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 June 30, 1999

                                       or

[X]  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                      3,938,172
       -----------------------------                    ---------------
              (Title of class)                  (outstanding at August 13, 1999)
<PAGE>

                         CATSKILL FINANCIAL CORPORATION
                                    FORM 10-Q
                                  June 30, 1999




INDEX
PART I      FINANCIAL INFORMATION                                           Page
------      ---------------------                                           ----

Item 1.     Consolidated Interim Financial Statements
            Consolidated Statements of Financial Condition as of
            June 30, 1999 (Unaudited) and September 30, 1998..............     1
            Consolidated Statements of Income for the three months and
            nine months ended June 30, 1999 and 1998 (Unaudited)..........     2
            Consolidated Statements of Changes in Shareholders' Equity
            for the nine months ended June 30, 1999 and 1998
            (Unaudited)...................................................     3
            Consolidated Statements of Cash Flows for the nine months
            ended June 30, 1999 and 1998 (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
Item 3.     Quantitative and Qualitative Disclosures about Market Risk....    20

PART II.    OTHER INFORMATION
--------    -----------------

Item 1.     Legal Proceedings.............................................    23
Item 2.     Changes in Securities.........................................    23
Item 3.     Default on Senior Securities..................................    23
Item 4.     Submission of Matters to a Vote of Security Holders...........    23
Item 5.     Other Information.............................................    23
Item 6.     Exhibits and Reports on Form 8-K..............................    23

            Signatures....................................................    24

<PAGE>
<TABLE>
<CAPTION>
                              CATSKILL FINANCIAL CORPORATION
                      Consolidated Statements of Financial Condition
                             (In thousands, except share data)


                             Assets                  June 30, 1999     September 30, 1998
                             ------                  --------------    ------------------
                                                       (Unaudited)
<S>                                                     <C>                <C>
Cash and due from banks                                 $   3,407          $   2,795
Securities available for sale, at fair value              167,706            164,983
Investment securities, at amortized cost:
(Estimated fair value of $2,106 at
September 30, 1998)                                          --                2,060
Stock in Federal Home Loan Bank of NY, at cost              2,055              1,954
Loans receivable, net                                     145,834            137,785
Corporate owned life insurance                             10,250               --
Accrued interest receivable                                 2,656              2,398
Premises and equipment, net                                 2,846              2,522
Real estate owned                                              32                 53
Other assets                                                  256                202
                                                        ---------          ---------
Total Assets                                            $ 335,042          $ 314,752
                                                        =========          =========

                                  Liabilities and
                                Shareholders' Equity
Liabilities:
Deposits:
Non-interest bearing                                    $   8,111          $   6,009
Interest bearing                                          211,968            203,968
                                                        ---------          ---------
Total Deposits                                            220,079            209,977
Short-term borrowings                                      21,100              6,840
Long-term borrowings                                       25,000             25,000
Advance payments by borrowers for taxes and
insurance                                                   2,543                673
Accrued interest payable                                      307                288
Official bank checks                                        1,178              1,986
Accrued expenses and other liabilities                        451              2,157
                                                        ---------          ---------
Total Liabilities                                       $ 270,658          $ 246,921
                                                        ---------          ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                              CATSKILL FINANCIAL CORPORATION
                      Consolidated Statements of Financial Condition
                             (In thousands, except share data)


                                                    June 30, 1999     September 30, 1998
                                                    --------------    ------------------
                                                     (Unaudited)
<S>                                                     <C>                <C>
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 June 30, 1999 and September 30, 1998                        57                 57
Additional paid-in capital                                 55,022             54,974
Retained earnings, substantially restricted                39,326             37,374
Common stock acquired by ESOP                              (3,867)            (3,981)
Unearned management recognition plan (MRP)                 (1,086)            (1,433)
Treasury stock, at cost (1,505,196 shares at
June 30, 1999 and 1,328,416 shares at
September 30, 1998)                                       (24,085)           (21,223)
Accumulated other comprehensive income (loss)                (983)             2,063
                                                        ---------          ---------
Total Shareholders' Equity                                 64,384             67,831
                                                        ---------          ---------
Total Liabilities and Shareholders' Equity              $ 335,042          $ 314,752
                                                        =========          =========

</TABLE>
         See  accompanying  notes to unaudited  consolidated  interim  financial
statements.
<PAGE>
<TABLE>
<CAPTION>
                                                CATSKILL FINANCIAL CORPORATION
                                               Consolidated Statements of Income
                                        (In thousands, except share and per share data)


                                                            THREE MONTHS ENDED                         NINE MONTHS ENDED
                                                                   June 30,                                  June 30,
                                                                   --------                                  --------
                                                         1999                  1998                1999                 1998
                                                       ----------          -----------          ---------            --------
                                                                 (Unaudited)                               (Unaudited)
<S>                                                    <C>                  <C>                 <C>                 <C>
Interest and dividend income:
     Loans                                             $   2,801            $   2,603           $   8,343           $    7,702
     Securities available for sale
         Taxable                                           1,992                2,269               5,941                7,188
         Non-taxable                                         570                  337               1,598                  566
     Investment securities held to maturity                   --                   48                  43                  225
     Federal funds sold and other                              1                    1                   5                    5
     Stock in Federal Home Loan Bank of NY                    33                   36                 100                  101
                                                       ---------            ---------           ---------           ----------
          Total interest and dividend income               5,397                5,294              16,030               15,787

Interest expense:
     Deposits                                              2,112                2,213               6,456                6,642
     Short-term borrowings                                   124                  220                 304                  548
     Long-term borrowings                                    325                   74                 976                  132
                                                       ---------            ---------           ---------           ----------
          Total interest expense                           2,561                2,507               7,736                7,322
                                                       ---------            ---------           ---------           ----------
Net interest income                                        2,836                2,787               8,294                8,465

Provision for loan losses                                     50                   45                 140                  144
                                                        ---------            ---------           ---------           ----------
     Net interest income after provision for
         loan losses                                       2,786                2,742               8,154                8,321
                                                       ---------            ---------           ---------           ----------

Non-interest income:
     Corporate-owned life insurance                          127                  ---                 250                  ---
     Service fees on deposit accounts                         92                   73                 270                  206
     Net securities gains                                    ---                   37                  22                   90
     Other income                                             40                   45                 128                  104
                                                       ---------            ---------           ---------           ----------
          Total non-interest income                          259                  155                 670                  400
                                                       ---------            ---------           ---------           ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                CATSKILL FINANCIAL CORPORATION
                                               Consolidated Statements of Income
                                        (In thousands, except share and per share data)
                                                         (continued)


                                                            THREE MONTHS ENDED                         NINE MONTHS ENDED
                                                                   June 30,                                  June 30,
                                                                   --------                                  --------
                                                         1999                  1998                1999                 1998
                                                       ----------          -----------          ---------            --------
                                                                 (Unaudited)                               (Unaudited)
<S>                                                    <C>                  <C>                 <C>                 <C>
Non-interest expense:
     Salaries and employee benefits                          921                  900               2,673                2,578
     Advertising and business promotion                       31                   15                  89                  104
     Net occupancy                                           125                   85                 318                  256
     Federal deposit insurance premiums                        6                    6                  19                   20
     Postage and supplies                                     88                   83                 247                  229
     Outside data processing fees                            131                  115                 398                  339
     Equipment                                                46                   46                 121                  129
     Professional fees                                        74                   64                 215                  168
     Real estate operations, net                              (1)                   1                  32                  (58)
     Other                                                   156                  154                 472                  446
                                                        ---------            ---------           ---------           ----------
          Total non-interest expense                       1,577                1,469               4,584                4,211
                                                       ---------            ---------           ---------           ----------
          Income before taxes                              1,468                1,428               4,240                4,510
Income tax expense                                           369                  454               1,119                1,606
                                                       ---------            ---------           ---------           ----------
          Net income                                 $     1,099          $       974          $    3,121          $     2,904
                                                     ===========          ===========          ==========          ===========

Basic earnings per common share                            $ .29                $ .24               $ .81                $ .70
Diluted earnings per common share                          $ .28                $ .24               $ .80                $ .68

Weighted Average Common Shares-Basic                   3,804,676            4,002,738           3,831,288            4,139,721
Weighted Average Common Shares-Diluted                 3,898,696            4,134,109           3,898,447            4,268,945
</TABLE>

         See  accompanying  notes to unaudited  consolidated  interim  financial
statements.
<PAGE>
<TABLE>
<CAPTION>
                                                CATSKILL FINANCIAL CORPORATION
                                  Consolidated Statements of Changes in Shareholders' Equity
                                  (In thousands, except share and per share data) (Unaudited)

                                                                                    Retained         Common        Unearned
                                                                      Additional    Earnings,         Stock       Management
                                                       Common          Paid-in    Substantially    Acquired by    Recognition
                                                        Stock          Capital      Restricted        ESOP          Plan
                                                        -----          -------      ----------        ----          ----
<S>                                                     <C>            <C>            <C>           <C>             <C>
Balance at September 30, 1998                           $ 57           $54,974        $37,374       $(3,981)        $(1,433)
Comprehensive income:
         Net income                                                                     3,121
         Other comprehensive income, net of tax:
           Unrealized net losses arising during the
            period on AFS securities (pre-tax $5,054)
           Reclassification adjustment for gains
            realized in net income (pre-tax $22)

         Other comprehensive income

Comprehensive income

Allocation of ESOP stock (11,386 shares)                                    48                           114
Dividends paid on common stock ($.295 per share)                                      (1,162)
Purchase of common stock (178,780 shares)
Exercise of stock options (2,000 shares issued)                                           (7)
Amortization of unearned MRP compensation                                                                                347
                                                        ----           -------        -------        -------         -------
Balance at June 30, 1999                                $ 57           $55,022        $39,326        $(3,867)        $(1,086)
                                                        ====           =======        =======        ========        ========

Balance at September 30, 1997                           $ 57           $54,811        $34,915        $(4,209)        $(1,856)
Comprehensive income:
         Net income                                                                     2,904
         Other comprehensive income, net of tax:
            Unrealized net gains arising during the
               period on AFS securities (pre-tax $657)
            Reclassification adjustment for gains
               realized in net income (pre-tax $90)

         Other comprehensive income

Comprehensive income

Allocation of ESOP stock (11,363 shares)                                   89                           114
Dividends paid on common stock ($.24 per share)                                       (1,030)
Purchase of common stock (356,792 shares)
Exercise of stock options
(4,401 shares issued, net)                                                               (29)
Amortization of unearned MRP compensation                                                                               341
                                                        ----           -------       -------        -------         -------
Balance at June 30, 1998                                $ 57           $54,900       $36,760        $(4,095)        $(1,515)
                                                        ====           =======       =======        =======         =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                          CATSKILL FINANCIAL CORPORATION
                            Consolidated Statements of Changes in Shareholders' Equity
                            (In thousands, except share and per share data) (Unaudited)

                                                                        Accumulated
                                                          Treasury          Other
                                                            Stock,      Comprehensive   Comprehensive
                                                           at Cost     Income (Loss)        Income          Total
                                                           -------     -------------        ------          -----
<S>                                                       <C>               <C>            <C>               <C>
Balance at September 30, 1998                             $(21,223)         $  2,063                        $67,831
Comprehensive income:
         Net income                                                                        $    3,121         3,121
         Other comprehensive income, net of tax:
           Unrealized net losses arising during the
            period on AFS securities (pre-tax $5,054)                                          (3,033)
           Reclassification adjustment for gains
            realized in net income (pre-tax $22)                                                  (13)
                                                                                            ----------
         Other comprehensive income                                           (3,046)          (3,046)       (3,046)
                                                                                            ----------
Comprehensive income                                                                        $       75
                                                                                            ==========
Allocation of ESOP stock (11,386 shares)                                                                        162
Dividends paid on common stock ($.295 per share)                                                             (1,162)
Purchase of common stock (178,780 shares)                   (2,894)                                          (2,894)
Exercise of stock options (2,000 shares issued)                 32                                               25
Amortization of unearned MRP compensation                                                                       347
                                                          --------           -------                        -------
Balance at June 30, 1999                                  $(24,085)          $  (983)                       $64,384
                                                          =========          =======                        =======

Balance at September 30, 1997                             $(12,862)          $   921                        $71,777
Comprehensive income:
         Net income                                                                         $    2,904        2,904
         Other comprehensive income, net of tax:
            Unrealized net gains arising during the
               period on AFS securities (pre-tax $657)                                             394
            Reclassification adjustment for gains
               realized in net income (pre-tax $90)                                                (54)
                                                                                            -----------
         Other comprehensive income                                              340                340         340
                                                                                            -----------
Comprehensive income                                                                        $     3,244
                                                                                            ===========

Allocation of ESOP stock (11,363 shares)                                                                        203
Dividends paid on common stock ($.24 per share)                                                              (1,030)
Purchase of common stock (356,792 shares)                   (6,351)                                          (6,351)
Exercise of stock options
(4,401 shares issued, net)                                      67                                               38
Amortization of unearned MRP compensation                                                                       341
                                                          --------            ----------                     ------
Balance at June 30, 1998                                  $(19,146)           $    1,261                     68,222
                                                          ========            ==========                     ======

</TABLE>
 See accompanying notes to unaudited consolidated interim financial statements.
<PAGE>
<TABLE>
<CAPTION>
                         CATSKILL FINANCIAL CORPORATION
                      Consolidated Statements of Cash Flows
                                 (In Thousands)


                                                             Nine Months Ended
                                                                  June 30,
                                                            1999           1998
                                                        ---------      ---------
CASH FLOWS FROM OPERATING ACTIVITIES:                         (Unaudited)
<S>                                                     <C>            <C>
Net income                                              $   3,121      $   2,904
Adjustments to reconcile net income to net cash
  provided by operating activities:
Depreciation                                                  156            159
Net accretion on securities                                  (115)           (25)
Provision for loan losses                                     140            144
MRP compensation expense                                      347            341
ESOP compensation expense                                     251            302
Increase in cash surrender values on COLI                    (250)          --
Losses (gains) on sale of real estate owned                    28            (68)
Gains on sales and calls of securities                        (22)           (90)
Net increase in other assets                                 (312)          (515)
Net decrease in accrued expense and other liabilities        (554)        (1,796)
                                                        ---------      ---------
Net cash provided by operating activities                   2,790          1,356
                                                        ---------      ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity/calls/paydown of
  investment securities                                     2,065          5,007
Net increase in loans                                      (8,221)        (8,417)
Capital expenditures, net                                    (480)          (342)
Purchase of corporate-owned life insurance                (10,000)          --
Purchase of Federal Home Loan Bank stock                     (101)          (192)
Purchase of AFS securities                                (48,052)       (63,855)
Proceeds from sale of securities available for sale         5,394         13,431
Proceeds from maturity/calls/paydown of AFS securities     34,991         35,151
Proceeds from sale of real estate owned                        25            443
                                                        ---------      ---------
Net cash used by investing activities                     (24,379)       (18,774)
                                                        ---------      ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                         CATSKILL FINANCIAL CORPORATION
                      Consolidated Statements of Cash Flows
                                 (In Thousands)
                                  (continued)


                                                             Nine Months Ended
                                                                  June 30,
                                                            1999           1998
                                                        ---------      ---------
CASH FLOWS FROM FINANCING ACTIVITIES:                          (Unaudited)
<S>                                                     <C>            <C>
Net proceeds from the exercise of stock options                25             38
Net increase in deposits                                   10,102          8,532
Net increase in advances from borrowers for
taxes and insurance                                         1,870          1,945
Net increase in short-term borrowings                      14,260          4,495
Increase in long-term borrowings                             --           10,000
Cash dividends paid on common stock                        (1,162)        (1,030)
Purchase of common stock for treasury                      (2,894)        (6,351)
                                                        ---------      ---------
Net cash provided by financing activities                  22,201         17,629
                                                        ---------      ---------
Net increase in cash and cash equivalents                     612            211
Cash and cash equivalents at beginning of period            2,795          2,274
                                                        ---------      ---------
Cash and cash equivalents at end of period              $   3,407      $   2,485
                                                        =========      =========
Supplemental  disclosures of cash flow information:
Cash paid during the period for:
Interest                                                $   7,717      $   7,255
Taxes                                                       1,234          1,640
Transfer of loans to real estate owned                         32            252
Change in net unrealized gain (loss) on AFS
  securities, net of deferred tax expense (benefit) of
  $(2,030) and $227, respectively                          (3,046)           340
</TABLE>

  See accompanying notes to unaudited consolidated interim financial statements
<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 (the "Company") and its wholly owned subsidiary,
Catskill Savings Bank (the "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 the  Company's  1998 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, 1999.

Note 2. Earnings Per Share

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  not  considered
outstanding  and only included in the computation of basic earnings per share on
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 Company,  such
as the Company's stock options and unvested  restricted stock.  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 following sets forth certain information  regarding the calculation of basic
and diluted  earnings per share for the three month and nine month periods ended
June 30:
<TABLE>
<CAPTION>
                                 (in thousands, except share and per share data)
                                                      Three Months Ended                 Nine Months Ended
                                                            June 30                            June 30
                                                 ----------------------------        ---------------------------
                                                    1999              1998              1999              1998
                                                 ----------        ----------        ----------       ----------
<S>                                               <C>              <C>               <C>              <C>
Net income                                        $   1,099        $      974        $    3,121       $    2,904
                                                  ========         ==========        ==========       ==========

Weighted average common shares                    3,804,676         4,002,738         3,831,288        4,139,721
Dilutive effect of potential common shares
         related to stock compensation plans         94,020           131,371            67,159          129,224
                                                 ----------        ----------        ----------       ----------
Weighted average common shares including
         potential dilution                       3,898,696         4,134,109         3,898,447        4,268,945
                                                  =========         =========         =========        =========

Basic earnings per share                              $ .29             $ .24             $ .81            $ .70
Diluted earnings per share                            $ .28             $ .24             $ .80            $ .68
</TABLE>
<PAGE>
Note 3. Comprehensive Income

On October 1, 1998, the Company adopted the provisions of Statement of Financial
Accounting  Standards  (SFAS) No. 130,  "Reporting  Comprehensive  Income." This
Statement  establishes  standards for the reporting and display of comprehensive
income and its components. Comprehensive income includes the reported net income
of the Company  adjusted for items that are  currently  accounted  for as direct
entries to equity, such as the mark to market adjustment on securities available
for sale, foreign currency items and minimum pension liability  adjustments.  At
the Company, comprehensive income represents net income plus other comprehensive
income,  which  consists  of the net  change  in  unrealized  gains or losses on
securities  available for sale for the period.  Accumulated other  comprehensive
income  (loss)  represents  the net  unrealized  gains or losses  on  securities
available  for sale as of the balance sheet dates.  Comprehensive  income (loss)
for the  three  and  nine  month  periods  ended  June  30,  1999  and  1998 was
($1,024,000), $1,232,000, $75,000 and $3,244,000, respectively.

Note 4. Impact of New Accounting Standards

In June 1998, FASB issued SFAS No. 133,  "Accounting for Derivative  Instruments
and Hedging  Activities," which establishes  accounting and reporting  standards
for derivative instruments, including certain derivative instruments embedded in
other  contracts,  and for hedging  activities.  In May 1999, this Statement was
delayed  by the FASB,  consequently,  it will now be  effective  for all  fiscal
quarters of fiscal years beginning after June 15, 2000.  Management is currently
evaluating the impact of this Statement on the Company's  consolidated financial
statements.
<PAGE>

                         CATSKILL FINANCIAL CORPORATION
                                    FORM 10-Q
                                  June 30, 1999



                   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 five banking  offices,  the most recent  having  opened in
April 1998. 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.
<PAGE>
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:

o        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;

o        the effect of certain  customers  and  vendors of  critical  systems or
         services failing to adequately address issues relating to becoming Year
         2000 compliant;

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

o        changes  in  laws  and  regulations  affecting  the  financial  service
         industry;

o        changes in competition; and

o        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 any revisions to any forward-looking  statements
to  reflect  the   occurrence  of  anticipated   or   unanticipated   events  or
circumstances after the date of such statements.
<PAGE>
FINANCIAL CONDITION
-------------------

Total assets were $335.0 million at June 30, 1999, an increase of $20.2 million,
or 6.4% from the $314.8  million at September  30, 1998.  The increase in assets
was  primarily  in  corporate  owned  life  insurance  and loans and was  funded
principally by increases in short-term borrowings and deposits.

Cash and cash  equivalents  were $3.4 million at June 30,  1999,  up $.6 million
from  September 30, 1998, due  principally to the Company's  strategy of growing
its checking related  accounts,  which increases the amount of checks in process
of collection.

Total  securities,  which  include  securities  held  to  maturity  ("HTM")  and
securities  available for sale ("AFS"),  excluding Federal Home Loan Bank stock,
were $167.7 million,  an increase of $.7 million, or .4% from the $167.0 million
as of September 30, 1998.  Although the total investment  portfolio increase was
marginal,  the lower  interest  rate  environment  in late  1998 and early  1999
accelerated the rate of prepayments on the Company's mortgage-backed  securities
("MBS")  portfolio,  consequently,  MBS's  now  represent  43.5%  of  the  total
investment  portfolio as compared to 54.3% as of September 30, 1998. The Company
has replaced MBS run-offs,  as well as calls on its agency portfolio,  with more
non-callable corporates and municipals with longer call protection.  The Company
also used some of the MBS paydowns to fund a $10.0 million purchase of corporate
owned  life  insurance  ("COLI")  as a  financing  vehicle  for  pre-  and  post
retirement  employee benefits.  The COLI's investment returns and death benefits
are not taxable to the Company,  and the insurance premiums are  non-deductible.
The insurance  policy provides that the initial lump sum premium,  after certain
deductions,  is maintained in a separate account,  which minimizes the Company's
exposure to insurance  carrier credit risk and allows the Company to select both
the investment manager and the investment portfolio strategy.

Loans  receivable  were $147.9  million as of June 30, 1999, an increase of $8.2
million or 5.9% over the $139.7  million at September  30, 1998.  The  following
table shows the loan portfolio  composition  as of the respective  balance sheet
dates:
<TABLE>
<CAPTION>

                                                         June 30,                                    September 30,
                                                           1999                                           1998
                                           ----------------------------------         ------------------------------------
                                           (In thousands)          % of Loans         (In thousands)            % of Loans
<S>                                           <C>                      <C>                <C>                       <C>
Real Estate Loans
    One-to-four family                        $ 119,832                81.0%              $ 113,423                 81.0%
    Multi-family and commercial                   7,063                 4.7                   6,389                 4.6
    Construction                                  2,363                 1.6                   1,182                 0.8
                                              ---------              ------               ---------               -----
        Total real estate loans                 129,258                87.3                 120,994                86.4
Consumer Loans                                   17,993                12.2                  18,399                13.2
Commercial Loans                                    766                 0.5                     602                 0.4
                                              ---------              ------               ---------               -----
        Gross Loans                             148,017               100.0%                139,995               100.0%
                                                                      =====                                       =====
Less:  Net deferred loan fees                      (133)                                       (260)
                                              ---------                                   ---------
        Total loans receivable                $ 147,884                                   $ 139,735
                                              =========                                   =========
</TABLE>
<PAGE>
One-to-four  family real estate loans  increased  $6.4 million,  or 5.6%, as the
Company has  continued to promote a 15 year fixed rate  mortgage  product with a
preferred  rate for  borrowers  who have their  monthly  payments  automatically
deducted from a checking account with the Bank. The increase in multi-family and
commercial real estate loans was principally  represented by a loan to finance a
mobile home park in the Company's primary market area. Construction loans are up
due to several commercial  projects under development as well as seasonal one to
four  family   residential   construction,   with  the  Company  providing  both
construction and permanent financing.

Non-performing  assets at June 30, 1999 were $640,000,  or .19% of total assets,
compared to the  $644,000,  or .20% of total assets at September  30, 1998.  The
table  below  sets  forth  the  amounts  and   composition   of  the   Company's
non-performing assets.
<TABLE>
<CAPTION>
                                                        June 30,      September 30,
                                                          1999            1998
                                                        ---------      ---------
                                                              (In thousands)
<S>                                                     <C>            <C>
Non-performing loans:
One-to-four family                                      $     535      $     520
Multi-family and commercial                                  --             --
Consumer                                                       73             71
                                                        ---------      ---------
Total non-performing loans                                    608            591
                                                        ---------      ---------
Foreclosed assets, net:
One-to-four family                                             32             53
Multi-family and commercial                                  --             --
                                                        ---------      ---------
Total foreclosed assets, net                                   32             53
                                                        ---------      ---------
Total non-performing assets                             $     640      $     644
                                                        =========      =========

Total non-performing loans
as a % of total loans                                         .41%           .42%
</TABLE>
The increase in  non-performing  loans at June 30, 1999 as compared to September
30,  1998 was  principally  due to the death of three  borrowers,  which  caused
payment delays pending the settlement of their estates,  offset  somewhat by the
foreclosure  of one loan which  resulted in the Company  acquiring  title to the
mortgaged property. The net realizable value of the property,  totaling $32,000,
was  transferred  to other  real  estate,  and  since the net  realizable  value
approximated  the Company's  carrying  value,  the Company  recorded no loss. In
addition,  during the nine months  ended June 30,  1999,  the  Company  sold two
parcels of other real estate which  reduced  real estate  owned by $53,000.  The
following  table  summarizes  the  activity in other real estate for the periods
presented:
<PAGE>
<TABLE>
<CAPTION>
                                                        Nine Months Ended June 30,
                                                        --------------------------
                                                          1999            1998
                                                        ---------      ---------
                                                             (In thousands)
<S>                                                     <C>            <C>

Other real estate beginning of
period                                                  $      53      $     248
Transfer of loans to other real
estate owned                                                   32            252
Sales of other real estate, net                               (53)          (375)
                                                        ---------      ---------
Other real estate end of period                         $      32      $     125
                                                        =========      =========

</TABLE>
The allowance for loan losses was  $2,050,000,  or 1.39%, of period end loans at
June 30, 1999, and provided coverage of non-performing loans of 337.2%, compared
to coverage of 330.0% as of September  30, 1998.  The following  summarizes  the
activity in the allowance for loan losses:
<TABLE>
<CAPTION>
                                                        Nine Months Ended June 30,
                                                           1999            1998
                                                        ---------      ---------
                                                             (In thousands)
<S>                                                     <C>            <C>
Allowance at beginning of the period                    $   1,950      $   1,889
Charge-offs                                                   (68)          (121)
Recoveries                                                     28             10
                                                        ---------      ---------
Net charge-offs                                               (40)          (111)
Provision for loan losses                                     140            144
                                                        ---------      ---------
Allowance at end of the period                          $   2,050      $   1,922
                                                        =========      =========
</TABLE>


Total  deposits  were  $220.1  million at June 30,  1999,  an  increase of $10.1
million,  or 4.8% from the $210.0  million at September 30, 1998.  The following
table shows the deposit composition as of the respective balance sheet dates:
<PAGE>
<TABLE>
<CAPTION>

                                           June 30, 1999                             September 30, 1998
                               -------------------------------------         ------------------------------------
                               (In thousands)          % of Deposits         (In thousands)         % of Deposits
<S>                                <C>                      <C>                 <C>                        <C>
Savings                            $ 83,642                 38.0%               $ 78,075                   37.2%
Money market                          6,143                  2.8                   5,949                    2.8
NOW                                  15,113                  6.9                  12,396                    5.9
Non-interest demand                   8,111                  3.7                   6,009                    2.9
Certificates of deposits            107,070                 48.6                 107,548                   51.2
                                    -------                -----                 -------                  -----
                                   $220,079                100.0%               $209,977                  100.0%
                                   ========                =====                ========                  =====
</TABLE>



The growth in deposits was  principally  generated by the  Company's  two newest
offices.  In addition,  the Company  continues  its strategy of growing its core
deposits,  principally  checking related  products.  Core deposits now represent
over 51% of total  deposits,  and checking  products  represent  almost 11.0% of
deposits.

The Company's borrowings,  which are principally with the Federal Home Loan Bank
of New York ("FHLB"),  were $46.1 million at June 30, 1999, an increase of $14.3
million from the $31.8 million at September  30, 1998. As of June 30, 1999,  the
Company  still  had  additional  available  credit  of $4.6  million  under  its
overnight  line and $15.7 million  under its one month advance  program with the
FHLB.

Shareholders'  equity at June 30,  1999 was $64.4  million,  a decrease  of $3.4
million or 5.0% from the $67.8 million at September  30, 1998.  The decrease was
principally caused by the Company's repurchase of 178,780 shares of its stock at
a cost  of  $2.9  million,  and a $3.0  million  change  in  the  Company's  net
unrealized  gain (loss) on securities  available  for sale,  net of taxes due to
recent  increases in market  interest  rates,  offset by the $2.0 million of net
income  retained after cash  dividends.  The Company also recorded a $.5 million
increase in  shareholders'  equity due to the  amortization of restricted  stock
awards,  exercise of stock options and the release of shares under the Company's
ESOP.

Shareholders'  equity as a percentage of total assets was 19.2% at June 30, 1999
compared to 21.6% at September 30, 1998. Book value per common share was $15.40,
or $15.82  excluding  unvested  shares of the  Company's  restricted  stock plan
("MRP"),  and was $17.48  excluding  unallocated  ESOP shares and  unvested  MRP
shares.
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1999
------------------------------------------------------------------------
AND 1998
--------

General
-------

For the three  months ended June 30,  1999,  the Company  recorded net income of
$1,099,000,  an  increase  of  $125,000,  or 12.8%,  compared to the three month
period ended June 30, 1998.  Basic and diluted  earnings per share were $.29 and
$.28 respectively,  an increase of 20.8% and 16.7% compared to basic and diluted
earnings per share of $.24 for the three  months  ended June 30,  1998.  For the
three months ended June 30, 1999,  weighted  average  common shares - basic were
3,804,676,  down  198,062,  or  4.9%,  due to  the  Company's  share  repurchase
programs.

Annualized return on average assets for the three months ended June 30, 1999 and
1998, was 1.35% and 1.29%, respectively,  and return on average equity was 6.55%
and 5.73%, respectively.

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

Net interest  income on a full tax  equivalent  basis for the three months ended
June 30, 1999, was $3.1 million, an increase of $162,000, or 5.5%, when compared
to the three  months ended June 30, 1998.  The increase was  principally  volume
related as the Company  increased its average  earning assets $15.2 million,  or
5.1%, more than  offsetting the increase in interest  expense from the Company's
funding of its stock  repurchase  and corporate  owned life  insurance  ("COLI")
purchases.  The Company funded the share  repurchases  and COLI,  along with its
growth in earning assets, principally with borrowings and deposit growth.

Interest  income for the three  months ended June 30, 1999 was $5.7 million on a
tax  equivalent  basis,  an increase of $216,000,  or 4.0%,  over the comparable
period last year.  The $15.2 million  increase in the average  volume of earning
assets  had a  positive  effect  on  interest  income as the  Company  sought to
leverage  its excess  capital,  offset  somewhat  by a 8 basis point drop in the
yield on its average earning assets.

Average earning assets  increased  principally in the loan  portfolio,  which on
average grew $16.2 million,  or 12.4%.  Loan growth was  principally  due to the
promotion of a 15 year fixed rate mortgage product,  which increased volume, but
had an  adverse  impact  on the  loan  portfolio  yield  since  the  loans  were
originated at rates below the average loan  portfolio  yield.  In addition,  the
Company,  due to  lower  market  interest  rates  earlier  in the  fiscal  year,
experienced higher loan prepayments,  and refinancing of its existing portfolio,
which together with the loan promotion caused the yield on the loan portfolio to
decrease 34 basis points to 7.67%.

Average  mortgage  backed  securities  ("MBS") were $72.2  million for the three
months ended June 30, 1999,  down $18.7  million,  or 20.5% from the  comparable
period  due to  accelerated  prepayments  caused  by  the  lower  interest  rate
environment  in late 1998.  The  average  yield on MBS was 6.46%,  down 17 basis
points from the comparable  period,  as the Company has been purchasing one year
Treasury indexed teaser rate adjustable rate mortgages  ("ARM's") to balance its
asset mix since most loan originations  have been at fixed rates.  Consequently,
26.6% of the average MBS portfolio  represented  ARM's  compared to 24.5% in the
<PAGE>
comparable  period.  The teaser ARM's were  purchased  during the initial teaser
rate period;  therefore,  the initial interest rate and yields will be less than
the fully indexed rate and yield.  Management expects the average yield of these
ARM's to  increase  as they adjust to their fully  indexed  rate;  however,  the
actual  increase  will depend upon the level of the one-year  constant  maturity
treasury index when the rates adjust.

Average other  securities  increased  $17.7  million,  or 24.0%,  as the Company
purchased  longer call  protected bank  qualified  municipals  and  non-callable
corporate  securities  to increase  yields and reduce  reinvestment  risk should
rates decline. The average yield on the other securities portfolio for the three
months ended June 30, 1999,  was 7.47%,  an increase of 16 basis points from the
comparable period, as the Company replaced securities called and/or matured with
higher yielding municipals.  Municipal  securities  represented 45.3% of average
other securities during the three month period ended June 30, 1999,  compared to
only 33.4% in the comparable period.

Interest expense for the three months ended June 30, 1999, was $2.6 million,  an
increase of $54,000,  or 2.2%. The change was  principally due to an increase in
the average volume of interest bearing liabilities offset somewhat by a decrease
in the Company's cost of funds. Average interest bearing liabilities were $248.4
million,  an increase of $24.6 million,  or 11.0%, as deposits increased and the
Company  borrowed in order to fund its earning asset  growth,  COLI purchase and
stock repurchases.  Average long-term  borrowings were up $19.2 million,  as the
Company  funded its stock  repurchases  and  earning  asset  growth,  as well as
converted  a portion  of its  short-term  borrowings  to  long-term  borrowings,
principally  through  convertible   (callable)   advances.   Average  short-term
borrowings  were $10.0  million for the three months  ended June 30, 1999,  down
$5.4  million  from the  comparable  three  month  period  due to the  change to
long-term borrowings. In addition, the Company's average certificates of deposit
("CD's") increased $4.4 million, or 4.3%, as the Company in fiscal 1998 promoted
a 15 month CD program at a premium rate due to competitive  pressures.  The cost
of funds  decreased  36 basis  points to 4.13% as the  Company  has  lowered its
deposit  rates,  and  generally  benefitted  from a  reduction  in the  rate  on
short-term  borrowings  after  the  Fed's  Open  Market  Committee  reduced  the
overnight bank rate 75 basis points in late 1998.

The Company's net yield on average earning assets was 4.03% for the three months
ended June 30,  1999,  up 1 basis  point  compared  to 4.02% for the  comparable
period of the prior year.  The  increase  was  principally  the impact of the 28
basis point rise in the  Company's  net interest  spread offset by the Company's
stock  repurchase  program,  which reduced the level of no-cost funding sources,
and increased the amount of average  earning  assets funded by interest  bearing
liabilities,  along  with the  funding  of the  COLI  purchase  which  increased
interest  expense  without a  corresponding  increase  in interest  income.  The
increase in the Company's net spread was  principally  due to the 36 basis point
drop in the cost of funds,  principally in deposits,  more than offsetting the 8
basis point drop in the earning  asset yield as the  increase in the  securities
portfolio yield somewhat offset the decline in the loan portfolio yield. For the
three  months  ended June 30,  1999,  the Company  had $61.3  million of average
earning assets with no funding costs, a decrease of $9.4 million, or 13.3%, from
the $70.7 million for the three months ended June 30, 1998.

For more information on average balances, interest, yield and rate, please refer
to Table #1, included in this report.
<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 $50,000 for the three  months ended June 30,
1999, up $5,000 from the comparable quarter. The increase was principally due to
loan growth as the provision  represented .14% of average loans in both periods.
The Company had net  charge-offs  of $30,000,  or .08% of average  loans for the
quarter ended June 30, 1999, as compared to net  chargeoffs of $29,000,  or .09%
of average loans in the comparable period. Non-performing loans were $608,000 at
June 30,  1999,  or .41% of total  loans,  an increase of $53,000  from June 30,
1998,  when they were also .41% of total loans.  At June 30, 1999, the allowance
for loan  losses was  $2,050,000,  or 1.39% of period end  loans,  and  provided
coverage  of  non-performing  loans of  337.2%  compared  to 1.43%  and  346.3%,
respectively, as of June 30, 1998.

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

Non-interest  income was $259,000  for the three months ended June 30, 1999,  an
increase of $104,000 or 67.1% from the three  months  ended June 30,  1998.  The
increase was  principally  due to the  investment  performance  on the Company's
corporate  owned life  insurance  which  increased its cash  surrender  value by
$127,000,  more than  offsetting  the $37,000 of security  gains realized in the
comparable  period in the prior year.  There were no security gains in the three
month period ended June 30, 1999. In addition,  service fees on deposit accounts
increased  $19,000,  or 26.0%,  as the  Company  continues  to promote  checking
related products to increase core deposits and diversify its revenues.

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

Non-interest expense for the three months ended June 30, 1999 was $1,577,000, an
increase of $108,000,  or 7.4%, over the comparable period last year.  Increases
included  higher  occupancy  costs of  $40,000  due  principally  to  renovation
expenses at our Main Street office.  Other  professional  fees were $74,000,  an
increase of $10,000 as the Company  incurred  higher costs due to increased  tax
research,  actuarial and investment advisory services. In addition,  the Company
incurred  higher  personnel  costs of $21,000 and  advertising  costs of $16,000
principally  due to the  anticipated  opening of its next full service branch in
August 1999.
<PAGE>
Income Tax Expense
------------------

Income tax expense for the three  months ended June 30, 1999,  was  $369,000,  a
decrease  of  $85,000,  or 18.7%,  from the  comparable  period  last year.  The
Company's effective tax rates for the three months ended June 30, 1999 and 1998,
were 25.14% and 31.79%,  respectively.  The decrease in both the  effective  tax
rate and income tax expense is principally the impact of the Company's  purchase
of  tax-exempt  securities,  primarily  bank  qualified  municipals,  as well as
increase in cash surrender value of the COLI, which is non-taxable.


COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 1999
-----------------------------------------------------------------------
AND 1998
--------

General
-------

For the nine months  ended June 30,  1999,  the Company  recorded  net income of
$3,121,000,  an increase of $217,000, or 7.5%, compared to the nine month period
ended June 30, 1998.  Basic  earnings per share were $.81,  an increase of 15.7%
compared to basic  earnings per share of $.70 for the nine months ended June 30,
1998.  Diluted  earnings  per share  were  $.80 for the nine  month  period,  an
increase of 17.6% compared to $.68 for the comparable nine month period. For the
nine months ended June 30, 1999,  weighted  average  common  shares - basic were
3,831,288,  down  308,433,  or  7.5%,  due to  the  Company's  share  repurchase
programs.

Annualized  return on average assets for the nine months ended June 30, 1999 and
1998, was 1.30% and 1.32%, respectively,  and return on average equity was 6.19%
and 5.54%, respectively.

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

Net interest income for the nine months ended June 30, 1999, was $9.1 million on
a full tax equivalent basis, an increase of $341,000,  or 3.9%, when compared to
the nine months ended June 30, 1998. The increase was principally volume related
as the Company increased its average earning assets $19.5 million, or 6.8%, more
than  offsetting the increase in interest  expense from the  borrowings  used to
fund its share  repurchases  and corporate  owned life insurance  ("COLI").  The
Company  funded the share  repurchases,  the COLI purchase and its earning asset
growth, principally with borrowings and, to a lesser extent, deposit growth.

Interest  income for the nine months ended June 30, 1999 was $16.8  million on a
tax  equivalent  basis,  an increase of $755,000,  or 4.7%,  over the comparable
period.  The $19.5 million,  or 6.8%,  increase in the average volume of earning
assets  had a  positive  effect  on  interest  income as the  Company  sought to
leverage  its excess  capital,  offset  somewhat by a 15 basis point drop in the
yield on its average earning assets.

Average  earning  assets  increased  principally  in the loan portfolio and to a
lesser extent, its securities  portfolio,  which on average grew 12.9% and 1.9%,
respectively.  Loan growth was  principally  due to the  promotion  of a 15 year
fixed rate mortgage product,  which increased volume,  but had an adverse impact
<PAGE>
on the loan portfolio  yield since the loans were  originated at rates below the
average loan  portfolio  yield.  In addition,  the Company,  due to lower market
interest  rates,  experienced  higher loan  prepayments,  and refinancing of its
existing  portfolio,  which together with the loan promotion caused the yield on
the loan portfolio to decrease 33 basis points to 7.71%.

Average MBS were $77.9  million for the nine months  ended June 30,  1999,  down
$10.9 million,  or 12.3%, from the comparable  period.  The average yield on MBS
was 6.39%,  down 44 basis points from the comparable  period, as the Company has
been  purchasing  one year  Treasury  indexed  teaser  rate ARM's as  previously
described in the three month comparison.  Consequently, 26.7% of the average MBS
portfolio represented teaser rate ARM's compared to only 14.9% in the comparable
period.

Average other  securities  increased  $14.0  million,  or 19.8%,  as the Company
purchased  longer call  protected bank  qualified  municipals  and  non-callable
corporate  securities  to increase  yields and reduce  reinvestment  risk should
rates decline.  The average yield on the other securities portfolio for the nine
months ended June 30, 1999,  was 7.45%,  an increase of 30 basis points from the
comparable  period,  as the Company replaced  securities  called or matured with
higher yielding municipals.  Municipal securities now represent 46.2% of average
other securities, compared to less than 16.3% in the comparable period.

Interest  expense for the nine months ended June 30, 1999, was $7.7 million,  an
increase of $414,000,  or 5.7%. The change was principally due to an increase in
the average volume of interest bearing liabilities offset somewhat by a decrease
in the Company's cost of funds. Average interest bearing liabilities were $243.1
million,  an increase of $27.0 million,  or 12.5%, as deposits increased and the
Company  borrowed in order to fund the  Company's  stock  repurchases,  its COLI
purchase and earning asset growth.  Average  long-term  borrowings were up $21.5
million,  as the Company  funded its stock  repurchases  and its  earning  asset
growth, as well as converted a portion of its short-term borrowings to long-term
borrowings,   principally  through  convertible  (callable)  advances.   Average
short-term borrowings were $8.1 million for the nine months ended June 30, 1999,
down $4.6  million  from the  comparable  nine month period due to the change to
long-term  borrowings.  In addition,  the Company's  average CD's increased $6.2
million,  or 6.1%,  as the Company in fiscal 1998 promoted a special 15 month CD
program  at a  premium  rate  due to  competitive  pressures.  The cost of funds
decreased  27 basis  points to 4.26% as the  Company has  generally  lowered its
deposit rates.

The Company's net yield on average  earning assets was 3.95% for the nine months
ended June 30, 1999,  down 11 basis points  compared to 4.06% for the comparable
period of the prior year. The decrease was  principally  caused by the Company's
stock  repurchase  program,  and the funding of the COLI purchase.  For the nine
months ended June 30,  1999,  the Company had $63.7  million of average  earning
assets with no funding  costs,  a decrease of $7.5 million,  or 10.5%,  from the
$71.2 million for the nine months ended June 30, 1998. The Company did, however,
increase its net interest  spread 12 basis points as the cost of funds decreased
27 basis points,  principally due to the lower deposit costs,  whereas the yield
on earning  assets only  decreased  15 basis points as increases in the yield on
securities somewhat offset the decline in the loan portfolio yield.

For more information on average balances, interest, yield and rate, please refer
to Table #2, included in this report.
<PAGE>
Provision for Loan Losses
-------------------------

The  provision  for loan losses was  $140,000,  or .13% of average loans for the
nine months ended June 30, 1999, down from $144,000, or .16% of average loans in
the   comparable   period  of  the  prior  year.  The  decrease  is  principally
attributable  to a reduction in net  charge-offs to $40,000,  or .04% of average
loans for the nine months ended June 30, 1999, as compared to $111,000,  or .12%
of  average  loans  in  the  comparable  period.  Despite  the  decrease  in net
charge-offs,  the Company's  provisions have remained relatively constant due to
the 12.9% growth in average loans outstanding. Nonperforming loans were $608,000
at June 30, 1999,  or .41% of total loans,  an increase of $53,000 from June 30,
1998,  when they were also .41% of total loans.  At June 30, 1999, the allowance
for loan  losses was  $2,050,000,  or 1.39% of period end  loans,  and  provided
coverage  of  non-performing  loans of  337.2%  compared  to 1.43%  and  346.3%,
respectively, as of June 30, 1998.

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

Non-interest  income was $670,000  for the nine months  ended June 30, 1999,  an
increase of $270,000,  or 67.5% from the nine months  ended June 30,  1998.  The
increase was  principally  due to the  investment  performance  on the Company's
corporate  owned life  insurance  which  increased its cash  surrender  value by
$250,000, more than offsetting the $68,000 reduction in net securities gains. In
addition,  service fees on deposit accounts increased $64,000,  or 31.1%, as the
Company continues to promote checking related products to increase core deposits
and diversify its revenues.

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

Non-interest expense for the nine months ended June 30, 1999 was $4,584,000,  an
increase  of  $373,000,  or 8.9%,  over the  comparable  period  last year.  The
increase was  principally the cost  attributable to our new supermarket  branch,
which opened in April 1998,  as well as higher real estate  operations  net, net
occupancy,  other professional fees, and a contract termination charge to switch
ATM service providers.

Salaries  and  employee  benefits  were up  $95,000,  or 3.7%  principally  from
staffing the supermarket  branch which opened in April 1998, as well as the cost
associated with an Executive  Supplemental  Retirement  Plan  implemented in the
third quarter of fiscal 1998. Real estate operations net, increased $90,000,  as
the Company had losses due to sales of other real estate  during the nine months
ended June 30, 1999,  compared to gains on sales in the comparable  period.  Net
occupancy  increased  $62,000,  principally  from  renovation  expenses  at  the
Company's  main  office,  as well as cost  associated  with the  opening  of the
supermarket  branch.  Other  professional  fees were  $215,000,  an  increase of
$47,000 as the Company  incurred  higher  costs due to increased  tax  research,
actuarial and investment advisory services. The Company also recorded a contract
termination charge of $29,000 during the period to switch ATM service providers.
Management  expects the change to improve  customer  service,  reduce  operating
costs,  and  increase   service  fee  income  by  implementing   surcharging  on
non-customer ATM transactions.
<PAGE>
Income Tax Expense
------------------

Income tax expense for the nine months ended June 30, 1999,  was  $1,119,000,  a
decrease of  $487,000,  or 30.3%,  from the  comparable  period  last year.  The
Company's  effective tax rates for the nine months ended June 30, 1999 and 1998,
were 26.39% and 35.61%,  respectively.  The decrease in both the  effective  tax
rate and income tax expense is principally the impact of the Company's  purchase
of tax-exempt  securities,  primarily bank qualified municipals,  as well as the
non-taxable increase in cash surrender value of the COLI.

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 has reduced
its high level of liquidity,  but continues to manage its balance sheet so there
has been no need for unanticipated sales of assets.

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

Net cash provided by operating  activities  was $2.8 million for the nine months
ended June 30, 1999, an increase of $1.4 million from the comparable  nine month
period.  The increase was principally  the change in accrued  expenses and other
liabilities  caused by a decrease in official  bank  checks  outstanding  in the
prior  year.  Official  bank  checks  decreased  principally  as a result of the
Company's  payment of real estate taxes for mortgage  borrowers  using  escrowed
funds earlier in September 1998 than in September 1997.

Investing  activities used $24.4 million in the nine months ended June 30, 1999,
as the Company increased its assets  principally from the $10.0 million purchase
of COLI,  $8.2 million in loans,  and a $6.1 million  increase in the  Company's
securities  portfolio.  Financing  activities  provided  $22.2  million,  as the
Company experienced a $14.3 million increase in short-term  borrowings,  a $10.1
million  increase  in  deposits,  and a $1.9  million  increase  in  advances by
borrowers for taxes,  somewhat offset by the cost to purchase  treasury stock of
$2.9  million and the payment of cash  dividends  of $1.2  million 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 $220.1 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 as of June 30, 1999, deposit accounts having balances in excess of
$100,000  totaled  $23.8  million,  or  10.8%,  of total  deposits.  The Bank is
required  to  maintain  minimum  levels of liquid  assets as  defined by the OTS
regulations.  The  requirement,  which may be 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 June  1999,  the Bank  exceeded  that,  maintaining  an
average liquidity ratio of 37.64%.
<PAGE>
The Company  anticipates  that it will have sufficient funds to meet its current
commitments. At June 30, 1999, the Company had commitments to originate loans of
$5.1 million.  In addition,  the Company had undrawn commitments of $3.4 million
on home equity and other  lines of credit.  Certificates  of deposits  which are
scheduled to mature in one year or less at June 30, 1999, totaled $76.8 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 June 30,  1999,
compared to the OTS minimum capital requirements:
<TABLE>
<CAPTION>
                                           Actual                                  Minimum
                                Amount                   %                Amount                %
                                -------                -----             -------              ---
                                                        (Dollars in Thousands)

<S>                             <C>                    <C>               <C>                  <C>
Tangible Capital                $51,549                15.47%            $ 4,997              1.5%
Core Capital                     51,549                15.47              13,327              4.0
Risk Based Capital               53,532                32.98              12,984              8.0
</TABLE>

Beginning  on April 18,  1999,  the Company  was no longer  subject to any stock
repurchase  restrictions of the OTS and shortly thereafter announced a 10% share
repurchase  program to  purchase  approximately  436,000  shares.  From April 18
through June 30, 1999, the Company had already  repurchased  178,780 shares at a
cost of $2.9 million,  or $16.19 per common share. At June 30, 1999, the Holding
Company had  approximately  $9.4 million in available  resources to pursue stock
repurchases  without  dividends  from  the  Bank.  Dividends  from  the Bank are
permitted  without notice or  application to the OTS, under revised  regulations
effective  April of this  year,  if  total  dividends  for a year do not  exceed
current  period net income plus  retained net income for the two previous  years
and certain other standards are met. Dividends from the Bank to the Company this
year have already  exceeded that level, and hence the Bank cannot pay additional
dividends to the Company at this time without OTS approval.

Year 2000

The following  disclosure is a Year 2000  Readiness  Disclosure  and a Year 2000
Statement, as defined in the Year 2000 Information and Readiness Disclosure Act.
The  Year  2000  ("Y2K")  issue  confronting  the  Company  and  its  suppliers,
customers,  customers'  suppliers  and  competitors  centers on the inability of
computer systems to recognize the year 2000. Many existing computer programs and
systems  originally  were programmed with six digit dates that provided only two
digits to identify the calendar  year in the date field.  With the impending new
millennium,  these  programs and computers  will recognize "00" as the year 1900
rather than the year 2000.

Substantially,  all of the Company's  mission critical systems are outsourced or
are  purchased  software  packages.  As a result,  much of the  remediation  and
testing  process is dependent on the accuracy of work performed by, and the Year
2000 compliance of software, hardware and equipment provided by, vendors.
<PAGE>
The  Company's  progress on its Year 2000  readiness is continuing as scheduled.
The Company has completed the testing of all of its mission critical systems. In
addition,  the  testing of other  customers  of the  Company's  data  processing
service provider,  disclosed no Year 2000 issues,  consequently,  as of June 30,
1999, all production  systems are now operating in a Y2K compliant  environment.
The Company  expects to continue  to monitor all of its  systems,  and will test
upgrades, if any, for Y2K compliance as well.

The  Company's  total Y2K project cost is  estimated  to be  $100,000,  of which
$50,000 is expected to be hardware  and software  upgrades.  So far, the Company
has expensed  approximately $36,000 of the project cost, and expects to amortize
the hardware  and software  upgrades,  which have already been  purchased,  over
their estimated useful lives of three to five years.

The Company  expects that when the century  changes,  disruption in service will
come not from a failure of its systems or the systems of the providers with whom
it interfaces,  but rather from outside  agencies (i.e.,  electric and telephone
companies)  beyond its  control.  Therefore,  contingency  planning and business
resumption  planning will be based on the  Company's  formal  Disaster  Recovery
Program,  which includes using such things as spreadsheet  software or reverting
to manual systems until problems can be corrected.

The Company has written a Disaster  Recovery Plan, a Year 2000 Contingency Plan,
and a Y2K Liquidity  Plan, all of which  management  expects to test through the
end of the year.  The Company is also  undertaking  various  customer  awareness
programs,  such as posted  statements,  mailing of FDIC brochures and publishing
information on its website.
<PAGE>

                   PART I - FINANCIAL INFORMATION (continued)

Item 3.            Quantitative and Qualitative Disclosures About Market Risk

The  Company  believes  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.
<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  reflected
principally on municipal  securities totaled $276,000 and $163,000 for the three
month periods ended June 30, 1999 and 1998,  respectively.  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.
<PAGE>
<TABLE>
<CAPTION>
                                                                        THREE MONTH PERIODS ENDED
                                                       June 30, 1999                                June 30, 1998
                                          ---------------------------------------       ----------------------------------------
                                           Average                                       Average
                                           Balance        Interest     Yield/Rate        Balance         Interest    Yield/Rate
                                          --------        -------         ----          --------         -------         ----
                                                                        (Dollars in Thousands)
<S>                                       <C>             <C>             <C>           <C>              <C>             <C>
Interest-Earning Assets
  Loans receivable, net                   $146,125        $ 2,801         7.67%         $129,948         $ 2,603         8.01%
  Mortgage-backed securities                72,235          1,166         6.46%           90,917           1,507         6.63%
  Securities                                91,286          1,705         7.47%           73,619           1,346         7.31%
  Federal funds sold and other                  49              1         8.19%               50               1         8.02%
                                          --------        -------                       --------         -------
  Total interest-earning assets            309,695          5,673         7.33%          294,534           5,457         7.41%
                                                          -------                                        -------
Allowance for loan losses                  (2,029)                                       (1,912)
Other assets, net                           19,279                                         9,100
                                          --------                                      --------
  Total Assets                            $326,945                                      $301,722
                                          ========                                      ========
Interest-Bearing Liabilities
  Savings deposits                        $ 82,410           $611         2.97%         $ 79,419            $644         3.25%
  Money market                               6,484             50         3.09%            5,980              47         3.15%
  Now deposits                              14,613             71         1.95%           11,947              68         2.28%
  Certificates of deposit                  107,151          1,363         5.10%          102,704           1,440         5.62%
  Short-term borrowings                     10,032            124         4.96%           15,441             220         5.71%
  Long-term borrowings                      25,000            325         5.21%            5,824              74         5.10%
  Escrow and other                           2,745             17         2.48%            2,531              14         2.22%
                                          --------        -------                       --------         -------         -
  Total interest-bearing
      liabilities                          248,435          2,561         4.13%          223,846           2,507         4.49%
                                                          -------                                        -------
Non-interest bearing                         8,101                                         6,611
Other liabilities                            3,112                                         3,061
Shareholders' equity                        67,297                                        68,204
                                          --------                                      --------
  Total Equity and Liabilities            $326,945                                      $301,722
                                          ========                                      ========

  Net interest income                                      $3,112                                         $2,950
                                                           ======                                         ======
  Net interest rate spread                                                3.20%                                          2.92%
                                                                          ====                                           ====
  Net yield on average
       interest-earning assets                                            4.03%                                          4.02%
                                                                          ====                                           ====
  Average interest earning
       assets to average interest
         bearing liabilities               124.66%                                       131.58%
                                           ======                                        ======
  Earning Assets/Total Assets               94.72%                                        97.62%
                                            =====                                         =====

</TABLE>
<PAGE>
               TABLE #2 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  reflected
principally on municipal  securities  totaled $771,000 and $257,000 for the nine
month periods ended June 30, 1999 and 1998,  respectively.  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.
<PAGE>
<TABLE>
<CAPTION>
                                                                        NINE MONTH PERIODS ENDED
                                                       June 30, 1999                                June 30, 1998
                                          ---------------------------------------       ----------------------------------------
                                           Average                                       Average
                                           Balance        Interest     Yield/Rate        Balance         Interest    Yield/Rate
                                          --------        -------         ----          --------         -------         ----
                                                                        (Dollars in Thousands)
<S>                                       <C>             <C>             <C>           <C>              <C>             <C>
Interest-Earning Assets
  Loans receivable, net                   $144,225        $ 8,343         7.71%         $127,780         $ 7,704         8.04%
  Mortgage-backed securities                77,860          3,729         6.39%           88,788           4,551         6.83%
  Securities                                84,595          4,724         7.45%           70,633           3,787         7.15%
  Federal funds sold and other                  68              5         9.80%               74               4         7.23%
                                          --------        -------                       --------         -------
  Total interest-earning assets            306,748         16,801         7.30%          287,275          16,046         7.45%
                                                          -------                                        -------
Allowance for loan losses                  (1,996)                                       (1,896)
Other assets, net                           16,440                                         9,167
                                          --------                                      --------
  Total Assets                            $321,192                                      $294,546
                                          ========                                      ========
Interest-Bearing Liabilities
  Savings deposits                        $ 80,024        $ 1,803         3.01%         $ 78,770          $1,970         3.34%
  Money market                               6,258            141         3.01%            6,439             153         3.18%
  Now deposits                              13,843            202         1.95%           11,326             203         2.40%
  Certificates of deposit                  107,583          4,267         5.30%          101,428           4,281         5.64%
  Short-term borrowings                      8,144            304         4.99%           12,735             548         5.75%
  Long-term borrowings                      25,000            976         5.22%            3,486             133         5.10%
  Escrow and other                           2,207             43         2.60%            1,896              34         2.40%
                                          --------        -------                       --------         -------
  Total interest-bearing
      liabilities                          243,059          7,736         4.26%          216,080           7,322         4.53%
                                                          -------                                        -------
Non-interest bearing                         7,292                                         5,358
Other liabilities                            3,426                                         2,977
Shareholders' equity                        67,415                                        70,131
                                           -------                                      --------
  Total Equity and Liabilities            $321,192                                      $294,546
                                          ========                                      ========

  Net interest income                                     $ 9,065                                        $ 8,724
                                                          =======                                        =======
  Net interest rate spread                                                3.04%                                          2.92%
                                                                          ====                                           ====
  Net yield on average
       interest-earning assets                                            3.95%                                          4.06%
                                                                          ====                                           ====
  Average interest earning
       assets to average interest
         bearing liabilities               126.20%                                       132.95%
                                           ======                                        ======
  Earning Assets/Total Assets               95.50%                                        97.53%
                                            =====                                         =====
</TABLE>
<PAGE>
                         CATSKILL FINANCIAL CORPORATION
                                    FORM 10-Q

                                  JUNE 30, 1999

--------------------------------------------------------------------------------


                           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 2.           Change in Securities
                  --------------------
                           None

Item 3.           Defaults on Senior Securities
                  -----------------------------
                           Not Applicable

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
         (10.1)   Catskill Savings Bank Director Death Benefit Plan
         (11)     Computation of Net Income per Common Share
         (27)     Financial Data Schedule (included only in EDGAR filing)


<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: August 13, 1999                   /s/ Wilbur J. Cross
                                        --------------------
                                        Wilbur J. Cross
                                        Chairman of the Board, President
                                        and Chief Executive Officer
                                        (Principal Executive Officer)



Date: August 13, 1999                   /s/ David J. DeLuca
                                        --------------------
                                        David J. DeLuca
                                        Chief Financial Officer
                                        (Principal Financial and
                                        Accounting Officer)