<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC 20549
                             --------------------

                                   FORM 10-Q
(Mark One)

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

     For the quarterly period ended December 31, 1998

                                      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 0-27716

                         YONKERS FINANCIAL CORPORATION
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)


        Delaware                                          13-3870836
--------------------------------------------------------------------------------
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                        Identification Number)


                  6 EXECUTIVE PLAZA, YONKERS, NEW YORK  10701
--------------------------------------------------------------------------------
                   (Address of principal executive offices)

Registrant's telephone number, including area code: (914) 965-2500

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.

Classes of Common Stock          Number of Shares Outstanding, December 31, 1998
-----------------------          -----------------------------------------------
    $0.01 Par Value                                    2,726,239
<PAGE>
 
                         YONKERS FINANCIAL CORPORATION
                                   FORM 10-Q
                   QUARTERLY PERIOD ENDED DECEMBER 31, 1998

<TABLE> 
<CAPTION> 
                                                                           Page
                                                                          Number
                                                                          ------
<S>                                                                       <C>  
                        PART I.  FINANCIAL INFORMATION
 
Item 1.   Financial Statements (Unaudited)
          Consolidated Balance Sheets at December 31, 1998 and  
            September 30, 1998..........................................      1
                                                                           
          Consolidated Statements of Income for the Three Ended December   
            31, 1998 and 1997...........................................      2
                                                                           
          Consolidated Statement of Changes in Stockholders' Equity        
            for the Three Months Ended December 31, 1998................      3
                                                                           
          Consolidated Statements of Cash Flows for the Three Months       
            Ended December 31, 1998 and 1997............................      4
                                                                           
          Notes to Consolidated Financial Statements....................      5
                                                                           
Item 2.   Management's Financial Condition and                             
          Results of Operations.........................................      8
                                                                           
Item 3.   Quantitative and Qualitative Disclosures About                   
           Market Risk..................................................     18
                                                                           
                         PART II.  OTHER INFORMATION  
                                                                           
Item 1.   Legal Proceedings............................................      19
Item 2.   Changes in Securities........................................      19
Item 3.   Defaults Upon Senior Securities..............................      19
Item 4.   Submission of Matters to a Vote of Security Holders..........      19
Item 5.   Other Information............................................      19
Item 6.   Exhibits and Reports on Form 8-K.............................      19
          Signature Page...............................................      20
</TABLE>

                                       1
<PAGE>
 
                 YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE> 
<CAPTION> 

                                                                                DECEMBER 31,         SEPTEMBER 30,
                                                                                    1998                 1998
                                                                             ------------------    -----------------
<S>                                                                          <C>                   <C>   
ASSETS                                                                                            
Cash and cash equivalents:                                                                        
    Cash and due from banks                                                        $  8,332             $  3,195
    Short-term investments                                                            4,507                1,000
                                                                                   --------             --------
         Total cash and cash equivalents                                             12,839                4,195
                                                                                   --------             -------- 
Securities:                                                                                           
     Available for sale, at fair value (amortized cost of $124,370                                    
       at December 31, 1998 and $123,317 at September 30, 1998)                     125,410              125,225
     Held to maturity, at amortized cost (fair value of $34,621                                       
       at December 31, 1998 and $43,948 at September 30, 1998)                       34,385               43,303
                                                                                   --------             --------
          Total securities                                                          159,795              168,528
                                                                                   --------             --------    
Real estate mortgage loans held for sale, at lower of cost or market value            2,708               13,334
                                                                                   --------             --------
Loans receivable, net:                                                                                
     Real estate mortgage loans                                                     189,014              177,783
     Consumer and commercial business loans                                           7,538                7,544
     Allowance for loan losses                                                       (1,376)              (1,302)
                                                                                   --------             --------
          Total loans receivable, net                                               195,176              184,025
                                                                                   --------             --------            
Accrued interest receivable                                                           2,554                2,791
Federal Home Loan Bank ("FHLB") stock                                                 6,426                6,426
Office properties and equipment, net                                                  1,519                1,258
Other assets                                                                          1,952                2,467
                                                                                   --------             --------         
          Total assets                                                             $382,969             $383,024
                                                                                   ========             ========
                                                                                                      
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                  
Liabilities:                                                                                          
     Deposits                                                                      $248,577             $231,181
     Securities repurchase agreements                                                75,612              107,790
     FHLB advances                                                                   15,000                   --
     Other liabilities                                                                1,853                2,251
                                                                                   --------             --------
          Total liabilities                                                         341,042              341,222
                                                                                   --------             --------
                                                                                                      
Commitments and contingencies                                                                         
                                                                                                      
Stockholders' equity:                                                                                 
     Preferred stock (par value $0.01 per share; 100,000                                              
        shares authorized; none issued or outstanding)                                   --                   --
     Common stock (par value $0.01 per share; 4,500,000                                               
        shares authorized; 3,570,750 shares issued)                                      36                   36
     Additional paid-in capital                                                      35,083               35,044
     Unallocated common stock held by employee stock                                                  
        ownership plan ("ESOP")                                                      (2,071)              (2,142)
     Unamortized awards of common stock under  management                                             
        recognition plan ("MRP")                                                       (776)                (846)
     Treasury stock, at cost ( 844,511 shares)                                      (13,189)             (13,189)
     Retained income, substantially restricted                                       22,220               21,754
     Accumulated other comprehensive income (note 2)                                    624                1,145
                                                                                   --------             --------
          Total stockholders' equity                                                 41,927               41,802
                                                                                   --------             --------
          Total liabilities and stockholders' equity                               $382,969             $383,024
                                                                                   ========             ========
</TABLE> 
 
         See accompanying notes to consolidated financial statements.

                                       2
<PAGE>
 
                 YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
                       CONSOLIDATED STATEMENTS OF INCOME
                                  (UNAUDITED)
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE> 
<CAPTION> 
                                                                        FOR THE THREE MONTHS
                                                                         ENDED DECEMBER 31,
                                                                    ----------------------------
                                                                      1998                1997
                                                                    --------            --------
<S>                                                                 <C>                 <C>        
Interest and dividend income:                                                    
   Loans                                                            $  3,759            $  3,081
   Securities                                                          2,679               2,864
   Other earning assets                                                  183                 109
                                                                    --------            --------
     Total interest and dividend income                                6,621               6,054
                                                                    --------            --------      
                                                                                 
Interest expense:                                                                
   Deposits                                                            2,381               2,186
   Securities repurchase agreements                                    1,248                 801
   FHLB advances                                                         136                  44
                                                                    --------            --------    
     Total interest expense                                            3,765               3,031
                                                                    --------            -------- 
                                                                                 
       Net interest income                                             2,856               3,023
                                                                                 
Provision for loan losses                                                 75                 175
                                                                    --------            --------         
       Net interest income after provision for loan losses             2,781               2,848
                                                                    --------            -------- 
                                                                                 
Non-interest income:                                                             
   Service charges and fees                                              261                 221
   Net gain on sales of real estate mortgage                                     
      loans held for sale                                                137                 136
   Net gain (loss) on sales of securities                                  3                 (15)
   Other                                                                   9                  15
                                                                    --------            --------         
      Total non-interest income                                          410                 357
                                                                    --------            --------      
                                                                                 
Non-interest expense:                                                            
   Compensation and benefits                                           1,156                 992
   Occupancy and equipment                                               228                 212
   Data processing service fees                                          150                 131
   Federal deposit insurance costs                                        33                  32
   Other                                                                 494                 462
                                                                    --------            --------
      Total non-interest expense                                       2,061               1,829
                                                                    --------            --------        
                                                                                 
        Income before income tax expense                               1,130               1,376
                                                                                 
Income tax expense                                                       463                 568
                                                                    --------            --------
                                                                                 
       Net income                                                   $    667            $    808
                                                                   =========            ========
                                                                                 
Earnings per common share (note 3):                                              
       Basic                                                           $0.27               $0.30
       Diluted                                                          0.27                0.29
                                                                   =========            ========
</TABLE> 
 
         See accompanying notes to consolidated financial statements.

                                       3
<PAGE>
 
                 YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                  (UNAUDITED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                          UNALLOCATED  UNAMORTIZED
                                                            COMMON      AWARDS OF                        ACCUMULATED
                                               ADDITIONAL    STOCK       COMMON                             OTHER          TOTAL
                                       COMMON   PAID-IN      HELD         STOCK    TREASURY   RETAINED  COMPREHENSIVE  STOCKHOLDERS'
                                       STOCK    CAPITAL     BY ESOP     UNDER MRP   STOCK      INCOME      INCOME         EQUITY
                                       -----    -------    --------     ---------   -----      ------      ------         ------
<S>                                    <C>     <C>        <C>          <C>         <C>        <C>       <C>            <C>
Balance at September 30, 1998           $ 36    $ 35,044   $ (2,142)     $ (846)   $(13,189)  $ 21,754   $  1,145        $41,802

  Net income                              --          --          --         --          --        667         --            667
  Dividends paid ($0.07 per share)        --          --          --         --          --       (201)        --           (201)   
  Amortization of MRP awards              --          --          --         70          --         --         --             70    
  Tax benefits from vested                                                                                                          
     MRP awards                           --          11          --         --          --         --         --             11    
  ESOP shares released for                                                                                                          
     allocation (7,143 shares)            --          28          71         --          --         --         --             99    
  Decrease in net unrealized gain on                                                                                                
     available-for-sale securities,                                                                                                 
     net of tax                           --          --          --         --          --         --       (521)          (521)   

                                        ------  ---------  ---------   ---------- ----------  --------- ---------      ---------    
Balance at September 30, 1996            $ 36    $ 35,083  $ (2,071)     $ (776)   $(13,189)  $ 22,220    $   624        $41,927    
                                        ======  =========  =========   ========== ==========  ========= =========      =========
</TABLE> 

See accompanying notes to consolidated financial statements.

                                       4
<PAGE>
 
                 YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                                (IN THOUSANDS)
<TABLE> 
<CAPTION> 
                                                                                                    FOR THE THREE MONTHS
                                                                                                     ENDED DECEMBER 31,
                                                                                                   -----------------------  
                                                                                                    1998             1997
                                                                                                   -----             -----
<S>                                                                                                <C>              <C>
Cash flows from operating activities:
 Net income                                                                                        $    667         $    808
 Adjustments to reconcile net income to net cash provided
   by operating activities:
   Provision for loan losses                                                                             75              175
   ESOP and MRP expense                                                                                 169              209
   Depreciation and amortization expense                                                                 80               58
   Amortization of deferred fees, discounts and premiums, net                                            80              (33)
   Net gain on sales of real estate mortgage loans held for sale                                       (137)            (136)
   Net (gain) loss on sales of securities                                                                (3)              15
   Other adjustments, net                                                                              (747)             (94)
                                                                                                    -------          -------
     Net cash provided by operating activities                                                        1,678            1,002
                                                                                                    -------          -------
Cash flows from investing activities:
 Purchases of available-for-sale securities                                                         (17,167)         (30,833)
 Proceeds from principal payments, maturities and calls of securities:
   Available-for-sale                                                                                15,880            3,214
   Held-to-maturity                                                                                   8,918            6,539
 Proceeds from sales of available-for-sale securities                                                   102            5,670
 Disbursements for loan originations                                                                (32,545)         (30,029)
 Principal collections on loans                                                                      11,871            5,082
 Proceeds from sales of loans                                                                        20,088           22,877
 Purchase of FHLB stock                                                                                  --             (397)
 Other investing cash flows                                                                            (198)            (107)
                                                                                                    -------          -------     
     Net cash provided by (used in) investing activities                                              6,949          (17,984)
                                                                                                    -------          -------
Cash flows from financing activities:
 Net increase in deposits                                                                            17,396            8,949
 Net increase (decrease) in borrowings with
   original terms of three months or less:
    Securities repurchase agreements                                                                (32,178)          (1,309)
    FHLB advances                                                                                    15,000           (6,000)
 Proceeds from longer-term securities repurchase agreements                                              --           15,000
 Dividends paid                                                                                        (201)            (166)
 Other financing cash flows                                                                              --              870
                                                                                                    -------          -------
     Net cash provided by financing activities                                                           17           17,344
                                                                                                    -------          -------
 
Net  increase in cash and cash equivalents                                                            8,644              362
Cash and cash equivalents at beginning of period                                                      4,195            3,593
                                                                                                    -------          -------
 
Cash and cash equivalents at end of period                                                         $ 12,839         $  3,955
                                                                                                     ------           ------ 
 Supplemental information:
 Interest paid                                                                                     $  3,659         $  2,977
 Income taxes paid                                                                                       --              110
                                                                                                    ========          ====== 
</TABLE> 
 
         See accompanying notes to consolidated financial statements.

                                       5
<PAGE>
 
                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

(1)  Basis of Presentation
     ---------------------

     Yonkers Financial Corporation (the "Holding Company") was incorporated
under the laws of the State of Delaware and on April 18, 1996 became the savings
and loan holding company of The Yonkers Savings and Loan Association, FA (the
"Association") in connection with the Association's conversion from a federally
chartered mutual savings and loan association to a federally chartered stock
savings and loan association (the "Conversion"). Concurrent with the Conversion,
the Holding Company sold 3,570,750 shares of its common stock in a subscription
and community offering at a price of $10 per share, resulting in net proceeds of
$34.6 million. The assets of the Holding Company consist of the stock of the
Association, certain short-term and other investments, and a loan to its
Employee Stock Ownership Plan (the "ESOP"). Collectively, the Holding Company
and the Association are referred to herein as the "Company".

     The unaudited consolidated financial statements included herein have been
prepared in conformity with generally accepted accounting principles.  In the
opinion of management, the unaudited consolidated financial statements include
all adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the financial position and results of operations for the interim
periods presented.  The results of operations for the three months ended
December 31, 1998 are not necessarily indicative of the results of operations
which may be expected for the fiscal year ending September 30, 1999.

     Certain financial information and footnote disclosures normally included in
annual financial statements prepared in conformity with generally accepted
accounting principles have been omitted pursuant to the rules and regulations of
the Securities and Exchange Commission.  The unaudited interim consolidated
financial statements presented herein should be read in conjunction with the
annual consolidated financial statements of the Company as of and for the fiscal
year ended September 30, 1998, included in the Form 10-K.

(2)  Comprehensive Income
     --------------------

     During the quarter ended December 31, 1998, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income (and its components) in financial statements. The standard does not,
however, specify when to recognize or how to measure items that make up
comprehensive income. Comprehensive income represents net income and certain
amounts reported directly in stockholders' equity, such as the net unrealized
gain or loss on securities available for sale. While 

                                       6
<PAGE>
 
SFAS No. 130 does not require a specific reporting format, it does require that
an enterprise report an amount representing total comprehensive income for the
period. Total comprehensive income for the quarter ended December 31, 1998 was
$146,000, consisting of $667,000 in net income less a net decrease of $521,000
in the after-tax net unrealized gain on available-for-sale securities. For the
quarter ended December 31, 1997, total comprehensive income of $941,000
consisted of net income of $808,000 plus a net increase of $133,000 in the after
tax net unrealized gain on available-for-sale securities.

(3)  Earnings Per Share
     ------------------

     The Company reports both basic and diluted earnings per share ("EPS") in
accordance with SFAS No. 128, "Earnings per Share".  Basic EPS excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.  Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock (such as stock options) were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity.  Diluted EPS is computed by dividing
net income by the weighted average number of common shares outstanding for the
period plus common-equivalent shares computed using the treasury stock method.
Unallocated ESOP shares that have not been committed to be released to
participants are excluded from outstanding shares in computing both basic and
diluted EPS.

     The following is a summary of the number of shares utilized in the
Company's EPS calculations for the three months ended December 31, 1998 and
1997. For purposes of computing basic EPS, net income applicable to common stock
equaled net income for both periods presented.

<TABLE>
<CAPTION>
                                                                       FOR THE THREE MONTHS
                                                                         ENDED DECEMBER 31,
                                                                    --------------------------       
                                                                      1998               1997
                                                                    -------              -----
                                                                             (IN THOUSANDS)
     <S>                                                            <C>                <C>    
     Weighted average common shares outstanding
       for computation of basic EPS (1)                               2,447              2,692
     Common-equivalent shares due to the dilutive effect of
       stock options and MRP awards (2)                                  18                 91
                                                                    -------            -------
     Weighted average common shares for
       computation of diluted EPS                                     2,465              2,783
                                                                    =======            =======
</TABLE>

     (1) Excludes unvested MRP awards and unallocated ESOP shares that have
         not been committed to be released.
     (2) Computed using the treasury stock method.

                                       7
<PAGE>
 
PART I. ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 
OPERATIONS

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 Litigation
Reform Act of 1995.  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 regional and
national economic conditions, changes in levels of market interest rates, credit
risks of lending activities, and competitive and regulatory factors, could
affect the Company's financial performance and could cause actual results 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.

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1998 AND SEPTEMBER 30, 1998

     Total assets at December 31, 1998 remained relatively stable at $383.0
million, representing a slight decrease of $55,000 from September 30, 1998.
Securities at December 31, 1998 decreased $8.7 million to $159.8 million from
$168.5 million at September 30, 1998, while cash and cash equivalents increased
$8.6 million to $12.8 million at December 31, 1998 from $4.2 million at
September 30, 1998. Overall, total loans (loans receivable and mortgage loans
held for sale) increased $525,000 to $197.8 million at December 31, 1998 from
$197.3 million at September 30, 1998. The loan growth during the quarter
represents loan originations of $32.5 million, offset by principal collections
of $11.9 million and loans sold of $20.1 million.

     Deposit liabilities increased $17.4 million to $248.6 million at December
31, 1998 from $231.2 million at September 30, 1998 due to the opening of an in-
store branch in the current quarter as well as aggressive cross-selling
programs. Borrowings decreased $17.2 million to $90.6 million at December 31,
1998 from $107.8 million at September 30, 1998. Funds from deposit growth were
used to repay borrowings.

                                       8
<PAGE>
 
     Stockholders' equity increased $125,000, from $41.8 million at September
30, 1998 to $41.9 million at December 31, 1998. The increase is primarily
attributable to net income retained after dividends of $466,000, a combined
increase of $180,000 relating to the ESOP and the management recognition plan,
partially offset by a decrease of $521,000 in the after-tax net unrealized gain
on available-for-sale securities. The ratio of stockholders' equity to total
assets increased to 10.95% at December 31, 1998 from 10.91% at September 30,
1998. Book value per share (computed based on total shares issued less treasury
shares) was $15.38 at December 31, 1998, compared to $15.33 at September 30,
1998. See "Liquidity and Capital Resources" for information regarding the
Association's regulatory capital amounts and ratios.

ANALYSIS OF NET INTEREST INCOME

     The following table sets forth the Company's average balance sheets,
average yields and costs (on an annualized basis), and certain other information
for the three months ended December 31, 1998 and 1997. The yields and costs were
derived by dividing interest income or expense by the average balance of assets
or liabilities, respectively, for the periods shown. Substantially all average
balances were computed based on daily balances. Interest income includes the
effect of deferred fees, discounts and premiums which are considered yield
adjustments.

                                       9
<PAGE>
 
<TABLE>
<CAPTION>
                                                                              FOR THE QUARTER ENDED DECEMBER 31,
                                                       ---------------------------------------------------------------------------
                                                                      1998                                     1997
                                                       -----------------------------------      ----------------------------------
                                                        AVERAGE                   AVERAGE        AVERAGE                  AVERAGE
                                                        BALANCE      INTEREST   YIELD/COST      BALANCE      INTEREST   YIELD/COST
                                                        -------      --------   ----------      -------      --------   ----------
ASSETS                                                                            (DOLLARS IN THOUSANDS)
<S>                                                     <C>          <C>        <C>             <C>          <C>        <C> 
Interest-earning assets:                                                                                      
    Loans (1)                                            $196,071       $3,759      7.67%         $142,075      $3,081      8.67%
    Mortgage-backed securities (2)                        117,877        1,863      6.32            98,687       1,744      7.07
    Other securities (2)                                   46,894          816      6.96            63,467       1,120      7.06
    Other earning assets                                   14,647          183      5.00             7,747         109      5.63
                                                          -------       ------                    --------      ------     
       Total interest-earning assets                      375,489       $6,621      7.05           311,976      $6,054      7.76
                                                                        ======                                  ======     
                                                                                                                           
Allowance for loan losses                                  (1,329)                                  (1,094)                
Non-interest-earning assets                                 8,057                                    5,607                 
                                                         --------                                 --------                 
       Total assets                                      $382,217                                 $316,489                 
                                                         ========                                 ========                 
LIABILITIES AND  STOCKHOLDERS' EQUITY                                                                                      
Interest-bearing liabilities:                                                                                              
    NOW, club and money market accounts                  $ 53,081       $  309      2.33%         $ 42,814      $  268      2.50%
    Regular savings accounts (3)                           46,410          247      2.13            45,140         283      2.51
    Savings certificate accounts                          134,118        1,825      5.44           119,635       1,635      5.47
                                                         --------       ------                    --------      ------     
       Total interest-bearing deposits                    233,609        2,381      4.08           207,589       2,186      4.21
                                                                                                                           
    Borrowings                                             97,902        1,384      5.65            57,357         845      5.89
                                                         --------       ------                    --------      ------     
       Total interest-bearing liabilities                 331,511       $3,765      4.54           264,946      $3,031      4.58
                                                                        ======                                  ======
                                                                                                                           
Non-interest-bearing liabilities                            8,864                                    7,557                 
                                                         --------                                 --------                 
       Total liabilities                                  340,375                                  272,503                 
                                                                                                                           
Stockholders' equity                                       41,842                                   43,986                 
                                                         --------                                 --------                 
       Total liabilities and stockholders' equity        $382,217                                 $316,489                 
                                                         ========                                 ========                 
Net interest income                                                     $2,856                                  $3,023     
                                                                        ======                                  ======     
Average interest rate spread (4)                                                    2.51%                                   3.18%
Net interest margin (5)                                                             3.04%                                   3.88%
Net interest-earning assets (6)                          $ 43,978                                 $ 47,030                 
                                                         ========                                 ========                 
Ratio of average interest-earning assets to average                                                                        
    interest-bearing liabilities                                                  113.27%                                 117.75%
</TABLE> 

(1)  Balances are net of deferred loan fees and construction loans in process,
     and include loans receivable and loans held for sale. Non-accrual loans are
     included in the balances.
(2)  Average balances represent amortized cost.
(3)  Includes mortgage escrow accounts.
(4)  Average interest rate spread represents the difference between the yield on
     average interest-earning assets and the cost of average interest-bearing
     liabilities.
(5)  Net interest margin represents net interest income divided by average total
     interest-earning assets.
(6)  Net interest-earning assets represents total interest-earning assets less
     total interest-bearing liabilities.
 
                                      10
<PAGE>
 
  The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities affected the Company's interest income and interest expense during
the three months ended December 31, 1998 compared to the same period in the
prior year. Information is provided in each category with respect to (i) changes
attributable to changes in volume (changes in volume multiplied by prior rate),
(ii) changes attributable to changes in rate (changes in rate multiplied by
prior volume), and (iii) the net change. The changes attributable to the
combined impact of volume and rate have been allocated proportionately to the
changes due to volume and the changes due to rate.

<TABLE>
<CAPTION>
                                                       INCREASE (DECREASE)
                                                             DUE TO                     NET
                                                   --------------------------
                                                     VOLUME            RATE           CHANGE
                                                   ---------      -----------      ----------
                                                                 (IN THOUSANDS)
<S>                                               <C>            <C>              <C>
          Interest-earning assets:
           Loans                                     $1,065            $(387)          $ 678
           Mortgage-backed securities                   316             (197)            119
           Other securities                            (288)             (16)           (304)
           Other earning assets                          87              (13)             74
                                                  ---------      -----------      ----------
                Total                                 1,180             (613)            567
                                                  ---------      -----------      ----------
          Interest-bearing liabilities:
           NOW, club and money market accounts           60              (19)             41
           Regular savings accounts                       8              (44)            (36)
           Savings certificate accounts                 199               (9)            190
           Borrowings                                   572              (33)            539
                                                  ---------      -----------      ----------
                Total                                   839             (105)            734
                                                  ---------      -----------      ----------
 
          Net change in net interest income       $     341      $      (508)     $     (167)
                                                  =========      ===========      ==========
</TABLE>


COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND
1997

  GENERAL.  Net income for the three months ended December 31, 1998 was $667,000
or basic earnings per common share of $0.27, compared to net income of $808,000
or basic earnings per common share of $0.30 for the quarter ended December 31,
1997.  Diluted earnings per common share were $0.27 for the quarter ended
December 31, 1998 compared to $0.29 for the same period in 1997.  The $141,000
decrease in net income was attributable to a $167,000 decrease in net interest
income and a $232,000 increase in non-interest expense, partially offset by a
$53,000 increase in non-interest income, a $105,000 decrease in income tax
expense and a $100,000 decrease in the provision for loan losses.

                                      11
<PAGE>
 
  NET INTEREST INCOME.  Net interest income for the three months ended December
31, 1998 was $2.9 million, a decrease of $167,000 from $3.0 million for the same
period in the prior year. The positive effect on net interest income of higher
average interest-earning assets, primarily attributable to the reinvestment of
proceeds from borrowings and deposit growth, was offset by a decline in the
average interest rate spread to 2.51% for the quarter ended December 31, 1998
from 3.18% for the same quarter last year. The decline in the average interest
rate spread primarily reflects lower asset yields from the origination of new
mortgage loans (including refinancings) in the current lower interest rate
environment, as well as the larger proportion of higher-rate borrowings to total
interest-bearing funds.  The Company's net interest margin decreased to 3.04%
for the three months ended December 31, 1998, from 3.88% a year earlier.

  INTEREST INCOME. Interest and dividend income totaled $6.6 million for the
three months ended December 31, 1998, an increase of $567,000 compared to $6.1
million for the three months ended December 31, 1997. This increase reflects the
effect of a $63.5 million increase in total average interest-earning assets
partially offset by a 71 basis point decrease in the average yield on such
assets to 7.05% for the three months ended December 31, 1998 from 7.76% for the
same period in the prior year.

  Interest income on loans increased $678,000 for the three months ended
December 31, 1998 compared to the same period in the prior year, reflecting the
effect of a $54.0 million increase in the average balance partially offset by a
100 basis point decrease in the average yield. The increase in the average
balance of loans was primarily attributable to an increase in one-to-four family
residential mortgage loans. The lower average yield reflects the repricing of
adjustable rate mortgage loans and the origination of new loans in the current
low interest rate environment.

  On a combined basis, interest and dividend income on mortgage-backed and other
securities decreased $185,000 to $2.7 million for the three months ended
December 31, 1998 from $2.9 million for the three months ended December 31,
1997. Interest on mortgage-backed securities increased by $119,000, attributable
to the effects of a $19.2 million increase in the average balance partially
offset by a 75 basis point increase in the average yield, while interest on
other securities declined by $304,000, primarily attributable to a $16.6 million
decrease in the average balance.

  Interest and dividend income on other earning assets increased $74,000,
primarily attributable to a $6.9 million increase in the average balance
partially offset by a 63 basis point decrease in the average yield.

  INTEREST EXPENSE. Interest expense totaled $3.8 million for the three months
ended December 31, 1998, an increase of $734,000 from the prior year's quarter.
Interest expense on deposits increased $195,000 compared to the same period in
the prior year, reflecting the effect of an $26.0 million increase in the
average balance partially offset by a 13 basis point decrease in the average
rate on interest-bearing deposits to 4.08% for the three months ended December
31, 1998 from 4.21% for the three months ended 

                                      12
<PAGE>
 
December 31, 1997. The increase in average interest-bearing deposits consisted
of a $14.5 million increase in average savings certificate accounts (to $134.1
million from $119.6 million), a $10.2 million increase in average NOW, club and
money market accounts (to $53.0 million from $42.8 million) and a $1.3 million
increase in average regular savings accounts (to $46.4 million from $45.1
million).

  Interest expense on borrowings increased $539,000 to $1.4 million for the
three months ended December 31, 1998 from $845,000 for the three months ended
December 31, 1997. Total borrowings averaged $97.9 million for the three months
ended December 31, 1998 at an average rate of 5.65% compared to $57.4 million
and 5.89%, respectively, for the prior-year quarter. Substantially all of this
increase was attributable to interest on borrowings under securities repurchase
agreements. See "Liquidity and Capital Resources" for a further discussion of
the Company's securities repurchase agreements.

  PROVISION FOR LOAN LOSSES. The provision in each period reflects management's
evaluation of the adequacy of the allowance for loan losses.  Factors considered
include the volume and type of lending conducted, the Company's previous loan
loss experience, the known and inherent risks in the loan portfolio, adverse
situations that may affect the borrowers' ability to repay, the estimated value
of any underlying collateral, and current economic conditions. The provision for
loan losses was $75,000 and $175,000 for the three months ended December 31,
1998 and 1997, respectively. The higher provision in the quarter ended December
31, 1997 reflected the impact of higher net charge-offs which were $98,000 for
the period, compared to $1,000 for the quarter ended December 31, 1998.  Non-
performing loans totaled $720,000 at December 31, 1998, compared to $753,000 at
September 30, 1998 and $1.4 million at December 31, 1997.  See "Asset Quality"
for a further discussion of the Company's non-performing assets and allowance
for loan losses.

  NON-INTEREST INCOME.  Non-interest income for the three months ended December
31, 1998 increased $53,000, to $410,000 from $357,000 for the comparable period
in 1997.  The increase is primarily attributable to a $40,000 increase in
service charges and fee income reflecting increases in transaction volume in
both loans and deposits.

  NON-INTEREST EXPENSE.  Non-interest expense increased $232,000 to $2.1 million
for the three months ended December 31, 1998, compared to $1.8 million for the
three months ended December 31, 1997. Compensation and benefits expense
increased $164,000 from the prior-year quarter primarily due to increased costs
relating to additional staffing in the loan department and the two in-store
branches, coupled with performance-based increases for certain staff members.
The increases of $16,000 in occupancy and equipment expense, $19,000 in data
processing service fees and $32,000 in other non-interest expense primarily
reflect increased costs associated with the establishment of an in-store branch
in December 1997 and another in October 1998.

                                      13
<PAGE>
 
  INCOME TAX EXPENSE.  Income tax expense was $463,000 for the three months
ended December 31, 1998 and $568,000 for the comparable 1997 period, reflecting
effective tax rates of 41.0% and 41.3%, respectively.

ASSET QUALITY

  Non-performing loans totaled $720,000 at December 31, 1998, down from $753,000
at September 30, 1998 and $1.4 million at December 31, 1997.  The ratio of non-
performing loans to total loans receivable was 0.37% at December 31, 1998,
compared to 0.41% at September 30, 1998 and 0.95% at December 31, 1997. The
allowance for loan losses was $1.4 million or 0.70% of total loans receivable at
December 31, 1998, compared to $1.3 million or 0.70% of total loans receivable
at September 30, 1998 and $1.2 million or 0.82% at December 31, 1997. The ratio
of the allowance for loan losses to non-performing loans was 191.11% at December
31, 1998, compared to 172.91% at September 30, 1998 and 85.97% at December 31,
1997.

  The following table sets forth certain asset quality ratios and other data at
the dates indicated:

<TABLE>
<CAPTION>
                                                    DECEMBER 31,       SEPTEMBER 30,     DECEMBER 31,
                                                       1998                1998               1997
                                                       ----                ----               ----
                                                                 (DOLLARS IN THOUSANDS)
<S>                                               <C>                 <C>                <C> 
Non-accrual loans past due ninety days or more:
  Real estate
   mortgage loans:
       One- to four-family                            $   505             $   515             $  557
       Commercial                                         201                 203                435
       Land                                                --                  --                250
       Construction                                        --                  --                 88
  Consumer loans                                           14                  35                 31
                                                  -----------         -----------        -----------
       Total                                              720                 753              1,361
Real estate owned, net                                    183                 305                269
                                                  -----------         -----------        -----------
Total non-performing assets                           $   903             $ 1,058             $1,630
                                                  ===========         ===========        ===========
 
Allowance for loan losses                             $ 1,376             $ 1,302             $1,170
                                                  ===========         ===========        ===========
 
Ratios:
  Non-performing loans to total loans receivable         0.37%               0.41%              0.95%
  Non-performing assets to total assets                  0.24                0.28               0.49
  Allowance for loan losses to:
      Non-performing loans                             191.11              172.91              85.97
      Total loans receivable                             0.70                0.70               0.82
</TABLE>

                                      14
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

  The Company's primary sources of funds are deposits and borrowings; principal
and interest payments on loans and securities; and proceeds from sales of loans
and securities.  While maturities and scheduled payments on loans and securities
provide an indication of the timing of the receipt of funds, other sources of
funds such as loan prepayments and deposit inflows are less predictable due to
the effects of changes in interest rates, economic conditions and competition.

  The main sources of liquidity for the Holding Company are net proceeds from
the sale of stock and dividends received from the Association, if any.  The main
cash flows are payments of dividends to shareholders and repurchases of the
Holding Company's common stock.

  The Association is required to maintain an average daily balance of total
liquid assets as a percentage of net withdrawable deposit accounts plus short-
term borrowings, as defined by the regulations of the Office of Thrift
Supervision. The minimum required liquidity ratio at December 31, 1998 was 4.0%,
and the Company's actual liquidity ratio was 12.8%.

  The primary investing activities of the Company are the origination of real
estate mortgage and other loans, and the purchase of mortgage-backed and other
securities.  At December 31, 1998, the Company had outstanding loan origination
commitments of $25.7 million, unadvanced home equity lines of credit of $3.4
million and undisbursed construction loans in process of $811,000.  The Company
anticipates that it will have sufficient funds available to meet its current
loan origination and other commitments.  At December 31, 1998, the Company had
the ability to obtain additional FHLB advances of approximately $79.6 million.
Certificates of deposit scheduled to mature in one year or less from December
31, 1998 totaled $94.3 million.  Based on the Company's most recent experience
and pricing strategy, management believes that a significant portion of such
deposits will remain with the Company.

  The Company's borrowings at December 31, 1998 consisted of $75.6 million in
borrowings under securities repurchase agreements and FHLB advances of $15.0
million. FHLB advances at December 31, 1998 had a weighted average interest rate
of 5.36% and a term to maturity of 9.8 years with a call date in 1.8 years.  In
the securities repurchase agreements, the Company borrows funds through the
transfer of debt securities to the FHLB of New York, as counterparty, and
concurrently agrees to repurchase the identical securities at a fixed price on a
specified date.  The Company accounts for these agreements as secured financing
transactions since it maintains effective control over the transferred
securities.  Accordingly, the transaction proceeds are recorded as borrowings
and the underlying securities continue to be carried in the Company's debt
securities portfolio.  Repurchase agreements are collateralized by the
securities sold and, in certain cases, by additional margin securities.  During
the three months ended December 31, 

                                       15
<PAGE>
 
1998, the average borrowings under these agreements amounted to $85.8 million
and the maximum month-end balance outstanding was $83.0 million.

  Additional information concerning outstanding repurchase agreements with the
FHLB of New York as of December 31, 1998 is summarized as follows:

<TABLE>
<CAPTION>
                                      REPURCHASE BORROWINGS
--------------------------------------------------------------------------------------
                                                             ACCRUED        WEIGHTED        FAIR VALUE
                                                            INTEREST        AVERAGE       OF COLLATERAL
REMAINING TERM TO FINAL MATURITY (1)         AMOUNT        PAYABLE (2)        RATE        SECURITIES (3)
-------------------------------------        ------        -----------      --------      -------------- 
                                                            (Dollars in thousands)                         
<S>                                          <C>           <C>              <C>           <C>
After 30 days but within one year              $ 9,600        $134             5.76%           $10,993
After one but within three years                13,100          10             5.80             14,867
After three but within five years               22,500         186             5.80             23,437
After five years                                30,412         205             5.47             30,832
                                               -------        ----                             -------
                                                                                         
     Total                                     $75,612        $535             5.66%           $80,129
                                               =======        ====                             =======
</TABLE>

(1) The weighted average remaining term to final maturity was approximately 5.1
ears at December 31, 1998. Certain securities repurchase agreements are callable
by the FHLB of New York, prior to the maturity date. The weighted average
remaining term to maturity, giving effect to earlier call dates, was
approximately 2.2 years at December 31, 1998.

(2) Included in other liabilities in the consolidated balance sheet.

(3) Represents the fair value of the mortgage-backed securities ($69.8 million)
and other debt securities ($10.3 million) which were transferred to the
counterparty, including accrued interest receivable of $679,000. These
securities consist of available-for-sale securities and held-to-maturity
securities with fair values of $71.5 million and $8.6 million, respectively.

  At December 31, 1998, the Company's "amount at risk" under securities
repurchase agreements was approximately $4.0 million.  This amount represents
the excess of (i) the carrying amount, or market value if higher, of the
securities transferred to the FHLB of New York plus accrued interest receivable
over (ii) the amount of the repurchase liability plus accrued interest payable.

  At December 31, 1998, the Association exceeded all of its regulatory capital
requirements with a tangible capital level of 9.47% of total adjusted assets,
which is above the required level of 1.5%; core capital of 9.47% of total
adjusted assets, which is above the required level of 3.0%; and total risk-based
capital of 27.09%, which is above the required level of 8.0%. These regulatory
capital requirements, which are applicable to the Association only, do not
consider additional capital held at the Holding Company level, and require
certain adjustments to stockholder's equity to arrive at the various capital
amounts.

                                       16
<PAGE>
 
YEAR 2000 CONSIDERATIONS

  The Company, like all companies that utilize computer technology, is facing
significant challenges associated with ensuring that its computer systems will
accurately process time-sensitive data beyond the year 1999 (the "Year 2000
Issue"). Many existing computer programs and systems were originally programmed
with six digit dates that provided only two digits to identify the calendar year
in the date field, without considering the upcoming change in the century. With
the impending millennium, these programs and computers will recognize "00" as
the year 1900 rather than the year 2000.

  Like most financial service providers, the Company and its operations may be
significantly affected by the Year 2000 Issue due to the nature of financial
information. This includes software, hardware and equipment both within and
outside the Company's direct control and with whom the Company electronically or
operationally interfaces (e.g. third-party vendors providing data processing,
information system management, maintenance of computer systems, and credit
bureau information). If computer systems are not adequately changed to identify
the year 2000, many computer applications could fail or create erroneous
results. As a result, calculations that rely on the date field information (such
as interest, payment or due dates and other operating functions) would generate
results which could be significantly misstated, and the Company could experience
a temporary inability to process transactions and engage in similar normal
business activities. In addition, under certain circumstances, failure to
adequately address the Year 2000 Issue could adversely affect the viability of
the Company's suppliers and creditors, and the creditworthiness of its
borrowers. Thus, if not adequately addressed, the Year 2000 Issue could have a
significant adverse impact on the Company's products, services and competitive
condition.

  The Company is in communication with all of its significant suppliers and
vendors to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 Issue. The Company's
data processing is performed almost entirely by a third-party vendor, including
its core mission-critical data processing systems for loans, deposits and the
general ledger.  The Company continues to take a proactive approach in
participating in the proxy testing process of the third-party vendor, which
process is following regulatory guidelines.  The Company presently believes that
with modifications to existing software and conversions to new software, the
Year 2000 Issue will be mitigated without causing a material adverse impact on
the operations of the Company. However, if such modifications and conversions
are not made, or are not completed timely, the Year 2000 Issue could have an
impact on the operations of the Company.

  The Company is also preparing a Year 2000 business resumption contingency plan
to document pre-determined actions to help the Company resume normal operations
in the event of failure of any mission-critical service and product.
Uncontrollable events, such as loss of the global power grid and telephone
service failures, will affect all companies, 

                                       17
<PAGE>
 
government and customers; these global events cannot be remedied by anyone other
than the appropriate responsible party. The Company is assuring the availability
of cash to meet potential depositor demand due to concerns about the
availability of funds as we approach the Year 2000. Contingency plans are being
developed for identified mission- critical systems in anticipation of the
possibility of unplanned system difficulties or failure of third parties to
successfully prepare for the century date change. The Company expects to
complete its contingency planning process by March 31, 1999.

  At this time, the Company does not expect the reasonably foreseeable
consequences of the Year 2000 Issue to have material adverse effects on the
Company's business, operations or financial condition.  However, the Company
cannot be certain that it will not suffer business interruptions, either due to
its own Year 2000 Issue or those of its customers or vendors or third parties
whose Year 2000 problems may make it difficult or impossible to fulfill their
commitments to the Company.  In addition, the Year 2000 Issue has many elements
and potential consequences, some of which may not be reasonably foreseeable, and
there can be no assurances that every material Year 2000 issue will be
identified and addressed or that unforeseen consequences will not arise and
possibly have a material adverse effect on the Company.

  Monitoring and managing the Year 2000 Issue will result in additional direct
and indirect costs to the Company. Direct costs include potential charges by
third-party software vendors for product enhancements, costs involved in testing
software products for Year 2000 compliance, and any resulting costs for
developing and implementing contingency plans for critical software products
which are not enhanced. Indirect costs will principally consist of the time
devoted by existing employees in monitoring software vendor progress, testing
enhanced software products and implementing any necessary contingency plans. The
Company's direct and indirect costs of addressing the Year 2000 Issue are
charged to expense as incurred. Based on the current status of the Company's
Year 2000 efforts, the costs associated with identified Year 2000 issues are not
expected to have a material effect on the results of operations or financial
condition of the Company.  Costs incurred through December 31, 1998 were not
significant.  Management estimates that remaining costs will range between
$150,000 and $200,000, which are expected to be funded with cash flow from
operations.

PART I. ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  Market risk is the potential loss from adverse changes in market prices and
rates.  The Company's market risk arises primarily from interest rate risk
inherent in its lending, investing and deposit taking activities.  The Company's
real estate loan portfolio, concentrated primarily in Westchester County, New
York, and portions of Putnam, Rockland and Dutchess Counties, New York, is
subject to risks associated with the local economy.

                                       18
<PAGE>
 
  There have been no material changes in the Company's interest rate risk
position since September 30, 1998.  Other types of market risk, such as foreign
exchange rate risk and commodity price risk, do not arise in the normal course
of the Company's business activities.


PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

  The Company is involved as plaintiff or defendant in various legal proceedings
arising in the normal course of its business.  While the ultimate outcome of
these various legal proceedings cannot be predicted with certainty, it is the
opinion of management that the resolution of these legal actions should not have
a material effect on the Company's financial position, results of operations or
liquidity.

ITEM 2.  CHANGES IN SECURITIES

  None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

  None

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

   None

ITEM 5.  OTHER INFORMATION

   None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
   (a)  Exhibits

 Exhibit No.                                                   Name
 ----------                                                    ----
  27                                             Financial Data Schedule

  (b)  Reports on Form 8-K

   None

                                       19
<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.


                               YONKERS FINANCIAL CORPORATION
                               -----------------------------
                                (Registrant)


Date:  February 12, 1999        /s/  Richard F. Komosinski
                                --------------------------
                                Richard F. Komosinski,
                                President and Chief Executive Officer
                                (Principal Executive Officer)


Date:  February 12, 1999        /s/  Joseph D. Roberto
                                -----------------------
                                Joseph D. Roberto
                                Vice President, Treasurer and
                                Chief Financial Officer
                                (Principal Financial Officer)

                                       20