank had also invested $21.1 million in two mutual
funds that provide a rate of return that adjusts  daily.  The first mutual fund,
in which the Bank has a $15.9 million investment, is an adjustable rate mortgage
fund that invests  primarily in securities backed by or representing an interest
in mortgages on residential properties meeting the definition of such assets for
purposes of the qualified thrift lender test under Office of Thrift  Supervision
regulations.  This fund is called the Asset Management Fund issued by Shay Asset
Management.  The second mutual fund,  the CRA Fund, in which the Bank has a $5.2
million   investment,   invests  in   mortgage-backed   securities,   which  are
collateralized  by mortgages on properties  located in our primary lending area.
These mutual fund  investments are  permissible  investments as set forth in our
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. In addition, the CRA Fund enables management to
invest in  mortgage-backed  securities that are collateralized by mortgage loans
in low- to  moderate-income  census tracts within our market area.  These mutual
funds  were  selected  because  the  underlying  securities  bear  similar  risk
characteristics  to investments that the Bank purchases  directly.  These mutual
funds provide the Bank with increased liquidity since the Bank can redeem shares
within  several  days and also  provides the Bank with a higher yield than other
short-term earning assets such as federal funds. The securities underlying these
funds are affected by changes in interest  rates.  In addition,  the  underlying
securities in the CRA Fund and the Asset  Management  Fund are  mortgage-related
securities.  Accordingly,  these  mutual  funds are  subject to many of the same
risks that the  Bank's  mortgage  loans  have,  such as the risk that  borrowers
prepay their mortgage loans or default on the terms of their mortgage note.


                                       16
<PAGE>

      A portion of the Bank's  assets is also invested in federal funds sold and
an interest-earning  checking account at the Federal Home Loan Bank of New York.
At March 31, 2004, $20.8 million,  or 2.3% of total assets, was 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.  The  Company  did not  hold  any  securities  classified  as held to
maturity at the dates indicated.

<TABLE>
<CAPTION>
                                                                                      At March 31,
                                                      ------------------------------------------------------------------------------
                                                               2004                       2003                       2002
                                                      ----------------------     -----------------------     -----------------------
                                                      Amortized      Fair        Amortized       Fair        Amortized       Fair
                                                        Cost         Value          Cost         Value          Cost         Value
                                                      ---------     --------     ---------      --------     ---------      --------
                                                                                    (In Thousands)
<S>                                                   <C>           <C>           <C>           <C>           <C>           <C>
Mortgage-backed securities
Adjustable rate:
   Pass-through securities:
     Ginnie Mae ................................      $ 87,849      $ 87,907      $101,250      $102,548      $ 45,867      $ 46,496
     Fannie Mae ................................        38,085        38,362        30,424        30,720        17,154        17,285
     Freddie Mac ...............................        15,121        15,261        18,659        18,934        10,789        10,892
Fixed rate:
   Collateralized mortgage obligations .........       102,989       103,034        52,336        52,832        13,238        14,259
   Pass-through securities:
     Ginnie Mae ................................         1,364         1,421           760           814         1,246         1,298
     Fannie Mae ................................         6,274         6,290         2,078         2,277         3,518         3,731
     Freddie Mac ...............................         3,505         3,578         4,122         4,359         9,824        10,173
                                                      --------      --------      --------      --------      --------      --------
Total mortgage-backed securities ...............       255,187       255,853       209,629       212,484       101,636       104,134

U.S. Government agency securities ..............        59,546        59,781        59,075        59,409        29,788        29,229
Mutual fund investments ........................        21,000        21,094        22,000        22,180        16,000        15,946
Municipal securities ...........................           854         1,002           849           975           845           922
                                                      --------      --------      --------      --------      --------      --------
   Total securities available for sale .........       336,587      $337,730       291,553      $295,048       148,269      $150,321
                                                                    ========                    ========                    ========

Other earning assets:
   Federal funds sold ..........................         1,000                       7,000                       3,000
   Other overnight deposits ....................        19,756                      29,121                      16,847
   FHLB stock ..................................         5,303                       4,141                       4,141
                                                      --------                    --------                    --------
     Total .....................................      $362,646                    $331,815                    $172,257
                                                      ========                    ========                    ========
</TABLE>


                                       17
<PAGE>

      The composition and contractual  maturities of mortgage-backed  securities
and other debt  securities  at March 31,  2004 are  indicated  in the  following
table.  There were no  securities  classified  as held to  maturity at March 31,
2004. The table does not reflect the impact of prepayments or redemptions  which
may occur.

<TABLE>
<CAPTION>
                                                                        More than
                                                 More than One Year     Five Years         More than
                               One Year or Less  through Five Years  through Ten Years      Ten Years            Total Securities
                              ------------------ ------------------ ------------------ ------------------ --------------------------
                                        Weighted           Weighted           Weighted           Weighted                   Weighted
                              Amortized Average  Amortized Average  Amortized Average  Amortized Average  Amortized  Fair   Average
                                Cost      Yield     Cost    Yield      Cost    Yield      Cost    Yield     Cost     Value   Yield
                              --------- -------  --------- -------  --------- -------  --------- -------  ---------  -----  -------
                                                                       (Dollars in Thousands)
<S>                             <C>       <C>     <C>        <C>    <C>        <C>     <C>        <C>    <C>        <C>        <C>
Mortgage-backed securities:
Collateralized mortgage
  obligations ...............   $    --     --%   $     --     --%  $  1,237   3.31%   $101,752   4.06%  $102,989   $103,034   4.06%
Pass-through securities:
   Ginnie Mae ...............     6,214   2.64         148   8.22          8  11.37      82,843   2.81     89,213     89,328   2.81
   Fannie Mae ...............        75   6.48         104   6.38        612   6.97      43,568   3.23     44,359     44,652   3.29
   Freddie Mac ..............       201   7.34         732   6.96      2,127   4.12      15,566   3.41     18,626     18,839   3.67
                                -------   ----    --------   ----   --------   ----    --------   ----   --------   --------   ----
     Total mortgage-backed
       securities ...........     6,490   2.83         984   7.09      3,984   4.32     243,729   3.45    255,187    255,853   3.46

Other debt securities:
   U.S. Government and agency
     securities .............        --     --      42,491   3.06      6,157   3.65      10,898   3.16     59,546     59,781   3.14
   Municipal securities .....        --     --          --     --        118   5.74         736   5.86        854      1,002   5.84
                                -------   ----    --------   ----   --------   ----    --------   ----   --------   --------   ----
     Total debt securities
       available for sale ...   $ 6,490   2.83%   $ 43,475   3.15%  $ 10,259   3.94%   $255,363   3.44%  $315,587   $316,636   3.41%
                                =======   ====    ========   ====   ========   ====    ========   ====   ========   ========   ====
</TABLE>


                                       18
<PAGE>

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

                                                    Years Ended March 31,
                                            -----------------------------------
                                               2004        2003         2002
                                            ---------    ---------    ---------
                                                     (In Thousands)
Amortized cost at beginning of year .....   $ 209,629    $ 101,636    $ 137,247
Purchases of mortgage-backed securities .     135,683      160,353       28,944
Principal repayments ....................     (89,494)     (52,345)     (65,392)
Premium amortization and
  discount accretion, net ...............        (631)         (15)         837
                                            ---------    ---------    ---------
Amortized cost at end of year ...........   $ 255,187    $ 209,629    $ 101,636
                                            =========    =========    =========

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.  In addition,  the Bank assumed
certain of Peekskill's borrowings at the time it was acquired. At March 31, 2004
such borrowings had a remaining balance of $15.0 million.

      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, 2004,  $445.7 million,  or 62.9% of the Bank's
deposit  accounts were  certificates  of deposit,  of which $321.5  million have
maturities of one year or less.


                                       19
<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,
                                            ------------------------------------------------------------------------------------
                                                        2004                       2003                         2002
                                            --------------------------   ---------------------------  --------------------------
                                                              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 ...........   $148,231    20.9%    0.51%   $136,846    22.7%    0.81%   $118,578    22.8%    1.00%
   Money market accounts ...............     47,338     6.7     0.73      45,331     7.5     1.09      36,012     6.9     1.43
   NOW accounts.........................     54,616     7.7     0.24      50,912     8.4     0.46      47,578     9.2     0.76
   Commercial checking .................     12,404     1.8       --       7,457     1.2       --       5,436     1.0       --
                                           --------   -----             --------   -----             --------   -----
     Total .............................    262,589    37.1     0.47     240,546    39.8     0.76     207,604    39.9     0.99
                                           --------   -----             --------   -----             --------   -----

Certificates of deposit
 maturing:
   Within one year .....................    321,473    45.4     1.87     264,353    43.7     2.33     268,116    51.6     3.24
   After one but within three years ....     97,270    13.7     2.91      74,772    12.4     2.80      37,622     7.2     3.66
   After three years ...................     26,998     3.8     4.24      24,589     4.1     4.49       6,563     1.3     4.62
                                           --------   -----             --------   -----             --------   -----
     Total .............................    445,741    62.9     2.24     363,714    60.2     2.57     312,301    60.1     3.32
                                           --------   -----             --------   -----             --------   -----

Total deposits .........................   $708,330   100.0%    1.58%   $604,260   100.0%    1.85%   $519,905   100.0%    2.39%
                                           ========   =====             ========   =====             ========   =====
</TABLE>

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

                                              Years Ended March 31,
                                     ----------------------------------------
                                        2004           2003           2002
                                     ----------     -----------     ---------
                                             (Dollars in Thousands)

Balance at beginning of year .....   $  604,260     $   519,905     $ 473,546
Deposits .........................    1,033,069       1,151,713       761,735
Withdrawals ......................     (940,150)     (1,079,310)     (732,730)
Interest credited ................       11,151          11,952        17,354
                                     ----------     -----------     ---------

Balance at end of year ...........   $  708,330     $   604,260     $ 519,905
                                     ==========     ===========     =========

Net increase during the year:
   Amount ........................   $  104,070     $    84,355     $  46,359
   Percent .......................         17.2%           16.2%          9.8%


      The following  table  indicates the amount of the Bank's  certificates  of
deposits by time remaining until maturity as of March 31, 2004.

<TABLE>
<CAPTION>
                                                                                      Maturity
                                                                 ----------------------------------------------------
                                                                 3 Months      Over 3 to      Over 6 to      Over 12
                                                                  or Less       6 Months      12 Months       Months         Total
                                                                 --------      ---------      ---------      --------       --------
                                                                                           (In Thousands)
<S>                                                              <C>            <C>           <C>            <C>            <C>
Certificates of deposit less than $100,000 ...............       $ 96,970       $58,295       $ 88,823       $ 92,839       $336,927
Certificates of deposit of $100,000 or more(1) ...........         29,331        14,840         33,214         31,429        108,814
                                                                 --------       -------       --------       --------       --------

Total of certificates of deposit .........................       $126,301       $73,135       $122,037       $124,268       $445,741
                                                                 ========       =======       ========       ========       ========
</TABLE>

----------
(1)   The  weighted  average  interest  rates for these  accounts,  by  maturity
      period, are 2.03% for 3 months or less; 1.58% for 3 to 6 months; 2.13% for
      6 to 12 months; and 3.36% for over 12 months. The overall weighted average
      rate for accounts of $100,000 or more was 2.38%.


                                       20
<PAGE>

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

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

                                                         At or for the
                                                      Years Ended March 31,
                                                --------------------------------
                                                  2004       2003        2002
                                                -------     -------     -------
                                                      (Dollars in Thousands)
Average principal balance outstanding ......    $39,208     $34,977     $16,348
Maximum principal balance outstanding
  at any month end during the period .......     55,000      35,082      35,084
Principal balance outstanding at
  end of period ............................     35,000      35,000      35,084
Weighted average interest rate
  during the period ........................       3.81%       4.66%       4.17%
Weighted average interest rate at
  end of period ............................       3.93%       4.11%       4.17%

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

<TABLE>
<CAPTION>
                                      At March 31,
-------------------------------------------------------------------------------------------
            2004                           2003                           2002
-----------------------------  -----------------------------  -----------------------------
Maturity Date  Amortized Cost  Maturity Date  Amortized Cost  Maturity Date  Amortized Cost
-------------  --------------  -------------  --------------  -------------  --------------
                                 (Dollars in Thousands)
  <S>             <C>             <C>            <C>             <C>            <C>
    1/08(1)       $10,000          1/08          $10,000          1/08          $9,838
   12/08(1)         5,000         12/08            5,000         12/08           5,000
    3/05            6,000          3/04            7,000         03/03           7,000
    3/06            7,000          3/05            6,000         03/04           7,000
    3/07            7,000          3/06            7,000         03/05           6,000
</TABLE>

----------
(1)   Callable quarterly.

Competition

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

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


                                       21
<PAGE>

Service Corporation Subsidiaries

      Sound Federal  Savings has three active  subsidiaries,  Sound REIT,  Inc.,
First Federal REIT,  Inc. and  Mamaroneck  Advisors,  Inc. In April 1999,  Sound
REIT, Inc. was  incorporated as a special purpose real estate  investment  trust
under New York law.  First Federal  REIT,  Inc. was also formed as a real estate
investment  trust by Peekskill  prior to the  acquisition.  Sound REIT, Inc. and
First Federal REIT, Inc. hold a portion of our mortgage-related assets.

      In February 2001, Mamaroneck Advisors, Inc. was incorporated as a New York
corporation  for the purpose of providing  investment and insurance  products to
Sound Federal Savings' customers. Beginning in December 2003, these services are
provided to customers  directly by the Bank. For the years ended March 31, 2004,
2003 and 2002, Mamaroneck Advisors, Inc. had net income of $23,000,  $43,000 and
$47,000, respectively.

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

Personnel

      As of March 31, 2004,  the Bank employed 113 persons on a full-time  basis
and 12 persons on a part-time basis. None of the Bank's employees is represented
by a collective  bargaining group and management considers employee relations to
be good.

                           SUPERVISION AND REGULATION

General

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


                                       22
<PAGE>

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

Federal Banking Regulation

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

      Capital  Requirements.  Office of Thrift Supervision  regulations  require
savings  associations to meet three minimum capital  standards:  a 1.5% tangible
capital ratio, a 4% leverage  ratio (3% for  associations  receiving the highest
rating on the CAMELS rating  system) and an 8%  risk-based  capital  ratio.  The
prompt  corrective  action  standards  discussed  below, in effect,  establish a
minimum 2% tangible capital standard.

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

      At March 31, 2004,  Sound Federal Savings' capital exceeded all applicable
requirements.

      Loans-to-One  Borrower.  A federal savings  association  generally may not
make a loan or extend credit to a single or related group of borrowers in excess
of 15% of unimpaired  capital and surplus.  An additional  amount may be loaned,
equal to 10% of  unimpaired  capital  and  surplus,  if the loan is  secured  by
readily marketable collateral,  which generally does not include real estate. As
of March 31, 2004, Sound Federal Savings was in compliance with the loans-to-one
borrower limitations.

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


                                       23
<PAGE>

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

      A savings  association  that fails the  qualified  thrift lender test must
either  convert to a bank charter or operate under  specified  restrictions.  At
March 31, 2004,  Sound Federal  Savings  maintained  approximately  91.3% of its
portfolio assets in qualified thrift investments.

      Capital  Distributions.  Office of Thrift  Supervision  regulations govern
capital  distributions  by a federal  savings  association,  which  include cash
dividends,  stock  repurchases  and other  transactions  charged to the  capital
account.  A savings  association  must file an  application  for  approval  of a
capital distribution if:

      o     the total capital  distributions  for the  applicable  calendar year
            exceed the sum of the association's net income for that year to date
            plus the  association's  retained net income for the  preceding  two
            years;

      o     the  association  would  not  be  at  least  adequately  capitalized
            following the distribution;

      o     the distribution would violate any applicable  statute,  regulation,
            agreement or Office of Thrift Supervision-imposed condition; or

      o     the  association  is not  eligible  for  expedited  treatment of its
            filings.

      Even  if  an  application  is  not  otherwise   required,   every  savings
association  that is a subsidiary of a holding  company must still file a notice
with the  Office  of Thrift  Supervision  at least 30 days  before  the board of
directors declares a dividend or approves a capital distribution.

      The Office of Thrift  Supervision  may  disapprove a notice or application
if:

      o     the   association   would   be   undercapitalized    following   the
            distribution;

      o     the  proposed  capital  distribution  raises  safety  and  soundness
            concerns; or

      o     the capital  distribution  would violate a prohibition  contained in
            any statute, regulation or agreement.

      In addition,  the Federal  Deposit  Insurance Act provides that an insured
depository institution shall not make any capital distribution,  if after making
such distribution the institution would be undercapitalized.

      Liquidity.  A federal  savings  association  is  required  to  maintain  a
sufficient amount of liquid assets to ensure its safe and sound operation.

      Community Reinvestment Act and Fair Lending Laws. All savings associations
have  a  responsibility  under  the  Community   Reinvestment  Act  and  related
regulations of the Office of Thrift Supervision to help meet the credit needs of
their  communities,   including  low-  and  moderate-income


                                       24
<PAGE>

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

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

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

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

      Standards  for Safety and  Soundness.  Federal law  requires  each federal
banking  agency  to  prescribe  certain  standards  for all  insured  depository
institutions.  These standards relate to, among other things, internal controls,
information systems and audit systems, loan documentation,  credit underwriting,
interest rate risk exposure, asset growth,  compensation,  and other operational
and managerial  standards as


                                       25
<PAGE>

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

      Prompt Corrective Action  Regulations.  Under the prompt corrective action
regulations, the Office of Thrift Supervision is required and authorized to take
supervisory  actions against  undercapitalized  savings  associations.  For this
purpose, a savings association is placed in one of the following five categories
based on the association's capital:

      o     well-capitalized (at least 5% leverage capital, 6% Tier 1 risk-based
            capital and 10% total risk-based capital);

      o     adequately  capitalized  (at least 4%  leverage  capital,  4% Tier 1
            risk-based capital and 8% total risk-based capital);

      o     undercapitalized  (less than 8% total risk-based  capital, 4% Tier 1
            risk-based capital or 3% leverage capital);

      o     significantly   undercapitalized  (less  than  6%  total  risk-based
            capital, 3% Tier 1 risk-based capital or 3% leverage capital); and

      o     critically undercapitalized (less than 2% tangible capital).

      Generally,  the  banking  regulator  is  required to appoint a receiver or
conservator  for an  association  that  is  "critically  undercapitalized."  The
regulations also provide that a capital  restoration plan must be filed with the
Office of Thrift Supervision within 45 days of the date an association  receives
notice  that  it  is  "undercapitalized,"  "significantly  undercapitalized"  or
"critically  undercapitalized."  In  addition,  numerous  mandatory  supervisory
actions become  immediately  applicable to the association,  including,  but not
limited to, restrictions on growth, investment activities, capital distributions
and affiliate  transactions.  The Office of Thrift Supervision may also take any
one of a number of discretionary  supervisory  actions against  undercapitalized
associations,  including the issuance of a capital directive and the replacement
of senior executive officers and directors.

      At March 31,  2004,  Sound  Federal  Savings  met the  criteria  for being
considered "well-capitalized."

      Insurance of Deposit  Accounts.  Deposit accounts in Sound Federal Savings
are insured by the Federal  Deposit  Insurance  Corporation,  generally  up to a
maximum of $100,000 per separately  insured  depositor.  Sound Federal  Savings'
deposits therefore are subject to Federal Deposit Insurance  Corporation deposit
insurance  assessments.  The Federal Deposit Insurance Corporation has adopted a
risk-based  system for determining  deposit insurance  assessments.  The Federal
Deposit  Insurance  Corporation is authorized to raise the  assessment  rates as
necessary  to maintain  the  required  ratio of reserves to insured  deposits of
1.25%.   In  addition,   all  Federal  Deposit   Insurance   Corporation-insured


                                       26
<PAGE>

institutions must pay assessments to the Federal Deposit  Insurance  Corporation
at an annual rate of  approximately  .02% of insured  deposits to fund  interest
payments on bonds  maturing in 2017 issued by a federal  agency to  recapitalize
the predecessor to the Savings Association Insurance Fund.

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

      Federal Home Loan Bank System.  Sound  Federal  Savings is a member of the
Federal Home Loan Bank System,  which consists of 12 regional  Federal Home Loan
Banks.  The Federal  Home Loan Bank System  provides a central  credit  facility
primarily for member institutions.  As a member of the Federal Home Loan Bank of
New York,  Sound  Federal  Savings is  required  to acquire  and hold  shares of
capital stock in the Federal Home Loan Bank in an amount at least equal to 1% of
the aggregate  principal  amount of its unpaid  residential  mortgage  loans and
similar  obligations  at the beginning of each year,  or 1/20 of its  borrowings
from the Federal  Home Loan Bank,  whichever  is greater.  As of March 31, 2004,
Sound Federal Savings was in compliance with this requirement.

Federal Reserve System

      The Federal  Reserve Board  regulations  require  savings  associations to
maintain  non-interest-earning reserves against their transaction accounts, such
as negotiable  order of withdrawal and regular checking  accounts.  At March 31,
2004, Sound Federal Savings was in compliance with these reserve requirements.

Holding Company Regulation

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

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

      Federal  law  prohibits a savings and loan  holding  company,  directly or
indirectly,  or through  one or more  subsidiaries,  from  acquiring  control of
another savings  institution or holding company  thereof,  without prior written
approval of the Office of Thrift Supervision.  It also prohibits the acquisition
or


                                       27
<PAGE>

retention of, with specified  exceptions,  more than 5% of the equity securities
of a company  engaged in activities  that are not closely  related to banking or
financial in nature or acquiring or retaining  control of an institution that is
not  federally  insured.  In  evaluating  applications  by holding  companies to
acquire savings institutions, the Office of Thrift Supervision must consider the
financial and managerial resources,  future prospects of the savings institution
involved,  the effect of the  acquisition on the risk to the insurance fund, the
convenience and needs of the community and competitive factors.

The USA PATRIOT Act

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

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

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

      o     Section 326  authorized the Secretary of the Department of Treasury,
            in conjunction with other bank regulators, to issue regulations that
            provide   for   minimum   standards   with   respect   to   customer
            identification  at the time new  accounts  are  opened.  On July 23,
            2002,  the Office of Thrift  Supervision  and the other federal bank
            regulators  jointly issued proposed rules to implement  Section 326.
            The proposed  rules require  financial  institutions  to establish a
            program specifying procedures for obtaining identifying  information
            from  customers  seeking  to open  new  accounts.  This  identifying
            information  would be  essentially  the same  information  currently
            obtained by most financial institutions for individual customers.

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

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

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


                                       28
<PAGE>

      The  federal  banking   agencies  have  begun  to  propose  and  implement
regulations  pursuant  to the  USA  PATRIOT  Act.  These  proposed  and  interim
regulations  would  require  financial  institutions  to adopt the  policies and
procedures contemplated by the USA PATRIOT Act.

Sarbanes-Oxley Act of 2002

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

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

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


                                       29
<PAGE>

taking any action to fraudulently influence,  coerce,  manipulate or mislead any
independent   accountant  engaged  in  the  audit  of  the  company's  financial
statements  for the purpose of rendering  the  financial  statements  materially
misleading.  Sarbanes-Oxley also requires the Securities and Exchange Commission
to  prescribe  rules  requiring  inclusion of any  internal  control  report and
assessment by management  in the annual report to  shareholders.  Sarbanes-Oxley
requires the company's  registered  public accounting firm that issues the audit
report to  attest to and  report on  management's  assessment  of the  company's
internal controls.  These requirements for internal control reporting will first
apply to the Company's March 31, 2005 annual report.

      Although we anticipate that we will incur additional  expense in complying
with the  provisions of the  Sarbanes-Oxley  Act and the resulting  regulations,
management  does not expect that such  compliance will have a material impact on
our results of operations or financial condition.

      Executive Officers of the Company

      Listed  below  is  information,  as of  March  31,  2004,  concerning  the
Company's  executive  officers.  There  are no  arrangements  or  understandings
between the Company and any of the persons  named below with respect to which he
was or is to be selected as an officer.

Name                      Age    Position
----                      ---    --------

Bruno J. Gioffre          69     Chairman of the Board.

Richard P. McStravick     55     President and Chief Executive Officer.

Anthony J. Fabiano        43     Chief Financial Officer and Accounting Officer.


                                       30
<PAGE>

ITEM 2. PROPERTIES

Properties

      The  following  table  provides  certain  information  with respect to the
Bank's offices at March 31, 2004.

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

<S>                                      <C>                        <C>                       <C>
Corporate Office                          Leased                    2003                      $ 80(1)
1311 Mamaroneck Avenue                    4/1/10
White Plains, New York 10605

Branch Office                              Owned                    1954                        529
300 Mamaroneck Avenue
Mamaroneck, New York 10543

Branch Office                              Owned                    1961                        738
389 Halstead Avenue
Harrison, New York 10528

Branch Office                              Owned                    1972                       1,094
115 South Ridge Street
Rye Brook, New York 10573
                                        Leased (2)
Branch Office                                                       1998                       124(1)
180 South Main Street
New City, New York 10956

Branch Office                             Leased                    1998                       236(1)
East Putnam Avenue                       11/30/08
Cos Cob, Connecticut 06807

Branch Office                              Owned                    2000                        436
1019 Park Street
Peekskill, New York 10566

Branch Office                             Leased                    2000                       42(1)
1961 Commerce Street                     12/31/12
Yorktown Heights, New York 10598

Branch Office                             Leased                    2000                       703(1)
Cortland Town Center                     10/14/17
Mohegan Lake, New York

Branch Office                             Leased                    2001                       13(1)
88 Fourth Street                          2/8/09
New Rochelle, New York 10801

Branch Office                             Leased                    2001                       253(1)
Somers Commons                          12/31/2021
Baldwin Place, New York 10589

Stamford                                  Leased                    2004                       352(1)
599 Newfield Avenue                      4/19/09
Stamford, Connecticut 06905
</TABLE>

----------
(1)   Net book value represents the amortized cost of leasehold improvements.

(2)   This  branch,  which is  located  in a  supermarket,  is a  month-to-month
      rental.

      The total net book value of the Bank's  premises,  land and  equipment was
approximately $5.6 million at March 31, 2004.


                                       31
<PAGE>

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

      On February 4, 2004,  the Company held a special  meeting of  stockholders
for the purpose of considering the approval of the Sound Federal  Bancorp,  Inc.
2004 Incentive  Stock Benefit Plan. The vote with respect to the proposal was as
follows: 6,755,409 For, 1,042,504 Against, 94,077 Abstain.

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
        AND ISSUER PURCHASES OF EQUITY SECURITIES

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

      (c) Issuer purchases of equity  securities  during the quarter ended March
31, 2004 are as follows:

<TABLE>
<CAPTION>
                                                                        Total number of       Maximum number of
                                                                    shares purchased under   shares that may be
                             Total number of   Average price paid    a publicly announced      purchased under
                            shares purchased       per share           repurchase plan(1)     repurchase plan(1)
                            ----------------   ------------------   ----------------------   -------------------
<S>                              <C>                <C>                     <C>                    <C>
January 1-January 31               --                --                     474,000                530,482
February 1-February 29           56,482             $15.41                  530,482                530,482
March 1-March 31                 10,000             $14.75                   10,000                637,332
</TABLE>

(1)   The Company  announced a program to repurchase up to 530,482 shares of its
      common stock on July 28, 2003.  This  repurchase  program was completed on
      February 25, 2004. The Company announced a second program to repurchase up
      to 637,332 shares of its common stock on March 12, 2004.  This program has
      no expiration date.

ITEM 6. SELECTED FINANCIAL DATA

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

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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


                                       32
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The  financial   statements   identified  in  Item  15(a)(1)   hereof  are
incorporated by reference hereunder.

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

      None.

ITEM 9A. CONTROLS AND PROCEDURES

      The Company's  Chief Executive  Officer and Chief  Financial  Officer have
conducted an evaluation and concluded that the Company's disclosure controls and
procedures  (as  defined by the  Securities  Exchange  Act Rules  13a-14(c)  and
15d-14(c))  as of March  31,  2004 are  effective  to  ensure  that  information
required to be disclosed in the reports that the Company  files or submits under
the  Securities  Exchange Act of 1934 is  recorded,  processed,  summarized  and
reported as and when required by the Securities and Exchange  Commission's rules
and forms.

      There were no significant  changes made in the Company's internal controls
over  financial  reporting  during the period  covered by this report or, to our
knowledge, in other factors that could significantly affect these controls.

                                    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, 2004 (the
"Proxy Statement"),  specifically the section captioned "Proposal I--Election of
Directors." In addition,  see "Executive  Officers of the Company" in Item 1 for
information concerning the Company's executive officers.

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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


                                       33
<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      Information  concerning fees paid to the Company's principal accountant is
incorporated  by reference from the Company's  proxy statement under the section
captioned "Proposal II-Ratification of Appointment of Auditors."

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

      (a)(1) Financial Statements

             o   Report of Independent Registered Public Accounting Firm
             o   Consolidated Balance Sheets at March 31, 2004 and 2003
             o   Consolidated Statements of Income for the Years Ended
                     March 31, 2004, 2003 and 2002
             o   Consolidated  Statements of Changes in  Stockholders'
                     Equity for the Years Ended March 31, 2004, 2003 and 2002
             o   Consolidated Statements of Cash Flows for the Years Ended
                     March 31, 2004, 2003 and 2002
             o   Notes to Consolidated Financial Statements.

      (a)(2) Financial Statement Schedules

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

      (a)(3) Exhibits

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

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


                                       34
<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))

             10.3a  Employment Agreement with Richard McStravick

             10.3b  Employment Agreement with Anthony J. Fabiano

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

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

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

             10.7   Non-qualified  Supplemental  Executive  Retirement Agreement
                    for Richard P. McStravick

             10.8   Non-qualified  Supplemental  Executive  Retirement Agreement
                    for Anthony J. Fabiano

             13     2004 Annual Report to Stockholders

             14     Code of Ethics

             21     Subsidiaries of the Registrant

             23     Consent of KPMG LLP

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

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

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

      (b) Reports on Form 8-K

             On March 12, 2004, the Company announced, pursuant to Item 5. Other
             Events and Regulation FD Disclosure,  the  commencement  of a stock
             repurchase program.

             On January 28, 2004,  the Company  announced,  pursuant to Item 12.
             Results of  Operations  and Financial  Condition,  its December 31,
             2003 financial results.

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

      (d) Not applicable.
<PAGE>

                                   SIGNATURES

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

                                       SOUND FEDERAL BANCORP, INC.

Date: June 10, 2004                    /s/ Richard P. McStravick
                                       -----------------------------------------
                                       Richard P. McStravick
                                       President and Chief Executive Officer

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

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

Date: June 10, 2004                         Date: June 10, 2004

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

Date: June 10, 2004                         Date: June 10, 2004

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

Date: June 10, 2004                         Date: June 10, 2004

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

Date: June 10, 2004                         Date: June 10, 2004

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

Date: June 10, 2004                         Date: June 10, 2004