UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C.  20549

                                    FORM 10-Q

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

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997

                                       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 0-27650

                         CATSKILL FINANCIAL CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

               DELAWARE                                    14-1788465
               --------                                    ----------
    (STATE OR OTHER JURISDICTION OF                     (I.R.S. EMPLOYER
    INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)

                     341 MAIN STREET, CATSKILL, NY          12414
              ----------------------------------------------------
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)  (ZIP CODE)

                                  (518)943-3600
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


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 12 MONTHS (OR FOR SUCH  SHORTER  PERIOD THAT THE  REGISTRANT  WAS
REQUIRED  TO FILE  SUCH  REPORTS),  AND  (2) HAS  BEEN  SUBJECT  TO SUCH  FILING
REQUIREMENTS FOR THE PAST 90 DAYS.                YES [X[ NO [ ]

  INDICATE THE NUMBER OF SHARES  OUTSTANDING OF EACH OF THE ISSUER'S  CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:

           COMMON SHARES, $.01 PAR VALUE                  4,775,732
           -----------------------------                ---------------
                  (TITLE OF CLASS)             (OUTSTANDING AT JANUARY 31, 1998)


<PAGE>
<TABLE>
<CAPTION>
                         CATSKILL FINANCIAL CORPORATION
                                    FORM 10-Q
                                DECEMBER 31, 1997

INDEX

PART I    FINANCIAL INFORMATION                                                          PAGE
<S>       <C>                                                                             <C>

Item 1.   Financial Statements

          Consolidated Statements of Financial Condition as of
          December 31, 1997 (Unaudited) and September 30, 1997..........................   1

          Consolidated Statements of Income for the three months ended
          December 31, 1997 and 1996 (Unaudited)........................................   2

          Consolidated Statements of Changes in Shareholders' Equity
          for the three months ended December 31, 1997 and 1996 (Unaudited).............   3

          Consolidated Statements of Cash Flows for the three months ended December 31,
          1997 and 1996 (Unaudited).....................................................   4

          Notes to Unaudited Consolidated Interim Financial Statements..................   5

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of
          Operations....................................................................   7

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings.............................................................  18

Item 6.   Exhibits and Reports on Form 8-K..............................................  18


          Signatures....................................................................  19
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                         CATSKILL FINANCIAL CORPORATION
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

                           Assets                     December 31, 1997   September 30, 1997
                           ------                     -----------------   ------------------
                                                        (Unaudited)

<S>                                                      <C>                   <C>      
Cash and due from banks                                  $   3,896             $   2,274
Federal funds sold                                              --                    --
                                                         ---------             ---------
          Cash and cash equivalents                          3,896                 2,274
Securities available for sale, at fair value               153,535               148,114
Investment securities, at amortized cost:
     (Estimated fair value of $5,114 at December 31,
        1997, and $8,112 at September 30, 1997)              5,068                 8,055

Investment required by law, stock in Federal Home
     Loan Bank of NY, at cost                                1,762                 1,762
Loans receivable, net                                      125,095               124,337
Accrued interest receivable                                  2,484                 2,303
Premises and equipment, net                                  2,395                 2,367
Real estate owned, net                                         239                   248
Other assets                                                   182                   159
                                                         ---------             ---------
        Total Assets                                     $ 294,656             $ 289,619
                                                         =========             =========
        Liabilities and Shareholders' Equity
        ------------------------------------
Liabilities:
   Deposits:
     Non-interest bearing                                $   4,681             $   4,370
     Interest bearing                                      197,462               196,542
                                                         ---------             ---------
          Total Deposits                                   202,143               200,912
   Short-term borrowings                                    16,600                11,385
   Advance payments by borrowers for property
     taxes and insurance                                     2,126                   533
   Accrued interest payable                                     61                    59
   Official bank checks                                        933                 3,861
   Accrued expenses and other liabilities                    1,128                 1,092
                                                         ---------             ---------
          Total Liabilities                              $ 222,991             $ 217,842
                                                         ---------             ---------
Shareholders' Equity
   Preferred stock, $.01 par value; authorized
   5,000,000 shares
   Common stock, $.01 par value; authorized
   15,000,000 shares; 5,686,750 shares issued at
   December 31, 1997 and September 30, 1997                     57                    57
   Additional paid-in capital                               54,811                54,811
   Retained earnings, substantially restricted              35,492                34,915
   Common stock acquired by ESOP                            (4,209)               (4,209)
   Unearned management recognition plan                     (1,742)               (1,856)
   Treasury stock, at cost (911,018 shares at
     December 31, 1997, and 848,244 shares at
     September 30, 1997)                                   (13,957)              (12,862)
   Net unrealized gain (loss) on securities
    available for sale, net of taxes                         1,213                   921
                                                         ---------             ---------
          Total Shareholders' Equity                        71,665                71,777
                                                         ---------             ---------
          Total Liabilities and Shareholders' Equity     $ 294,656             $ 289,619
                                                         =========             =========

      See accompanying notes to unaudited consolidated interim financial statements.

                                       1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                              CATSKILL FINANCIAL CORPORATION
                             CONSOLIDATED STATEMENTS OF INCOME
                      (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

                                                              THREE MONTHS ENDED
                                                                 DECEMBER 31,
                                                        1997                       1996
                                                     -----------               -----------
                                                                    (Unaudited)
Interest and dividend income:
<S>                                                  <C>                       <C>        
     Loans                                           $     2,551               $     2,543
     Securities available for sale                         2,559                     1,727
     Investment securities                                   121                       238
     Federal funds sold and other                              1                       450
     Stock in Federal Home Loan Bank of NY                    31                        19
                                                     -----------               -----------
          Total interest and dividend income               5,263                     4,977

Interest expense:
     Deposits                                              2,241                     2,136
     Short-term borrowings                                   184                        --
                                                     -----------               -----------
          Total interest expense                           2,425                     2,136
                                                     -----------               -----------
Net interest income                                        2,838                     2,841

Provision for loan losses                                     54                        75
                                                     -----------               -----------
     Net interest income after provision
        for loan losses                                    2,784                     2,766
                                                     -----------               -----------
Noninterest income:
     Recovery of Nationar loss contingency                    --                        84
     Service fees on deposit accounts                         68                        59
     Net securities gains                                     19                        --
     Other income                                             32                        34
                                                     -----------               -----------
          Total noninterest income                           119                       177
                                                     -----------               -----------
Noninterest expense:
     Salaries and employee benefits                          840                       664
     Advertising and business promotion                       50                        39
     Net occupancy on premises                                82                        70
     Federal deposit insurance premiums                        7                         1
     Postage and supplies                                     64                        46
     Outside data processing fees                             95                        89
     Equipment                                                40                        36
     Professional fees                                        37                        62
     Other real estate expenses, net                         (16)                        3
     Other                                                   149                       161
                                                     -----------               -----------
          Total noninterest expense                        1,348                     1,171
                                                     -----------               -----------
          Income before taxes                              1,555                     1,772
Income tax expense                                           597                       706
                                                     -----------               -----------
          Net income                                 $       958               $     1,066
                                                     ===========               ===========
Basic earnings per common share                      $       .23               $       .21
Diluted earnings per common share                    $       .22               $       .21

Weighted Average Common Shares-Basic                   4,250,413                 5,090,814

Weighted Average Common Shares-Diluted                 4,393,839                 5,110,362

      See accompanying notes to unaudited consolidated interim financial statements.
</TABLE>

                                       2
<PAGE>
<TABLE>
<CAPTION>

                                                   CATSKILL FINANCIAL CORPORATION
                                     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                   (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)

                                                    Retained     Common       Unearned                   Net Unrealized
                                      Additional    Earnings,     Stock      Management    Treasury        Gain (Loss)
                              Common   Paid-in    Substantially Acquired by  Recognition    Stock,        on Securities
                               Stock   Capital     Restricted     ESOP          Plan        at Cost     AFS, net of taxes    Total
                              ------  ----------  ------------- -----------  -----------   --------     -----------------    -----

<S>                               <C>  <C>          <C>           <C>          <C>         <C>              <C>            <C>    
Balance at September 30, 1997   $ 57    $54,811    $34,915       $(4,209)     $(1,856)      $(12,862)        $   921        $71,777

Net Income                                             958                                                                      958

Dividends paid on common stock                        (352)                                                                    (352)

Change in net unrealized 
gain (loss) on securities AFS,
  net of taxes                                                                                                   292            292

Exercise of stock options
(4,401 shares issued, net)                             (29)                                       67                             38

Amortization of unearned 
  MRP compensation                                                                114                                           114

Purchase of common stock
(67,175 shares)                                                                               (1,162)                        (1,162)
                                ----    -------    -------       --------     --------      ---------        -------        -------
Balance at December 31, 1997    $ 57    $54,811    $35,492       $(4,209)     $(1,742)      $(13,957)        $ 1,213        $71,665
                                ====    =======    =======       ========     ========      =========        =======        =======

Balance at September 30, 1996   $ 57    $54,864    $31,984       $(4,436)           --            --         $   (88)       $82,381

Net income                                           1,066                                                                    1,066

Grant of restricted shares
 under MRP (178,732 shares)                (167)                               (2,234)         2,401                             --

Purchase of common stock                                                                      (7,000)                        (7,000)
(504,000 shares)

Change in net unrealized
  gain (loss) on securities AFS,
  net of taxes                                                                                                   370            370
                                ----    -------    -------       --------     --------       --------        -------        -------
Balance at December 31, 1996    $ 57    $54,697    $33,050       $(4,436)     $(2,234)       $(4,599)        $   282        $76,817
                                ====    =======    =======       ========     ========       ========        =======        =======


                           See accompanying notes to unaudited consolidated interim financial statements.

                                                                  3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                         CATSKILL FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
                                                                             Three Months Ended
                                                                                December 31,
                                                                             1997        1996
                                                                           --------    --------
<S>                                                                        <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                                           (Unaudited)
 Net Income                                                                $    958    $  1,066
 Adjustments to reconcile net income to net cash provided (used) by
  operating activities:
  Depreciation                                                                   51          40
  Net amortization (accretion) on securities                                     (9)        (81)
  Provision for loan losses                                                      54          75
  MRP compensation expense                                                      114          80
  ESOP compensation expense                                                     100          75
  Recovery of Nationar loss contingency                                          --         (84)
  Loss (gains) on sale of other real estate owned                               (24)        (21)
  Gains on sales and calls of securities                                        (19)         --
  Increase in other assets                                                     (204)       (347)
  Collection of deposits held at Nationar                                        --         167
  Decrease in accrued expense and other liabilities                          (3,185)       (747)
                                                                           --------    --------
 Net cash provided (used) by operating activities                            (2,164)        223
                                                                           --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity/calls/paydown of investment securities                 3,010       7,000
Net increase in loans receivable                                               (895)     (1,593)
Capital expenditures, net                                                       (79)       (210)
Purchase of AFS securities                                                  (16,637)    (69,359)
Proceeds from sale of securities available for sale                           2,019          --
Proceeds from maturity/calls/paydown of AFS securities                        9,689      49,588
Proceeds from sale of other real estate owned                                   116         159
                                                                           --------    --------
Net cash provided (used) by investing activities                             (2,777)    (14,415)
                                                                           --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options                                      38          --
Net increase (decrease) in deposits                                           1,231      (2,489)
Net increase in advance payments by borrowers for
 property taxes and insurance                                                 1,593         264
Increase in short-term borrowings                                             5,215          --
Cash dividends on common stock                                                 (352)         --
Purchase of common stock for treasury                                        (1,162)     (7,000)
                                                                           --------    --------
Net cash provided (used) by financing activities                              6,563      (9,225)
                                                                           --------    --------
Net increase (decrease) in cash and cash equivalents                          1,622     (23,417)
Cash and cash equivalents at beginning of period                              2,274      39,712
                                                                           --------    --------
Cash and cash equivalents at end of period                                 $  3,896    $ 16,295
                                                                           ========    ========
Supplemental  disclosures of cash flow information:
Cash paid during the period for:
   Interest                                                                $  2,423    $  2,135
   Taxes                                                                        521         375
Transfer of loans to other real estate owned                                     83         248
Change in net unrealized gain (loss) on AFS securities, net of change in
deferred tax liability of $195 and $247 respectively                            292         370
</TABLE>


  See accompanying notes to unaudited consolidated interim financial statements

                                       4
<PAGE>


                         CATSKILL FINANCIAL CORPORATION
                         NOTES TO UNAUDITED CONSOLIDATED
                          INTERIM FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

The unaudited  consolidated interim financial statements include the accounts of
Catskill  Financial  Corporation  ("Company")  and its wholly owned  subsidiary,
Catskill Savings Bank ("Bank").  All intercompany accounts and transactions have
been  eliminated  in   consolidation.   Amounts  in  prior  periods'   unaudited
consolidated interim financial statements are reclassified whenever necessary to
conform to the current  period's  presentation.  In  management's  opinion,  the
unaudited consolidated interim financial statements reflect all adjustments of a
normal  recurring  nature,  and  disclosures  which  are  necessary  for a  fair
presentation of the results for the interim periods presented and should be read
in  conjunction  with the  consolidated  financial  statements and related notes
included in Catskill Financial's 1997 Annual Report to Stockholders. The results
of  operations  for the interim  periods are not  necessarily  indicative of the
results of  operations  to be expected for the full fiscal year ended  September
30, 1998.

NOTE 2. EARNINGS PER SHARE

On December  31,  1997,  the Company  adopted the  provisions  of  Statement  of
Financial  Accounting  Standard No. 128,  "Earnings  per Share,"  (SFAS No. 128)
which  establishes  standards for computing and  presenting  earnings per share.
SFAS No. 128 supercedes  Accounting  Principles  Board Opinion No. 15, "Earnings
per Share" and related interpretations.  SFAS No. 128 requires dual presentation
of basic and diluted  earnings per share on the face of the income statement for
all  entities  with  a  complex  capital  structure  and  specifies   additional
disclosure  requirements.  Basic  earnings  per share  excludes  dilution and is
computed by dividing  income  available to common  stockholders  by the weighted
average number of common shares outstanding for the period.  Unvested restricted
stock is considered outstanding common shares and included in the computation of
basic earnings per share as of the date they are fully vested.  Diluted earnings
per share  reflects the  potential  dilution  that could occur if  securities or
other  contracts to issue common stock were  exercised or converted  into common
stock or  resulted  in the  issuance  of common  stock  that then  shared in the
earnings  of the  entity,  such as the  Company's  restricted  stock  and  stock
options.  SFAS No. 128 requires  restatement  of all prior  period  earnings per
share data presented.  Unallocated  ESOP shares are not included in the weighted
average  number of common  shares  outstanding  for  either the basic or diluted
earnings  per share  calculations.  The  adoption of SFAS No. 128 did not have a
material effect on the Company's financial position or results of operations.


                                       5
<PAGE>


NOTE 2. EARNINGS PER SHARE - CONTINUED

The following sets forth certain information  regarding the calculation of basic
and diluted earnings per share (EPS) calculations for the periods indicated:

<TABLE>
<CAPTION>

                                                       Three months ended December 31, 1997
                                                       ------------------------------------

                                                                      Weighted
                                                                       Average           Per-Share
                                                 Net Income            Shares              Amount
                                                 ----------           --------           ---------
                                                  (In thousands, except share and per share data)

<S>                                              <C>                 <C>                  <C>    
Basic EPS                                        $     958           4,250,413            $   .23

Dilutive effect of potential common shares
     related to stock based compensation plans          --             143,426
                                                 ---------           ---------

Diluted EPS                                      $     958           4,393,839            $   .22
                                                 =========           =========
</TABLE>

<TABLE>
<CAPTION>
                                                       Three months ended December 31, 1996
                                                       ------------------------------------

                                                                      Weighted
                                                                       Average           Per-Share
                                                 Net Income            Shares              Amount
                                                 ----------           --------           ---------
                                                  (In thousands, except share and per share data)

<S>                                              <C>                 <C>                   <C>   
Basic EPS                                        $   1,066           5,090,814             $  .21

Dilutive effect of potential common shares
     related to stock based compensation plans          --              19,548
                                                 ---------           ---------

Diluted EPS                                      $   1,066           5,110,362             $  .21
                                                 =========           =========
</TABLE>


                                                        6
<PAGE>


                         CATSKILL FINANCIAL CORPORATION
                                    FORM 10-Q
                                DECEMBER 31, 1997

================================================================================

                   PART I - FINANCIAL INFORMATION (CONTINUED)

ITEM 2.   Management's  Discussion  and  Analysis  of  Financial  Condition  and
          Results of Operations

GENERAL

Catskill  Financial  Corporation  (the  "Company" or "Catskill  Financial")  was
formed in December  1995 to acquire all of the common stock of Catskill  Savings
Bank (the  "Bank")  upon its  conversion  from a mutual  savings bank to a stock
savings bank. On April 18, 1996, the Company  completed its initial public stock
offering,  issuing 5,686,750 shares of $.01 par value common stock at $10.00 per
share.  Net proceeds to the Company were $54.9 million after  conversion  costs,
and $50.4 million excluding the shares acquired by the Company's  Employee Stock
Ownership  Plan (the "ESOP"),  which were  purchased with the proceeds of a loan
from the Company.

The consolidated  financial  condition and operating  results of the Company are
primarily  dependent  upon  its  wholly  owned  subsidiary,  the  Bank,  and all
references  to the  Company  prior to April 18,  1996,  except  where  otherwise
indicated, are to the Bank.

The Bank has been and continues to be a community oriented financial institution
offering a variety of financial  services.  The Bank attracts  deposits from the
general public and uses such deposits,  together with other funds,  to originate
one to four family  residential  mortgages,  and, to a lesser  extent,  consumer
(including  home equity  lines of credit),  commercial,  and  multi-family  real
estate and other loans in its primary  market area.  The Bank's  primary  market
area is comprised of Greene County and southern Albany County in New York, which
are serviced  through four banking  offices,  the most recent  having  opened in
December  1996.  The Bank's  deposit  accounts are insured by the Bank Insurance
Fund ("BIF") of the Federal Deposit Insurance  Corporation  ("FDIC"),  and, as a
federal  savings bank, the Bank is subject to regulation by the Office of Thrift
Supervision ("OTS").

The Bank's profitability,  like many financial  institutions,  is dependent to a
large extent upon its net interest income,  which is the difference  between the
interest it receives on interest earning assets,  such as loans and investments,
and the interest it pays on interest bearing liabilities, principally deposits.

Results of operations are also affected by the Bank's provision for loan losses,
non-interest  expenses  such as salaries and employee  benefits,  occupancy  and
other  operating  expenses and to a lesser extent,  non-interest  income such as
service charges on deposit accounts.

Financial  institutions  in general,  including the Company,  are  significantly
affected  by  economic  conditions,  competition  and the  monetary  and  fiscal
policies of the federal  government.  Lending  activities  are influenced by the
demand for and supply of  housing,  competition  among  lenders,  interest  rate
conditions  and  funds  availability.  Deposit  balances  and cost of funds  are
influenced  by  prevailing  market  rates  on  competing  investments,  customer
preference  and the levels of personal  income and savings in the Bank's primary
market area.

                                       7
<PAGE>

For the three months ended December 31, 1997, the Company recorded net income of
$958,000,  a decrease  of  $108,000  or 10.1%,  compared  to the  quarter  ended
December 31, 1996. The decrease was principally caused by certain  non-recurring
items which increased net income in the three months ended December 31, 1996, by
approximately $100,000 coupled with the impact of the Company's stock repurchase
program  which  resulted in a reduction  in no cost funding  sources.  Basic and
diluted earnings per share were $.23 and $.22  respectively for the three months
ended  December  31, 1997,  compared to basic and diluted  earnings per share of
$.21 for the three months  ended  December 31,  1996.  Weighted  average  common
shares - basic for the three months ended December 31, 1997, were  4,250,413,  a
decrease of 840,401 or 16.5% from the 5,090,814 for the comparable  period ended
December  31,  1996.  The decrease  was  principally  attributable  to the share
repurchase  programs  under which the Company,  through  December 31, 1997,  had
purchased  1,096,651  shares or 19.3% of the shares issued in its initial public
offering.  The aggregate cost to the Company was $16.5 million, or approximately
$15.02 per common share repurchased.

Annualized return on average assets for the three months ended December 31, 1997
and 1996,  was 1.31% and 1.51%,  respectively,  and return on average equity was
5.32% and 5.23%, respectively.

FORWARD-LOOKING STATEMENTS

         When used in this Form 10-Q or future  filings by the Company  with the
Securities  and Exchange  Commission,  in the Company's  press releases or other
public  or  shareholder  communications,  or in oral  statements  made  with the
approval of an authorized  executive officer,  the words or phrases "will likely
result",  "are expected to",  "will  continue",  "is  anticipated",  "estimate",
"project",   "believe",   or  similar   expressions  are  intended  to  identify
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigations Reform Act of 1995. In addition, certain disclosures and information
customarily provided by financial institutions, such as analysis of the adequacy
of the allowance for loan losses or an analysis of the interest rate sensitivity
of the Company's assets and  liabilities,  are inherently based upon predictions
of future events and circumstances.  Furthermore, from time to time, the Company
may  publish  other  forward-looking  statements  relating  to such  matters  as
anticipated financial performance, business prospects, and similar matters.

         The Private  Securities  Litigation  Reform Act of 1995 provides a safe
harbor for forward-looking  statements. In order to comply with the terms of the
safe  harbor,  the  Company  notes  that a variety of  factors  could  cause the
Company's   actual  results  and  experience  to  differ   materially  from  the
anticipated   results  or  other   expectations   expressed  in  the   Company's
forward-looking  statements. Some of the risks and uncertainties that may affect
the operations, performance,  development and results of the Company's business,
the interest rate sensitivity of its assets and liabilities, and the adequacy of
its allowance for loan losses, include but are not limited to the following:

         a.  Deterioration  in local,  regional,  national  or  global  economic
conditions  which  could  result,  among  other  things,  in an increase in loan
delinquencies,  a  decrease  in  property  values,  or a change  in the  housing
turnover rate;

         b.  changes in market  interest  rates or changes in the speed at which
market interest rates change;

         c. changes in laws and  regulations  affecting  the  financial  service
industry;

         d. changes in competition; and

                                       8
<PAGE>


         e. changes in consumer preferences.

         The Company  wishes to caution  readers not to place undue  reliance on
any  forward-looking  statements,  which speak only as of the date made,  and to
advise readers that various  factors,  including  those described  above,  could
affect the Company's financial  performance and could cause the Company's actual
results or  circumstances  for future  periods to differ  materially  from those
anticipated or projected.

         The  Company  does  not  undertake,   and  specifically  disclaims  any
obligation, to publicly release the result of any revisions which may be made to
any  forward-looking  statements  to reflect the  occurrence of  anticipated  or
unanticipated events or circumstances after the date of such statements.

FINANCIAL CONDITION

Total  assets were  $294.7  million at December  31,  1997,  an increase of $5.1
million, or 1.8% from the $289.6 million at September 30, 1997. The increase was
funded principally by an increase in short-term  borrowings of $5.2 million,  to
$16.6 million at December 31, 1997.

Cash and cash  equivalents  were $3.9 million,  an increase of $1.6 million,  or
69.6% from the $2.3 million at September  30, 1997.  The change was  principally
due to an increase in checks in process of  collection,  as well as the funding,
in advance, of a pending cash order for vault cash.

Total  securities,  which  include  securities  held  to  maturity  ("HTM")  and
securities  available for sale ("AFS"),  excluding Federal Home Loan Bank stock,
were  $158.6  million,  an  increase  of $2.4  million,  or 1.5% over the $156.2
million as of September 30, 1997.  The change in securities  consisted of a $5.4
million increase in AFS securities,  primarily due to the Company's  purchase of
one-year  adjustable  rate mortgage backed  securities and municipal  securities
with longer call protection,  and a $3.0 million decrease in HTM securities from
scheduled  maturities and calls.  Consequently as of December 31, 1997, 96.8% of
the Company's  investment  portfolio  excluding the Federal Home Loan Bank Stock
was classified as AFS, compared to 94.8% as of September 30, 1997.


                                       9

<PAGE>

Loans receivable were $127.0 million as of December 31, 1997, an increase of $.8
million or .6% over the $126.2  million as of September 30, 1997.  The following
table shows the loan portfolio  composition  as of the respective  balance sheet
dates:


                                  December 31,            September 30,
                                      1997                     1997
                                  ------------            -------------
                                             (In thousands)
Real Estate Loans
    One-to-four family            $ 103,052                $ 102,232
    Multi-family and commercial       5,416                    4,691
    Construction                        442                    1,306
                                  ---------                ---------
        Total real estate loans     108,910                  108,229
Consumer Loans                       18,498                   18,473
                                  ---------                ---------
        Gross Loans                 127,408                  126,702
Less:  Net deferred loan fees          (423)                    (476)
                                  ---------                ---------
        Total loans receivable    $ 126,985                $ 126,226
                                  =========                =========


The increase in multi-family and commercial loans was principally represented by
loans  originated at its new branch,  while the decrease in  construction  loans
principally   resulted  from  the  reclassification  of  construction  loans  as
one-to-four  family loans once construction was completed and the loan converted
to an amortizing mortgage.

Non-performing  assets at December 31, 1997 were $1.0 million,  or .35% of total
assets,  compared to the $1.2 million or .40% of total  assets at September  30,
1997.  The table below sets forth the amounts and  categories  of the  Company's
non-performing assets.

                                           December 31,      September 30,
                                               1997              1997
                                           ------------      -------------
                                                   (In thousands)

Non-performing loans:
    One-to-four family                        $  640            $  780
    Multi-family and commercial                   --                --
    Consumer                                     144               137
                                              ------            ------
        Total non-performing loans               784               917
                                              ------            ------
Foreclosed assets, net:
    One-to-four family                           201               225
    Multi-family and commercial                   38                23
                                              ------            ------
        Total foreclosed assets, net             239               248
                                              ------            ------

        Total non-performing assets           $1,023            $1,165
                                              ======            ======

        Total non-performing                     
         loans as a % of total loans             .62%              .73%

        Total non-performing assets
         as a % of total assets                  .35%              .40%


                                       10
<PAGE>


The  decrease  in  non-performing  loans at  December  31,  1997 as  compared to
September 30, 1997 was  attributable  principally to the foreclosure of one loan
and the resulting acquisition of title to the mortgaged property by the Company.
The net realizable value of the property,  totalling $83,000, was transferred to
other real estate, and $33,000, representing the excess of the carrying value of
the related  loan over the net  realizable  value of the  property,  was charged
against the  allowance  for loan losses.  In addition,  during the quarter ended
December 31, 1997,  the Company  completed the sale of two parcels of other real
estate  which  reduced  real  estate  owned  by  $92,000.  The  following  table
summarizes the activity in other real estate for the periods presented:

                                                Three Months Ended December 31,
                                                -------------------------------
                                                       1997            1996
                                                       ----            ----
                                                          (In thousands)
       Other real estate beginning of
          period                                       $ 248           $ 357
       Transfer of loans to other
          real estate owned                               83             248
       Sales of other real estate, net                   (92)           (138)
                                                       -----           -----
       Other real estate end of period                 $ 239           $ 467
                                                       =====           =====

The allowance for loan losses was $1.9 million,  or 1.49% of period end loans at
December 31,  1997,  and provided  coverage of  non-performing  loans of 241.1%,
compared  to  coverage  of  206.0%  as of  September  30,  1997.  The  following
summarizes the activity in the allowance for loan losses:

                                               Three Months Ended December 31,
                                               -------------------------------
                                                  1997                  1996
                                                -------                -------
                                                       (In thousands)
       Allowance at beginning of period         $ 1,889                $ 1,833
           Charge-offs                              (57)                   (87)
           Recoveries                                 4                      5
                                                -------                -------
               Net charge-offs                      (53)                   (82)
           Provision for loan losses                 54                     75
                                                -------                -------
       Allowance at end of period               $ 1,890                $ 1,826
                                                =======                =======

Total  deposits  were $202.1  million at December 31, 1997,  an increase of $1.2
million,  or .6% from the $200.9  million at September  30, 1997.  The following
table shows the deposit composition as of the respective balance sheet dates:
<TABLE>
<CAPTION>

                             December 31, 1997              September 30, 1997
                       -----------------------------  ----------------------------
                       (In thousands)  % of Deposits  (In thousands) % of Deposits

<S>                        <C>              <C>         <C>               <C>  
Savings                    $ 78,534         38.9%       $ 79,448          39.6%
Money market                  6,565          3.2           7,115           3.5
NOW                          11,116          5.5          10,438           5.2
Non-interest demand           4,681          2.3           4,370           2.2
Certificates of deposits    101,247         50.1          99,541          49.5
                           --------        -----        --------         -----
                           $202,143        100.0%       $200,912         100.0%
                           ========        =====        ========         =====
</TABLE>

                                       11
<PAGE>

The growth in deposits was principally related to the opening of our fourth full
service branch in late December  1996,  and deposits at other offices  decreased
$.6  million,  or .3%,  during the  quarter.  Although  the Company  experienced
deposit  growth,  savings  deposits  decreased  $.9  million  or  1.2%,  and now
represent  38.9% of deposits  compared to 39.6% as of September  30,  1997.  The
composition  of deposits  continues to shift to higher costing  certificates  of
deposits  ("CD's") as the decrease in savings deposits was more than offset by a
$1.7 million  increase in  certificates  of deposit which now represent 50.1% of
deposits  compared to 49.5% as of September  30,  1997.  The increase in CD's is
principally  from the  Company's  promotion  of a  15-month  product  to  retain
maturing  longer-term CD's and satisfy demand in the Company's market for higher
yields.  Management  believes  that this change in mix is  consistent  with what
other financial  institutions  are  experiencing,  as customers seek to maximize
their returns and the Company has to compete with other investment products such
as mutual funds.

Short-term  borrowings  were $16.6  million at December 31, 1997, an increase of
$5.2 million or 45.6% from the $11.4 million at September 30, 1997. The increase
was principally to fund an increase in earning assets, primarily the purchase of
securities,  as the Company  continues to leverage its capital.  The Company had
outstanding  borrowings  from the Federal Home Loan Bank of New York ("FHLB") of
$11.6  million under its  overnight  line,  and $5.0 million under its one month
advance  program,  with  additional  credit  available  of $1.5 million and $8.1
million,  respectively,  from those  facilities  as of  December  31,  1997.  In
addition,  the  Company  anticipates  converting  a  portion  of its  short-term
borrowings  to  longer-term  borrowings  under the  FHLB's  convertible  advance
product to reduce its interest rate risk.

Shareholders'  equity at December 31, 1997 was $71.7 million,  a decrease of $.1
million,  or .1% from the $71.8 million at September 30, 1997.  The decrease was
principally caused by the Company's repurchase of 67,175 common shares at a cost
of $1.2 million, somewhat offset by the $.6 million of net income retained after
cash  dividends and a $.3 million  change in the Company's net  unrealized  gain
(loss) on securities available for sale, net of taxes. The Company also recorded
a $.2 million increase in shareholders= equity on account of the gradual vesting
of restricted stock awards and the exercise of stock options.

Shareholders' equity as a percent of total assets was 24.3% at December 31, 1997
compared to 24.8% at September 30, 1997.  Book value per common share was $15.48
excluding  unvested shares of the Company's  restricted stock plan ("MRP"),  and
was $17.02 excluding unallocated ESOP shares and unvested MRP shares.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND
1996

Net Interest Income
-------------------

Net interest  income on a full tax  equivalent  basis for the three months ended
December 31,  1997,  was $2.9  million,  an increase of $16,000,  or 0.6%,  when
compared to the three  months  ended  December 31,  1996.  The  Company's  stock
repurchase  program,  which  reduced  average  equity  by $9.4  million,  caused
downward pressure on net interest income.  This was substantially  offset by two
factors. Average earning assets increased by $7.4 million, funded principally by
borrowings  and increased  deposits,  and net interest rate spread  increased by
eight basis points  principally  caused by a deliberate  shift in the mix of the
Company's investments.

                                       12
<PAGE>

Interest income for the three months ended December 31, 1997 was $5.3 million on
a tax equivalent  basis,  an increase of $305,000,  or 6.1%, over the comparable
period last year.  The $7.4  million  increase in the average  volume of earning
assets had a direct  positive effect on interest income as the Company sought to
leverage its excess capital.  The increase in average earning assets principally
consisted of increases in mortgage-backed and other securities.

Also positively affecting interest income was the effort to change the Company's
asset mix by  investing  more of its assets in higher  yielding  mortgage-backed
securities   and  less  in  lower   yielding   federal   funds   sold.   Average
mortgage-backed  securities  represented 30.5% of average earning assets for the
three months  ended  December  31,  1997,  compared to 19.1% for the  comparable
quarter the prior year,  while federal funds sold and other  declined from 12.2%
to less than 1% of average earning assets between the same periods.  The average
yield on  mortgage-backed  securities during the three months ended December 31,
1997 was 7.03%, compared to 5.33% as the average yield on federal funds sold and
miscellaneous  earning assets for the quarter ended December 31, 1996. The shift
in mix was the primary  cause of a 25 basis point  increase in the average yield
on earning  assets  between the periods.  The average yield was also  positively
affected by the purchase of tax advantaged securities bearing higher yields.

Interest expense for the three months ended December 31, 1997, was $2.4 million,
an increase of  $289,000,  or 13.5%.  The  increase  was  principally  due to an
increase in the average volume of interest bearing liabilities. The Company also
experienced  an  increase  of 17  basis  points  in its cost of  funds.  Average
interest bearing  liabilities were $210.4 million, an increase of $17.6 million,
or 9.1%, as the Company  borrowed funds to substitute  for no-cost  capital as a
funding source  necessitated by the Company's stock repurchase  program and also
to fund earning asset growth.  Average short-term  borrowings were $12.7 million
for  the  three  months  ended  December  31,  1997,  while  there  were no such
borrowings in the comparable three month period the prior year. In addition, the
Company's  average  CD's  increased  $7.9  million,  or 8.6%,  as the  Company's
customers  continue  to move  toward  higher  costing  CD's and away from  lower
costing savings  deposits.  The 17 basis point increase in the cost of funds was
caused by the increase in the level of borrowings, which represent the Company's
highest  cost,  and CD's,  which are the next highest cost funding  source.  The
average rate paid on CD's also  increased by 15 basis points due to  competitive
pressures and a special 15 month CD program which offered premium rates.

The Company's net yield on average earning assets was 4.02% for the three months
ended  December 31, 1997,  compared to 4.10% for the  comparable  quarter of the
prior  year.  The  decrease  was  principally  caused  by  the  Company's  stock
repurchase  program,  which reduced the level of no-cost  funding  sources,  and
hence  reduced  the excess of interest  earning  assets  over  interest  bearing
liabilities.  In the three months ended December 31, 1997, the Company had $71.9
million of average  earning assets with no related  funding costs, a decrease of
$10.2  million from the $82.1  million for the three  months ended  December 31,
1996.  Partially  offsetting  the effect of this  decrease on the  Company's net
yield, the Company increased its net interest spread 8 basis points, by changing
its asset mix as described previously.

For more information on average balances, interest, yield and rate, please refer
to Table #1, included in this report.

                                       13
<PAGE>


Provision for Loan Losses
-------------------------

The Company  establishes  an  allowance  for loan losses based on an analysis of
risk factors in its loan portfolio.  This analysis  includes  concentrations  of
credit,  past loan loss  experience,  current  economic  conditions,  amount and
composition  of loan  portfolio,  estimated  fair  market  value  of  underlying
collateral, delinquencies and other factors. Accordingly, the calculation of the
adequacy of the  allowance  for loan losses is not based  solely on the level of
non-performing loans.

The  provision  for loan losses was $54,000 for the three months ended  December
31, 1997, a decrease of $21,000  from the  comparable  period of the prior year.
The decrease is principally the result of a $29,000, or 35.4%,  reduction in net
charge-offs  to $53,000 for the three months ended December 31, 1997 compared to
the comparable  quarter of the prior year. In addition,  the Company has reduced
its  non-performing  loans so the allowance  represents 241.1% of non-performing
loans at December 31, 1997, as compared to 220.3% as of December 31, 1996.

Non-Interest Income
-------------------

Non-interest income was $119,000 for the three months ended December 31, 1997, a
decrease of $58,000 or 32.7% from the three months ended  December 31, 1996. The
decrease was  principally a consequence of the Company's  recovery of $84,000 of
its Nationar loss reserve during the quarter ended December 31, 1996;  there was
no Nationar  recovery in the quarter  ended  December  31,  1997.  In  addition,
somewhat  offsetting the impact of the Nationar  recovery was an increase in net
securities  gains of $19,000  and an increase  of $9,000,  or 15.3%,  in service
charge income principally due to the Company's growth in checking accounts.

Non-Interest Expense
--------------------

Non-interest   expense  for  the  three  months  ended  December  31,  1997  was
$1,348,000,  an increase of $177,000,  or 15.1%, over the comparable period last
year. Increases in personnel costs, advertising and net occupancy were partially
offset by reductions in professional fees.

Salaries and employee benefits for the quarter ended December 31, 1997 increased
$176,000,  or 26.5%,  compared to the three  months  ended  December  31,  1996,
principally  from  personnel  costs related to a new full service branch and the
increased cost of the Company's  stock based  compensation  plans.  Furthermore,
results  for the  quarter  ended  December  31,  1996,  had  benefitted  from an
insurance refund,  which reduced that quarter's medical insurance costs. In that
quarter,  the  Company  changed  insurance  carriers  and  received  a refund of
approximately  $80,000 due to favorable  claims  experience.  There were no such
refunds in the quarter ended December 31, 1997. Stock based  compensation  costs
(ESOP and MRP plans) increased  $59,000,  or 38.1%. ESOP compensation  increased
$25,000,  or  33.3%,  due to an  increase  in the  average  market  price of the
Company's common stock. The cost of its MRP plan increased $34,000,  principally
because  the plan  was  outstanding  for only a  portion  of the  quarter  ended
December 31, 1996, as the plan was approved at a Special Meeting of Stockholders
on October 24, 1996, and became effective  thereafter.  Advertising was $50,000,
an increase  of 28.2%,  as the Company  ran  several  promotional  campaigns  to
increase its non-interest  bearing deposits,  and to promote its new branch. Net
occupancy  was  $82,000,  an  increase  of  17.1%,  as the  Company  experienced
increased  costs  relating  to the  new  branch,  as  well  as  depreciation  of
renovations at another branch office.

                                       14

<PAGE>


Professional  fees were  $37,000,  a decrease  of  $25,000,  or 40.3%,  from the
comparable  quarter  last  year.  The  decrease  was due  principally  to  costs
associated with the Special Meeting of Stockholders held during the three months
ended  December  31,  1996;  there was no such meeting in the three months ended
December 31, 1997.

Income Tax Expense
------------------

Income tax expense for the three months ended December 31, 1997, was $597,000, a
decrease of $109,000, or 15.4%, from the comparable period last year. The change
was principally due to the 12.2% decrease in income before taxes.  The Company's
effective tax rates for the three months ended December 31, 1997 and 1996,  were
38.39% and  39.84%,  respectively.  The  decrease  in rate was  principally  the
Company's  purchase  of tax  advantaged  securities,  primarily  bank  qualified
municipal securities and preferred stock.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity  is the ability to generate  cash flows to meet  present and  expected
future funding needs.  Management monitors the Company's liquidity position on a
daily basis to evaluate its ability to meet  expected and  unexpected  depositor
withdrawals and to make new loans and or investments.  The Company is seeking to
reduce its high level of  liquidity,  but continues to manages its balance sheet
so there has been no need for unanticipated sales of assets.

The primary sources of funds for operations are deposits, short-term borrowings,
and principal and interest  payments on loans,  mortgage  backed  securities and
other securities available for sale.

Net cash used by  operating  activities  was $2.2  million for the three  months
ended December 31, 1997, a decrease of $2.4 million from the comparable  quarter
last year.  The change was  principally  the  reduction in accrued  expenses and
other  liabilities  caused by a decrease  in official  bank checks  outstanding.
Official bank checks decreased  principally as a result of the Company's payment
of real estate taxes for mortgage  borrowers  using  escrowed funds at September
30,  1997,  and is somewhat  offset by an increase in cash flows from  financing
activities,  as the Company  experienced  a net increase in advance  payments by
borrowers  for taxes and insurance of $1.3 million due to a change in school tax
due dates.

Investing  activities  used $2.8 million in the three months ended  December 31,
1997,  as the Company  continued  to leverage  its balance  sheet by  increasing
earning  assets,  principally  $1.8  million in  securities,  and $.9 million in
loans.  Financing  activities  provided $6.5 million, as the Company experienced
increases  in deposits,  short-term  borrowings  and  advances by borrowers  for
taxes,  somewhat  offset by the  purchase of treasury  stock and payment of cash
dividends on its common stock.  For more details  concerning  the Company's cash
flows, see "Consolidated Statements of Cash Flows.

An  important  source  of the  Company's  funds  is the  Bank's  core  deposits.
Management  believes that a substantial  portion of the Bank's $202.1 million of
deposits  are  a  dependable   source  of  funds  due  to  long  term   customer
relationships.  The Company does not currently use brokered deposits as a source
of funds,  and at December 31, 1997,  deposit accounts having balances in excess
of $100,000 totaled only $21.6 million or less than 10.7% of total deposits. The
Bank is required to maintain  

                                       15
<PAGE>

minimum  levels  of  liquid  assets  as  defined  by the  OTS  regulations.  The
requirement,  which maybe varied by the OTS depending  upon economic  conditions
and  deposit  flows,  is based upon a  percentage  of  deposits  and  short-term
borrowings. The OTS required minimum liquidity ratio is currently 4% and for the
month of December 1997, the Bank exceeded that, maintaining an average liquidity
ratio of 16.0%.

The Company  anticipates  that it will have sufficient funds to meet its current
commitments.  At December 31,  1997,  the Company had  commitments  to originate
loans of $2.1 million. In addition,  the Company had undrawn commitments of $2.3
million on home equity and other lines of credit. Certificates of deposits which
are scheduled to mature in one year or less at December 31, 1997,  totaled $69.6
million,  and  management  believes that a significant  portion of such deposits
will remain with the Company.

Although there are no minimum capital ratio  requirements  for the Company,  the
Bank is required to maintain minimum regulatory capital ratios. The following is
a summary of the Bank's actual capital  amounts and ratios at December 31, 1997,
compared to the OTS minimum capital requirements:

                                   Actual                    Minimum
                            -------------------        --------------------
                             Amount        %            Amount           %
                            -------      ------        -------         ----
                                          (Dollars in Thousands)

Tangible Capital            $59,969       20.6%        $4,356          1.5%
Core Capital                 59,969       20.6          8,713          3.0
Risk Based Capital           61,112       61.0          8,014          8.0

In November  1997,  the  Company  received a  regulatory  waiver from the OTS to
repurchase  up to 5% or 241,117  shares of its  common  stock  outstanding.  The
Company,  as of December  31,  1997,  had  repurchased  51,000  shares under the
current  program,  which expires April 18, 1998. The Company itself has adequate
resources to repurchase the remaining  190,117 shares without dividends from the
Bank. In addition,  as of December 31, 1997, the Bank could, after notifying the
OTS in writing, pay dividends to the Company of approximately $27.4 million.

Impact of Year 2000
-------------------

The  Company's  progress  on its Year  2000  issue is  continuing.  The  Company
received additional guidance from its primary service provider, including a cost
estimate to be passed  along to the Company as a  "validation"  fee. The testing
program appears to be quite extensive and will involve  end-to-end  testing.  In
addition,  the Company has now  determined  that some of its modules will not be
supported  for Year 2000  compliance  and will  require  migrating  to  upgraded
versions.  Upgraded  programs are  available,  but management has not negotiated
what these  costs will be,  however,  it does not expect  these  costs to have a
significant impact on its financial condition or results of operations.


                                       16
<PAGE>

               TABLE #1 AVERAGE BALANCES, INTEREST, YIELD AND RATE

     The following table presents,  for the periods indicated,  the total dollar
     amount of interest  income  from  average  interest-earning  assets and the
     resultant   yields,   as  well  as  the   interest   expense   on   average
     interest-bearing  liabilities,  expressed  both in dollars  and rates.  Tax
     equivalent adjustments principally on municipal securities totalled $19,000
     in the three  month  period  ended  December  31,  1997;  there were no tax
     equivalent  adjustments in the comparable  period. All average balances are
     daily average balances.  Non-accruing loans have been included in the table
     as loans  receivable with interest earned  recognized on a cash basis only.
     Securities include both the securities available for sale portfolio and the
     held to maturity portfolio, other than mortgage backed securities which are
     shown separately.  Mortgage backed  securities are primarily  classified as
     available  for sale.  Securities  available for sale are shown at amortized
     cost.

<TABLE>
<CAPTION>
                                                                             THREE MONTH PERIODS ENDED
                                                ------------------------------------------------------------------------------------
                                                           December 31, 1997                           December 31, 1996
                                                --------------------------------------        --------------------------------------
                                                Average                                        Average
                                                Balance       Interest       Yield/Rate        Balance      Interest     Yield/Rate
                                                -------       --------       ----------        -------      --------     ----------
                                                                          (Dollars in Thousands)
Interest-Earning Assets
<S>                                             <C>           <C>                 <C>         <C>             <C>          <C>  
  Loans receivable, net                         $126,423      $  2,551            8.07%       $125,623        $2,543       8.10%
  Mortgage-backed securities                      86,176         1,514            7.03%         52,629           931       7.08%
  Other securities                                69,588         1,216            6.99%         63,109         1,053       6.67%
  Federal funds sold and other                        44             1            9.02%         33,483           450       5.33%
                                                --------      --------                        --------        ------    
  Total interest-earning assets                  282,231         5,282            7.49%        274,844         4,977       7.24%
                                                              --------                                        ------
Allowance for loan losses                         (1,876)                                       (1,813)
Other assets, net                                  8,755                                         6,489
                                                --------                                      --------
  Total Assets                                  $289,110                                      $279,520
                                                ========                                      ========
Interest-Bearing Liabilities
  Savings deposits                              $ 78,230      $    682            3.46%       $ 82,102          $724       3.50%
  Money market                                     6,925            56            3.21%          7,829            67       3.40%
  Now deposits                                    10,984            68            2.46%          9,215            57       2.45%
  Certificates of deposit                         99,940         1,425            5.66%         92,058         1,279       5.51%
  Short-term borrowings                           12,705           184            5.75%             --
  Escrow and other                                 1,570            10            2.53%          1,550             9       2.30%
                                                --------      --------                        --------        ------

  Total interest-bearing liabilities             210,354         2,425            4.57%        192,754         2,136       4.40%
                                                              --------                                        ------
Non-interest bearing                               4,571                                         3,578
Other liabilities                                  2,751                                         2,374
Shareholders' equity                              71,434                                        80,814
                                                  ------                                      --------
  Total Equity and Liabilities                  $289,110                                      $279,520
                                                ========                                      ========

  Net interest income                                         $  2,857                                        $2,841
                                                              ========                                        ======
  Net interest rate spread                                                        2.92%                                    2.84%
                                                                                  ====                                     ====
  Net yield on average
    interest-earning assets                                                       4.02%                                    4.10%
                                                                                  ====                                     ====
  Average interest earning
    assets to average interest
      bearing liabilities                        134.17%                                        142.59%
                                                =======                                       ========
  Earning Assets/Total Assets                     97.62%                                         98.33%
                                                =======                                       ========
</TABLE>


                                                                 17

<PAGE>

                         CATSKILL FINANCIAL CORPORATION
                                    FORM 10-Q

                                DECEMBER 31, 1997

================================================================================

                           PART II - OTHER INFORMATION

Item 1.   Legal Proceedings

In the  ordinary  course of  business,  the  Company and the Bank are subject to
legal actions which involve  claims for monetary  relief.  Management,  based on
advice of counsel,  does not believe  that any  currently  known legal  actions,
individually or in the aggregate will have a material effect on its consolidated
financial condition or results of operation.


Item 6.   Exhibits and Reports on Form 8-K

(a) Exhibits
          (11) Computation of Net Income per Common Share 
          (27) Financial Data Schedule (included only in EDGAR filing)




                                       18
<PAGE>


                                   SIGNATURES


Pursuant  to the  requirements  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.


                                            CATSKILL FINANCIAL CORPORATION


Date: February 13, 1998                     /s/ Wilbur J. Cross
                                            ------------------------------------
                                                Wilbur J. Cross
                                                Chairman of the Board, President
                                                and Chief Executive Officer
                                                (Principal Executive Officer)



Date: February 13, 1998                     /s/ David J. DeLuca
                                            ------------------------------------
                                                David J. DeLuca
                                                Chief Financial Officer
                                                (Principal Financial and
                                                Accounting Officer)




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