<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                              --------------------
  
                                    FORM 10-Q
(Mark One)

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

     For the quarterly period ended June 30, 1998

                                       OR

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


     For the transition period from ________________ to __________________


                        Commission File Number 0-27716

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


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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [_]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

Classes of Common Stock              Number of Shares Outstanding, June 30, 1998
-----------------------              -------------------------------------------

    $0.01 Par Value                                  2,772,225

<PAGE>



                          YONKERS FINANCIAL CORPORATION
                                    FORM 10-Q
                      QUARTERLY PERIOD ENDED JUNE 30, 1998

                                                                           Page
                                                                          Number
                                                                          ------

                         PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)
         Consolidated Balance Sheets at June 30, 1998 and 
           September 30, 1997.............................................   1
         Consolidated Statements of Income for the Three and Nine
           Months Ended June 30, 1998 and 1997............................   2
         Consolidated Statement of Changes in Stockholders' Equity
           for the Nine Months Ended June 30, 1998........................   3
         Consolidated Statements of Cash Flows for the Nine Months
           Ended June 30, 1998 and 1997 ..................................   4
         Notes to Consolidated Financial Statements.......................   5
Item 2.  Management's Discussion and Analysis of
           Financial Condition and Results of Operations .................   8
Item 3.  Quantitative and Qualitative Disclosures About
           Market Risk....................................................  20

                          PART II. OTHER INFORMATION

Item 1.  Legal Proceedings...............................................   21
Item 2.  Changes in Securities...........................................   21
Item 3.  Defaults Upon Senior Securities.................................   21
Item 4.  Submission of Matters to a Vote of Security Holders.............   21
Item 5.  Other Information...............................................   21
Item 6.  Exhibits and Reports on Form 8-K................................   21
         Signature Page..................................................   22


Explanatory Note: This Quarterly Report on Form 10-Q contains certain
forward-looking statements consisting of estimates with respect to the financial
condition, results of operations and business of the Company that are subject to
various factors which could cause actual results to differ materially from these
estimates. These factors include changes in general, economic and market, and
legislative and regulatory conditions, and the development of an interest rate
environment that adversely affects the interest rate spread or other income
anticipated from the Company's operations and investments.


                                       i
<PAGE>
Part I. Item 1.

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
                        (In thousands, except share data)
<TABLE>
<CAPTION>
                                                                                    At June 30, 1998          At September 30, 1997
                                                                                    ----------------          ---------------------
<S>                                                                                 <C>                       <C>      
ASSETS                                                                                                              
Cash and cash equivalents:                                                                                          
     Cash and due from banks                                                               $   6,119                      $   2,046
     Short-term investments                                                                        -                          1,547
                                                                                           ---------                      ---------
          Total cash and cash equivalents                                                      6,119                          3,593
                                                                                           ---------                      ---------
                                                                                                                    
Securities:                                                                                                         
     Available for sale, at fair value (amortized cost of $122,792                                                  
       at June 30, 1998 and $85,336 at September 30, 1997)                                   123,572                         86,286
     Held to maturity, at amortized cost (fair value of $54,748                                                     
       at June 30, 1998 and $76,902 at September 30, 1997)                                    54,286                         76,329
                                                                                           ---------                      ---------
          Total securities                                                                   177,858                        162,615
                                                                                           ---------                      ---------
                                                                                                                    
Real estate mortgage loans held for sale, at lower                                                                  
       of cost or market value                                                                24,347                         20,437
                                                                                           ---------                      ---------
                                                                                                                    
Loans receivable, net:                                                                                              
     Real estate mortgage loans                                                              175,358                        112,357
     Consumer and commercial business loans                                                    7,653                          7,419
     Allowance for loan losses                                                                (1,262)                        (1,093)
                                                                                           ---------                      ---------
          Total loans receivable, net                                                        181,749                        118,683
                                                                                           ---------                      ---------
                                                                                                                    
Accrued interest receivable                                                                    3,159                          2,845
Federal Home Loan Bank  ("FHLB") stock                                                         6,395                          3,005
Office properties and equipment, net                                                           1,073                            902
Other assets                                                                                     865                            876
                                                                                           ---------                      ---------
                                                                                                                    
          Total assets                                                                     $ 401,565                      $ 312,956
                                                                                           =========                      =========
                                                                                                                    
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                
                                                                                                                    
Liabilities:                                                                                                        
     Deposits                                                                              $ 232,274                      $ 207,933
     Securities repurchase agreements                                                        119,890                         54,096
     FHLB advances                                                                             7,000                          6,000
     Other liabilities                                                                         1,058                          1,049
                                                                                           ---------                      ---------
          Total liabilities                                                                  360,222                        269,078
                                                                                           ---------                      ---------
                                                                                                                    
Stockholders' equity (note 2):                                                                                      
     Preferred stock (par value $0.01 per share; 100,000                                                            
        shares authorized; none issued or outstanding)                                             -                              -
     Common stock (par value $0.01 per share: 4,500,000                                                             
        shares authorized; 3,570,750 shares issued)                                               36                             36
     Additional paid-in capital                                                               34,996                         34,734
     Unallocated common stock held by employee stock                                                                
        ownership plan ("ESOP")                                                               (2,214)                        (2,428)
     Unamortized awards of common stock under management                                                            
        recognition plan ("MRP")                                                                (915)                        (1,125)
     Treasury stock, at cost (798,525 shares at June 30, 1998 and                                                   
        549,987 shares at September 30, 1997)                                                (12,300)                        (7,513)
     Retained income, substantially restricted                                                21,272                         19,605
     Net unrealized gain on available-for-sale                                                                      
        securities, net of taxes                                                                 468                            569
                                                                                                                          ---------
          Total stockholders' equity                                                          41,343                         43,878
                                                                                           ---------                      ---------
                                                                                                                    
          Total liabilities and stockholders' equity                                       $ 401,565                      $ 312,956
                                                                                           =========                      =========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                       1
<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
                       CONSOLIDATED STATEMENTS OF INCOME
                             (Unaudited) (Unaudited)
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                          For the Three Months                For the Nine Months
                                                                             Ended June 30,                      Ended June 30,
                                                                       -------------------------          -------------------------
                                                                           1998             1997              1998             1997
                                                                           ----             ----              ----             ----
<S>                                                                    <C>              <C>               <C>              <C>     
Interest and dividend income:
   Loans                                                               $  3,362         $  2,132          $  9,580         $  6,014
   Securities                                                             2,942            3,107             8,814            8,852
   Other earning assets                                                     125              100               335              320
                                                                       --------         --------          --------         --------

     Total interest and dividend income                                   6,429            5,339            18,729           15,186
                                                                       --------         --------          --------         --------

Interest expense:
   Deposits                                                               2,298            1,992             6,698            5,813
   Securities repurchase agreements                                       1,321              567             3,158            1,261
   FHLB advances                                                             99               29               186              135
                                                                       --------         --------          --------         --------

     Total interest expense                                               3,718            2,588            10,042            7,209
                                                                       --------         --------          --------         --------

      Net interest income                                                 2,711            2,751             8,687            7,977

Provision for loan losses                                                    75               75               325              225
                                                                       --------         --------          --------         --------

      Net interest income after provision for
           loan losses                                                    2,636            2,676             8,362            7,752
                                                                       --------         --------          --------         --------

Non-interest income:
   Service charges and fees                                                 242              205               675              585
   Net gain (loss) on sales of real estate
      mortgage loans held for sale                                           79                -               273              (17)
   Net gain (loss) on sales of securities                                   195              (18)              143              (52)
   Other                                                                     18               12                48               50
                                                                       --------         --------          --------         --------

      Total non-interest income                                             534              199             1,139              566
                                                                       --------         --------          --------         --------

Non-interest expense:
   Compensation and benefits                                              1,011              863             2,978            2,529
   Occupancy and equipment                                                  256              186               691              534
   Federal deposit insurance costs                                           33               31                97              152
   Data processing service fees                                             156              110               415              338
   Other                                                                    496              379             1,579            1,148
                                                                       --------         --------          --------         --------

      Total non-interest expense                                          1,952            1,569             5,760            4,701
                                                                       --------         --------          --------         --------

        Income before income tax expense                                  1,218            1,306             3,741            3,617

Income tax expense                                                          491              513             1,518            1,409
                                                                       --------         --------          --------         --------

       Net income                                                      $    727         $    793          $  2,223         $  2,208
                                                                       ========         ========          ========         ========

Earnings per common share (note 3):
       Basic                                                           $   0.28         $   0.29          $   0.84         $   0.77
       Diluted                                                             0.27             0.28              0.82             0.75
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                       2
<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                   (Unaudited)
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                                  Unamortized
                                                                                                 Unallocated        Awards of      
                                                                                 Additional        Common            Common        
                                                                 Common           Paid-in        Stock Held          Stock         
                                                                  Stock           Capital          by ESOP          Under MRP      
                                                              ------------     -------------   --------------    ---------------   
<S>                                                           <C>              <C>             <C>               <C>      
Balance at September 30, 1997                                        $36            $34,734          ($2,428)          ($1,125)
                                                                                                                     
    Net income                                                       -                  -                -                 -   
    Dividends paid ($0.20 per share)                                 -                  -                -                 -   
    Common stock repurchased (248,538 shares)                        -                  -                -                 -   
    Amortization of MRP awards                                       -                  -                -                 210
    Tax benefits from vested MRP awards                              -                   62              -                 -   
    ESOP shares released for allocation (21,425 shares)              -                  200              214               -   
    Decrease in net unrealized gain on                                                                               
        available-for-sale securities, net of taxes                  -                  -                -                 -   
                                                                                                                     
                                                                --------           --------         --------          --------
Balance at June 30, 1998                                             $36            $34,996          ($2,214)            ($915)
                                                                ========           ========         ========          ========
                                                                                                                     
<CAPTION>
         
                                                                                                        Net    
                                                                                                     Unrealized         Total 
                                                                  Treasury         Retained           Gain on         Stockholders'
                                                                   Stock            Income           Securities          Equity    
                                                               ------------     -------------    -----------------  ---------------
<S>                                                            <C>              <C>              <C>                <C>     
Balance at September 30, 1997                                    ($7,513)            $19,605              $569           $43,878
                                                                                                                     
    Net income                                                       -                 2,223             -                 2,223
    Dividends paid ($0.20 per share)                                 -                  (556)            -                  (556)
    Common stock repurchased (248,538 shares)                     (4,787)               -                -                (4,787)
    Amortization of MRP awards                                       -                  -                -                   210
    Tax benefits from vested MRP awards                              -                  -                -                    62
    ESOP shares released for allocation (21,425 shares)              -                  -                -                   414
    Decrease in net unrealized gain on                                                                               
        available-for-sale securities, net of taxes                  -                  -                 (101)             (101)
                                                                                                                     
                                                                --------            --------          --------          --------
Balance at June 30, 1998                                        ($12,300)            $21,272              $468           $41,343
                                                                ========            ========          ========          ========
</TABLE>


See accompanying notes to unaudited consolidated financial statements

                                       3 
<PAGE>

                  YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                                             For the Nine Months
                                                                                                             Ended June 30,
                                                                                                         --------------------------
                                                                                                            1998               1997
                                                                                                            ----               ----
<S>                                                                                                    <C>                <C>
Cash flows from operating activities:
    Net income                                                                                         $   2,223          $   2,208
    Adjustments to reconcile net income to net cash provided
        by operating activities:
           Provision for loan losses                                                                         325                225
           Depreciation and amortization expense                                                             192                141
           Amortization of deferred fees, discounts and premiums, net                                         57               (232)
           Net (gain) loss on sales of real estate mortgage loans held for sale                             (273)                17
           Net (gain) loss on sales of securities                                                           (143)                52
           Other adjustments, net                                                                            397               (415)
                                                                                                       ---------          ---------
               Net cash provided by operating activities                                                   2,778              1,996
                                                                                                       ---------          ---------


Cash flows from investing activities:
    Purchases of available-for-sale securities                                                           (80,231)           (46,735)
    Proceeds from principal payments, maturities and calls of securities:
        Available-for-sale                                                                                19,858              3,762
        Held-to-maturity                                                                                  21,513             11,608
    Proceeds from sales of securities:
        Available-for-sale                                                                                22,863             13,739
        Held-to-maturity                                                                                     630                235
    Disbursements for loan originations                                                                 (126,557)           (28,087)
    Principal collections on loans                                                                        16,839              9,413
    Proceeds from sales of loans                                                                          42,599              1,913
    Purchases of FHLB stock                                                                               (3,390)            (1,128)
    Other investing cash flows, net                                                                         (168)               (89)
                                                                                                       ---------          ---------
               Net cash used in investing activities                                                     (86,044)           (35,369)
                                                                                                       ---------          ---------

Cash flows from financing activities:
    Net increase in deposits                                                                              24,341             13,481
    Net (decrease) increase in borrowings with
        original terms of three months or less:
           Securities repurchase agreements                                                                9,333             16,366
           FHLB advances                                                                                   1,000             (7,000)
    Proceeds from longer-term securities repurchase agreements                                            56,461             12,229
    Common stock repurchased                                                                              (4,787)            (8,652)
    Dividends paid                                                                                          (556)              (436)
                                                                                                       ---------          ---------
               Net cash provided by financing activities                                                  85,792             25,988
                                                                                                       ---------          ---------

Net increase (decrease) in cash and cash equivalents                                                       2,526             (7,385)
Cash and cash equivalents at beginning of period                                                           3,593             12,500
                                                                                                       ---------          ---------

Cash and cash equivalents at end of period                                                             $   6,119          $   5,115
                                                                                                       =========          =========

Supplemental information:
    Interest paid                                                                                      $   9,843          $   6,789
    Income taxes paid                                                                                      1,461              1,340
                                                                                                       =========          =========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                       4





<PAGE>
 
                 YONKERS FINANCIAL CORPORATION AND SUBSIDIARY
                  Notes to Consolidated Financial Statements
                                  (Unaudited)

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

     Yonkers Financial Corporation (the "Holding Company") was incorporated
under the laws of the State of Delaware and on April 18, 1996 became the savings
and loan holding company of The Yonkers Savings and Loan Association, FA (the
"Association") in connection with the Association's conversion from a federally
chartered mutual savings and loan association to a federally chartered stock
savings and loan association, pursuant to its Plan of Conversion. The Holding
Company's principal business, subsequent to the Conversion, is the ownership of
its wholly owned subsidiary, the Association. Collectively, the Holding Company
and the Association are referred to herein as the "Company".

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

     Certain financial information and footnote disclosures normally included in
annual financial statements prepared in conformity with generally accepted
accounting principles have been omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. The unaudited interim consolidated
financial statements presented herein should be read in conjunction with the
annual consolidated financial statements of the Company as of and for the fiscal
year ended September 30, 1997, included in the Form 10-K.

(2)  Stockholders' Equity
     --------------------

     Concurrent with the Conversion, on April 18, 1996 the Holding Company sold
3,570,750 shares of its common stock in a subscription and community offering at
a price of $10 per share, resulting in gross proceeds of $35.7 million
(including $2.9 million attributable to the shares purchased by the Holding
Company's Employee Stock Ownership Plan). After deducting conversion costs of
$1.1 million, the net proceeds were $34.6 million. The Holding Company used
$17.3 million of the net proceeds to acquire all of the common stock issued by
the Association in the Conversion. The remaining proceeds were retained by the
Holding Company. On a consolidated basis, the net offering proceeds were $31.7
million after deducting shares purchased by the Holding Company's Employee Stock
Ownership plan ("ESOP"). 


                                       5
<PAGE>
 
     On September 4, 1996, the Holding Company received approval from the OTS to
repurchase up to 10% of its outstanding common stock, or 357,075 shares, for the
treasury. The Holding Company completed this repurchase in the quarter ended
December 31, 1996 at a total cost of $4.6 million.

     On October 30, 1996, the Company's stockholders approved (i) the Yonkers
Financial Corporation 1996 Management Recognition Plan ("MRP") and (ii) the
Yonkers Financial Corporation 1996 Stock Option and Incentive Plan (the "Option
Plan"). The Holding Company funded the MRP in the quarter ended December 31,
1996 by purchasing 4% of its outstanding common stock, or 142,830 shares, in the
open market at a total cost of $1.8 million. Grants for a total of 108,905
shares have been made to employees and directors under the MRP through June 30,
1998, and the remaining 33,925 shares are included in treasury stock at June 30,
1998 and available for future awards. Under the Option Plan, grants of 285,233
options have been made through June 30, 1998, at a weighted average exercise
price of approximately $13.01 per share.

     On May 1, 1997, the Holding Company received approval from the OTS to
repurchase up to 5% of its outstanding common stock, or 158,987 shares, for the
treasury. The Holding Company completed this repurchase in the quarter ended
September 30, 1997 at a total cost of $2.5 million.

     On January 28, 1998, the Holding Company received approval from the OTS to
repurchase up to 5% of its outstanding common stock, or 151,038 shares, for the
treasury. The Holding Company completed this repurchase in the quarter ended
June 30, 1998, at a total cost of $3.0 million.

     On June 5, 1998, the Holding Company received approval from the OTS to
repurchase up to 5% of its outstanding common stock, or 143,486 shares, for the
treasury. Through June 30, 1998, the Holding Company had repurchased 97,500
shares of the 143,486 approved shares at a total cost of $1.8 million.

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

     During the quarter ended December 31, 1997, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which
requires presentation of both basic earnings per share ("EPS") and diluted EPS
by all entities with complex capital structures. Basic EPS excludes dilution and
is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock (such as stock options) were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted EPS is computed by dividing
net income by the weighted average number of common shares outstanding for the
period plus common-equivalent shares computed using the treasury stock method.


                                       6
<PAGE>
 
SFAS No. 128 requires the restatement of all prior period EPS data to conform to
the new requirements.

     The table below summarizes the number of shares utilized in the Company's
EPS calculations for the three and nine months ended June 30, 1998 and 1997. For
purposes of computing basic EPS, net income applicable to common stock equaled
net income for each of the periods presented.

<TABLE>
<CAPTION>
                                                    For the Three Months  For the Nine Months
                                                      Ended June 30,        Ended June 30,
                                                      --------------        --------------
                                                       1998    1997          1998    1997
                                                       ----    ----          ----    ----
                                                               (In Thousands)
<S>                                                   <C>     <C>           <C>     <C>  
Weighted average common shares outstanding
     for computation of basic EPS (1)                 2,578   2,765         2,656   2,864
Common-equivalent shares due to the dilutive 
     effect of stock options and MRP awards (2)          86     113            57      90
                                                        ---    ----           ---     ---
Weighted average common shares for computation        2,664   2,878         2,713   2,954
     of diluted EPS                                   =====   =====         =====   =====
                     
</TABLE>


(1)  Excludes unvested MRP awards and unallocated ESOP shares that have not been
     committed to be released.

(2)  Computed using the treasury stock method.


                                       7
<PAGE>
 
Part I. Item 2.

Management's Discussion and Analysis of Financial Condition and Results of
Operations

Comparison of Financial Condition at June 30, 1998 and September 30, 1997

     Total assets at June 30, 1998 increased $88.6 million to $401.6 million
from $313.0 million at September 30, 1997. Asset growth was funded primarily
through proceeds from borrowings under securities repurchase agreements and
deposit inflows. Borrowings under securities repurchase agreements increased
$65.8 million to $119.9 million at June 30, 1998 from $54.1 million at September
30, 1997. Deposit liabilities increased $24.4 million to $232.3 million at June
30, 1998 from $207.9 million at September 30, 1997. Funds provided by borrowings
and deposit growth, as well as proceeds from sales of loans held for sale, were
primarily invested in new loans and securities.

     Overall, total loans (loans receivable and loans held for sale) increased
to $206.1 million at June 30, 1998, compared to $139.1 million at September 30,
1997 (an increase of $67.0 million) and $160.5 million at March 31, 1998 (an
increase of $45.6 million). The $67.0 million increase primarily reflects
originations (net of principal payments) of $109.0 million, less $42.6 million
in loans sold. The portfolio growth in the nine-month period primarily reflects
increases of $65.3 million in one-to four-family mortgage loans, $1.2 million in
multi-family loans, $374,000 in construction loans and $510,000 in commercial
real estate loans, partially offset by a decrease of $660,000 in land loans.

     Total securities increased $15.2 million to $177.8 million at June 30, 1998
from $162.6 million at September 30, 1997. The securities portfolio at June 30,
1998 reflects a $37.3 million increase in available-for-sale securities and a
$22.1 million decrease in held-to-maturity securities, compared to September 30,
1997. The increase in available-for-sale securities primarily reflects purchases
of $80.2 million (including purchases of longer term, fixed rate securities
funded with borrowings under repurchase agreements), partially offset by $19.8
million in principal payments, maturities and calls, and $22.8 million in
proceeds from sales. The Company's overall interest rate risk, as measured by
the sensitivity of its net portfolio value to instantaneous interest rate
changes, may have increased somewhat as a result of funding a portion of these
security purchases with shorter term borrowings. The decrease in
held-to-maturity securities primarily reflects principal payments, maturities
and calls of $21.5 million. Available-for-sale securities represented 69.5% of
the total securities portfolio at June 30, 1998, compared to 53.1% at September
30, 1997. Management has increased the level of available-for-sale securities to
enhance the Company's overall financial flexibility, including the ability to
reposition the portfolio or reduce borrowings in response to changes in interest
rates and other market conditions.


                                       8
<PAGE>
 
     Borrowings at June 30, 1998 reflect a $65.8 million increase in securities
repurchase agreements to $119.9 million compared to $54.1 million at September
30, 1997, and a $1.0 million increase in FHLB advances. The increase in
securities repurchase agreements includes a $52.3 million increase in the
quarter ended June 30, 1998. The Company began to utilize repurchase agreements
during the quarter ended September 30, 1996 as a means of leveraging available
capital to support further asset growth (primarily loans and available-for-sale
securities) and increase net interest income. For information regarding the
terms of the repurchase agreements, see "Liquidity and Capital Resources".

     Stockholders' equity decreased $2.6 million, from $43.9 million at
September 30, 1997 to $41.3 million at June 30, 1998. The decrease is primarily
attributable to common share repurchases at a total cost of $4.8 million,
partially offset by net income of $1.7 million retained after dividends. A total
of 248,538 shares were repurchased in the nine months ended June 30, 1998 at an
average cost of $19.26 per share. The ratio of stockholders' equity to total
assets was 10.30% at June 30, 1998, compared to 14.02% at September 30, 1997.
Book value per share (computed based on total shares issued less treasury
shares) was $14.91 at June 30, 1998, compared to $14.53 at September 30, 1997.
See "Liquidity and Capital Resources" for information regarding the
Association's regulatory capital amounts and ratios.

     Total non-performing assets decreased $913,000, from $1.5 million at
September 30, 1997 to $604,000 at June 30, 1998, reflecting net decreases of
$839,000 in non-accrual loans past due ninety days or more and $74,000 in real
estate owned. The ratio of non-performing assets to total assets was 0.15% at
June 30, 1998 compared to 0.48% at September 30, 1997. The allowance for loan
losses was $1.3 million or 0.69% of total loans receivable at June 30, 1998,
compared to $1.1 million or 0.90% at September 30, 1997. The ratio of the
allowance for loan losses to non-performing loans was 422.07% at June 30, 1998
compared to 96.05% at September 30, 1997.


                                       9
<PAGE>

       The following table shows the Company's average consolidated balances,
interest income and expense, and average rates (annualized) for the periods
indicated.

<TABLE>
<CAPTION>
                                                                                         Three Months Ended
                                                              ----------------------------------------------------------------------
                                                                         June 30, 1998                    June 30, 1997
                                                              ---------------------------------     --------------------------------
                                                               Average                  Average     Average                 Average
                                                               Balance     Interest  Yield/Cost     Balance     Interest  Yield/Cost
                                                               -------     --------  ----------     -------     --------  ----------
                                                                                      (Dollars In Thousands)               
<S>                                                           <C>          <C>       <C>           <C>          <C>       <C>  
Interest-earning assets:                                                                                                   
    Loans (1)                                                 $183,524     $  3,362        7.33%   $ 96,075     $  2,132       8.88%
    Mortgage-backed securities (2)                             111,239        1,862        6.70      91,893        1,598       6.96
    Other securities (2)                                        62,835        1,080        6.88      83,201        1,509       7.25
    Other earning assets                                         8,199          125        6.10       8,374          100       4.78
                                                              --------     --------                --------     --------   
       Total interest-earning assets                           365,797     $  6,429        7.03     279,543     $  5,339       7.64
                                                                           ========                             ========   
Non-interest earning assets                                      6,759                                5,982                
                                                              --------                             --------                
       Total assets                                           $372,556                             $285,525                  
                                                              ========                             ========                
                                                                                                                           
Interest-bearing liabilities:                                                                                              
    NOW, club and money market accounts                       $ 49,639     $    205        1.65    $ 39,673     $    216       2.18
    Regular savings accounts (3)                                45,000          271        2.41      45,848          285       2.49
    Savings certificate accounts                               126,008        1,822        5.78     111,573        1,491       5.35
                                                              --------     --------                --------     --------   
       Total interest-bearing deposits                         220,647        2,298        4.17     197,094        1,992       4.04
    Borrowings                                                  98,477        1,420        5.77      40,992          596       5.82
                                                              --------     --------                --------     --------   
       Total interest-bearing liabilities                      319,124     $  3,718        4.66     238,086     $  2,588       4.35
                                                                           ========                             ========       
Non-interest-bearing liabilities                                10,352                                4,385                  
                                                              --------                             --------                
       Total liabilities                                       329,476                              242,471                  
Stockholders' equity                                            43,080                               43,054                  
                                                              --------                             --------                
       Total liabilities and stockholders' equity             $372,556                             $285,525                  
                                                              ========                             ========                
Net interest income                                                        $  2,711                             $  2,751       
                                                                           ========                             ========   
Average interest rate spread (4)                                                           2.37%                               3.29%
Net interest margin (5)                                                                    2.98%                               3.94%
Net interest-earning assets (6)                               $ 46,673                             $ 41,457                  
                                                              ========                             ========                
Ratio of average interest-earning assets to average                                                                        
    interest-bearing liabilities                                                         114.63%                             117.41%

<CAPTION>
                                                                                                                           
                                                                                           Nine Months Ended
                                                              ----------------------------------------------------------------------
                                                                           June 30, 1998                   June 30, 1997
                                                              ----------------------------------    --------------------------------
                                                               Average                  Average     Average                 Average
                                                               Balance     Interest   Yield/Cost    Balance     Interest  Yield/Cost
                                                               -------     --------   ----------    -------     --------  ----------
                                                                                       (Dollars In Thousands)
<S>                                                            <C>         <C>        <C>           <C>         <C>       <C> 
Interest-earning assets:
    Loans (1)                                                 $159,514     $  9,580        8.01%   $ 91,778     $  6,014       8.74%
    Mortgage-backed securities (2)                             107,317        5,543        6.89      86,200        4,451       6.88
    Other securities (2)                                        62,858        3,271        6.94      82,356        4,401       7.13
    Other earning assets                                         7,902          335        5.65       8,164          320       5.23
                                                              --------     --------                --------     --------
       Total interest-earning assets                           337,591     $ 18,729        7.40     268,498     $ 15,186       7.54
                                                                           ========                             ========
Non-interest earning assets                                      5,795                                5,447               
                                                              --------                             --------
       Total assets                                           $343,386                             $273,945               
                                                              ========                             ========
                                                                                                  
Interest-bearing liabilities:                                                                     
    NOW, club and money market accounts                       $ 46,141     $    630        1.82    $ 37,098     $    632       2.27
    Regular savings accounts (3)                                45,083          824        2.44      46,826          878       2.50
    Savings certificate accounts                               122,797        5,244        5.69     109,109        4,303       5.26
                                                              --------     --------                --------     --------
       Total interest-bearing deposits                         214,021        6,698        4.17     193,033        5,813       4.02
    Borrowings                                                  76,554        3,344        5.82      32,388        1,396       5.75
                                                              --------     --------                --------     --------
       Total interest-bearing liabilities                      290,575     $ 10,042        4.61     225,421     $  7,209       4.26
                                                                           ========                             ========  
Non-interest-bearing liabilities                                 8,811                                4,238               
                                                              --------                             --------
       Total liabilities                                       299,386                              229,660               
Stockholders' equity                                            44,000                               44,285               
                                                              --------                             --------
       Total liabilities and stockholders' equity             $343,386                             $273,945               
                                                              ========                             ========    
Net interest income                                                        $  8,687                             $  7,977 
                                                                           ========                             ========
Average interest rate spread (4)                                                           2.79%                               3.28%
Net interest margin (5)                                                                    3.43%                               3.96%
Net interest-earning assets (6)                               $ 47,016                             $ 43,077               
                                                              ========                             ========
Ratio of average interest-earning assets to                                                       
    average interest-bearing liabilities                                                 116.18%                             119.11%
</TABLE>

(1)  Balances are net of deferred loan fees and construction loans in process,
     and include loans receivable and loans held for sale. Non-accrual loans are
     included in the balances.
(2)  Average balances represent amortized cost.
(3)  Includes mortgage escrow accounts.
(4)  Average interest rate spread represents the difference between the yield on
     average interest earning assets and the cost of average interest-bearing
     liabilities.
(5)  Net interest margin represents net interest income divided by average total
     interest-earning assets.
(6)  Net interest-earning assets represents total interest-earning assets less
     total interest-bearing liabilities.

                                      10
<PAGE>
 
Comparison of Operating Results for the Three Months Ended June 30, 1998 and
1997

     General. Net income for the three months ended June 30, 1998 was $727,000
or basic earnings per common share of $0.28, compared to net income of $793,000
or basic earnings per common share of $0.29 for the quarter ended June 30, 1997.
Diluted earnings per common share were $0.27 for the quarter ended June 30, 1998
compared to $0.28 for the same period in 1997. The $66,000 decrease in net
income was primarily attributable to a $383,000 increase in non-interest expense
and a $40,000 decrease in net interest income, largely offset by a $335,000
increase in non-interest income and a $22,000 decrease in income tax expense.

     Net Interest Income. Net interest income was approximately $2.7 million for
each of the three-month periods ended June 30, 1998 and 1997. The positive
effect of higher average interest-earning assets (primarily attributable to the
reinvestment of proceeds from borrowings and deposit growth) was offset by
declines in the average interest rate spread and net interest margin. The
average interest rate spread was 2.37% for the current quarter compared to 3.29%
for the quarter ended June 30, 1997, while the net interest margin was 2.96% for
the current quarter compared to 3.94% for the year-ago period. The narrower
spread and margin primarily reflect (i) an overall lower asset yield from the
origination of mortgage loans (including refinancings) in the current lower
interest rate environment and (ii) higher average rates paid on interest-bearing
deposits and borrowings, as well as the larger proportion of higher rate
borrowings to total interest-bearing funding.

     Interest Income. Interest and dividend income totaled $6.4 million for the
three months ended June 30, 1998, an increase of $1.1 million compared to $5.3
million for the three months ended June 30, 1997. This increase reflects the
effect of an $86.3 million increase in total average interest-earning assets,
partially offset by a 61 basis point decrease in the average yield on such
assets to 7.03% for the three months ended June 30, 1998 from 7.64% for the same
period in the prior year.

     Interest income on loans increased $1.2 million for the three months ended
June 30, 1998 compared to the same period in the prior year, reflecting the
effect of an $87.4 million increase in the average balance partially offset by a
155 basis point decrease in the average yield to 7.33% for the three months
ended June 30, 1998 from 8.88% for the same period in the prior year. The yield
for the quarter ended June 30, 1997 reflected an increase of approximately 21
basis points from the annualized effect of collecting interest on certain
previously non-performing loans which were paid-off or returned to accruing
status at that time. The lower average yield in the 1998 quarter also reflects
the repricing of adjustable rate mortgage loans and the origination of new loans
(including refinancings) in the current lower interest rate environment. The
increase in the average balance of loans was primarily attributable to an
increase in one-to-four family residential loans.


                                      11
<PAGE>
 
     On a combined basis, interest and dividend income on mortgage-backed and
other securities decreased $165,000 for the three months ended June 30, 1998
compared to the same period in the prior year. Interest on mortgage-backed
securities increased by $264,000, attributable to a $19.3 million increase in
the average balance partially offset by a 26 basis point decrease in the average
yield. Interest on other securities declined by $429,000, attributable to a
$20.4 million decrease in the average balance and a 37 basis point decrease in
the average yield. The lower average yields in the 1998 quarter reflects the
effects of (i) higher premium amortization on mortgage-backed securities caused
by increased repayments of principal and (ii) the call of higher yielding agency
securities due to the current lower interest rate environment.

     Interest and dividend income on other earning assets increased $25,000,
attributable to a 132 basis point increase in the average yield partially offset
by a $175,000 decrease in the average balance.

     Interest Expense. Interest expense totaled $3.7 million for the three
months ended June 30, 1998, an increase of $1.1 million compared to interest
expense of $2.6 million for the three months ended June 30, 1997. Interest
expense on deposits increased $306,000 compared to the same period in the prior
year, reflecting the effect of a $23.6 million increase in the average balance
and a 13 basis point increase in the average rate on interest-bearing deposits
to 4.17% for the three months ended June 30, 1998 from 4.04% for the prior-year
quarter. The increase in the average rate on interest-bearing deposits primarily
reflects a shift from lower-rate savings and shorter-term certificates of
deposit into generally higher-rate, longer-term certificates of deposit. The
increase in average interest-bearing deposits consisted of a $14.4 million
increase in average savings certificate accounts (to $126.0 million from $111.6
million) and a $9.9 million increase in average NOW, club and money market
accounts (to $49.6 million from $39.7 million), partially offset by an $848,000
decrease in average regular savings accounts (to $45.0 million from $45.8
million).

     Interest expense on borrowings increased $824,000 to $1.4 million for the
three months ended June 30, 1998 from $596,000 for the three months ended June
30, 1997, as the Company continued to increase borrowings to leverage available
capital and support further asset growth, particularly growth in the one-to-four
family mortgage loan portfolio. Substantially all of this increase was
attributable to interest on borrowings under securities repurchase agreements,
which had an average balance of $91.9 million and an average rate of 5.75% for
the three months ended June 30, 1998 compared to $38.9 million and 5.83%,
respectively, for the prior-year quarter. The Company has recently increased its
utilization of longer-term repurchase agreements as a means of controlling its
overall interest rate risk in the event of a rise in market interest rates. See
"Liquidity and Capital Resources" for a further discussion of the Company's
securities repurchase agreements.

Provision for Loan Losses. The provision for loan losses was $75,000 for each of
the three-month periods ended June 30, 1998 and 1997. Loan charge-offs were
$66,000 and 


                                      12
<PAGE>
 
recoveries were $10,000 during the three months ended June 30, 1998, compared to
$79,000 in charge-offs and $1,000 in recoveries during the same period in 1997.
Non-performing loans totaled $299,000 at June 30, 1998, down from $1.1 million
at September 30, 1997 and $1.2 million at June 30, 1997. The ratio of
non-performing loans to total loans receivable was 0.16% at June 30, 1998,
compared to 0.94% at September 30, 1997 and 1.15% at June 30, 1997. The
allowance for loan losses was $1.3 million or 0.69% of total loans receivable at
June 30, 1998, compared to $1.1 million or 0.90% at September 30, 1997 and $1.1
million or 1.01% at June 30, 1997. The ratio of the allowance for loan losses to
non-performing loans was 422.07% at June 30, 1998, compared to 96.05% at
September 30, 1997 and 87.75% at June 30, 1997.

     Management estimates the allowance for loan losses based on an analysis of
various factors, including the value of the underlying collateral, growth and
composition of the loan portfolio, the relationship of the allowance for loan
losses to outstanding loans, historical loss experience, delinquency trends and
prevailing economic conditions. Although the Company maintains its allowance for
loan losses at a level it considers adequate to absorb probable losses inherent
in the existing loan portfolio, there can be no assurance that such losses will
not exceed the estimated amounts or that additional substantial provisions for
losses will not be required in future periods.

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

<TABLE>
<CAPTION>
                                                    June 30, 1998       September 30, 1997       June 30, 1997
                                                    -------------       ------------------       -------------
                                                                     (Dollars in thousands)
<S>                                               <C>                  <C>                      <C>   
Non-performing loans                                        $299             $1,138                 $1,225

Real estate owned, net                                       305                379                    424
                                                           -----             ------                 ------ 
Total non-performing assets                                 $604             $1,517                 $1,649
                                                           =====             ======                 ====== 

Non-performing loans to total loans receivable             0.16%              0.94%                  1.15%

Non-performing assets to total assets                      0.15%              0.48%                  0.57%

Allowance for loan losses to: 

      Non-performing loans                               422.07%             96.05%                 87.75%

      Total loans receivable                               0.69%              0.90%                  1.01%
</TABLE>

     The Company applies Statement of Financial Accounting Standards ("SFAS")
No. 114 to loans that are individually evaluated for collectibility in
accordance with its normal loan review procedures (principally loans in the
commercial mortgage, multi-family, construction and land loan portfolios). SFAS
No. 114 generally does not apply to


                                      13
<PAGE>
 
smaller-balance homogeneous loans in the Company's one- to four-family mortgage
and consumer loan portfolios. The Company's recorded investment in impaired
loans consisted of non-accrual commercial mortgage, construction and land loans
totaling $204,000 at June 30, 1998 and $740,000 at September 30, 1997. All of
these loans were collateral-dependent loans measured based on the fair value of
the collateral in accordance with SFAS No. 114. The Company determines the need
for an allowance for impairment under SFAS No. 114 on a loan-by-loan basis. At
June 30, 1998 and September 30, 1997, such an allowance was not required with
respect to the Company's impaired loans due to the sufficiency of the related
collateral values. The average recorded investment in impaired loans was
$553,000 and $818,000 for the nine months ended June 30, 1998 and 1997,
respectively. Interest income recognized on impaired loans (while such loans
were considered to be impaired) was not significant for the three- and
nine-month periods ended June 30, 1998 and 1997.

     Non-Interest Income. Non-interest income for the three months ended June
30, 1998 increased $335,000 to $534,000 from $199,000 for the three months ended
June 30, 1997. The increase is primarily attributable to increases of $213,000
in the net gain on sales of securities, $79,000 in the net gain on sales of
loans held for sale, and $37,000 in service charges and fee income. The increase
in the net gain on sales of securities reflects gains on sales of $16.6 million
in available-for-sale securities in the current three- month period, while
losses were incurred on sales of $6.4 million in the prior-year period. The
increase in the net gain on sales of loans reflects increased sales activity, as
$7.4 million in mortgage loan sales were completed (with servicing retained)
during the current quarter. The increase in service charges and fee income
primarily reflects increases in transaction volume.

     Non-Interest Expense. Non-interest expense for the three months ended June
30, 1998 increased $383,000 to $2.0 million from $1.6 million for the three
months ended June 30, 1997. The increase was primarily attributable to increases
in compensation and benefits expense of $148,000, other non-interest expense of
$117,000, and occupancy and equipment expense of $70,000. The increase in
compensation and benefits expense primarily reflects increased costs due to (i)
additional staffing resulting from the establishment of an in-store branch and
the expansion of lending operations and (ii) a $27,000 increase in employee
stock ownership plan expenses due to an increase in the Company's stock price.
The increase in other non-interest expense was primarily attributable to
additional costs associated with the expansion of the Company's business
activities and review of additional growth opportunities. The increase in
occupancy and equipment expense primarily reflects increased costs associated
with the establishment of an in-store branch.

     Income Tax Expense. Income tax expense decreased $22,000 from $513,000 for
the three months ended June 30, 1997 to $491,000 for the three months ended June
30, 1998, primarily reflecting lower pre-tax income.

                                      14
<PAGE>
 
Comparison of Operating Results for the Nine Months Ended June 30, 1998 and 1997

     Net Income. Net income for the nine months ended June 30, 1998 was $2.2
million or basic earnings per common share of $0.84 compared to net income of
$2.2 million or basic earnings per common share of $0.77 for the nine months
ended June 30, 1997. Diluted earnings per common share were $0.82 for the nine
months ended June 30, 1998 compared to $0.75 for the same period in 1997. The
$15,000 increase in net income was attributable to a $710,000 increase in net
interest income and a $573,000 increase in non-interest income, largely offset
by a $1.1 million increase in non-interest expense, a $109,000 increase in
income tax expense, and a $100,000 increase in provision for loan losses.

     Net Interest Income. Net interest income increased $710,000 to $8.7 million
for the nine months ended June 30, 1998 from $8.0 million for the nine months
ended June 30, 1997. The increase reflects higher average interest-earning
assets primarily attributable to the reinvestment of proceeds from deposit
growth and borrowings, partially offset by declines in the average interest rate
spread and net interest margin. The average interest rate spread was 2.79% for
the current nine-month period compared to 3.28% for the nine months ended June
30, 1997, while the net interest margin was 3.43% for the current nine-month
period compared to 3.96% for the year-ago period. The narrower spread and margin
primarily reflect (i) an overall lower asset yield from the origination of
mortgage loans (including refinancings) in the current lower interest rate
environment and (ii) higher average rates paid on interest-bearing deposits and
borrowings, as well as the larger proportion of higher-rate borrowings to total
interest-bearing funding.

     Interest Income. Interest and dividend income totaled $18.7 million for the
nine months ended June 30, 1998, an increase of $3.5 million compared to $15.2
million for the nine months ended June 30, 1997. This increase reflects the
effect of a $69.1 million increase in total average interest-earning assets
partially offset by a 14 basis point decrease in the average yield on such
assets to 7.40% for the nine months ended June 30, 1998 from 7.54% for the same
period in the prior year.

     Interest income on loans increased $3.6 million for the nine months ended
June 30, 1998 compared to the same period in the prior year, reflecting the
effect of a $67.7 million increase in the average balance partially offset by a
73 basis point decrease in the average yield to 8.01% for the nine months ended
June 30, 1998 from 8.74% for the same period in the prior year. The lower
average yield in the 1998 period reflects the repricing of adjustable rate
mortgage loans and the origination of new loans (including refinancings) in the
current lower interest rate environment. The increase in the average balance of
loans was primarily attributable to an increase in one-to-four family
residential loans.



                                      15
<PAGE>
 
     On a combined basis, interest and dividend income on mortgage-backed and
other securities decreased $38,000 for the nine months ended June 30, 1998 as
compared to the same period in the prior year. Interest on mortgage-backed
securities increased by $1.1 million primarily attributable to the effects of a
$21.1 million increase in the average balance. Interest on other securities
declined by $1.1 million, attributable to a $19.5 million decrease in the
average balance and a 19 basis point decrease in the average yield.

     Interest and dividend income on other earning assets increased $15,000,
attributable to a 42 basis point increase in the average yield partially offset
by a $262,000 decrease in the average balance.

     Interest Expense. Interest expense totaled $10.0 million for the nine
months ended June 30, 1998, an increase of $2.8 million compared to interest
expense of $7.2 million for the nine months ended June 30, 1997. Interest
expense on deposits increased $885,000 compared to the same period in the prior
year, reflecting the effect of a $21.0 million increase in the average balance
and a 15 basis point increase in the average rate on interest-bearing deposits
to 4.17% for the nine months ended June 30, 1998 from 4.02% for the prior-year
period. The increase in the average rate on interest-bearing deposits primarily
reflects a shift from shorter-term certificates of deposit into generally
higher-rate, longer-term certificates of deposit. The increase in average
interest-bearing deposits consisted of a $13.7 million increase in average
savings certificate accounts (to $122.8 million from $109.1 million) and a $9.0
million increase in average NOW, club and money market accounts (to $46.1
million from $37.1 million), partially offset by a $1.7 million decrease in
average regular savings accounts (to $45.1 million from $46.8 million).

     Interest expense on borrowings increased $1.9 million to $3.3 million for
the nine months ended June 30, 1998 from $1.4 million for the nine months ended
June 30, 1997, as the Company continued to increase borrowings to leverage
capital and support further asset growth, particularly growth in the one-to-four
family mortgage loan portfolio. Substantially all of this increase was
attributable to interest on borrowings under securities repurchase agreements,
which had an average balance of $72.4 million and an average rate of 5.81% for
the nine months ended June 30, 1998 compared to $29.3 million and 5.74%,
respectively, for the prior-year period. The increase in the average rate
reflects a shift to generally higher-rate, longer-term borrowings. The Company
has recently increased its utilization of longer-term repurchase agreements as a
means of controlling its overall interest rate risk in the event of a rise in
market interest rates.

     Provision for Loan Losses. The provision for loan losses was $325,000 and
$225,000 for the nine months ended June 30, 1998 and 1997, respectively. The
current-period provision reflects the impact of higher net charge-offs and
growth in loans receivable compared to the same nine-month period in the prior
year. Net loan charge-offs were $156,000 during the nine months ended June 30,
1998, compared to $87,000 during the same period in 1997. The increase in net
charge-offs in the 1998 period was


                                      16
<PAGE>
 
primarily attributable to the settlement of two construction loans in the
quarter ended December 31, 1997.

     Non-Interest Income. Non-interest income for the nine months ended June 30,
1998 increased $573,000 to $1.1 million from $566,000 for the nine months ended
June 30, 1997. The increase was primarily attributable to increases of $290,000
in the net gain on sales of loans held for sale, $195,000 in the net gain on
sales of securities, and $90,000 in service charges and fee income. The increase
in the net gain on sales of loans reflects increased sales activity in the
current year, as mortgage loans of $42.6 million were sold (with servicing
retained) during the nine-month period ended June 30, 1998. In comparison, loan
sales during the nine months ended June 30, 1997 amounted to $1.5 million. The
increase in net gain on sales of securities reflects gains on sales of $22.7
million in available-for-sale securities in the current nine-month period, while
losses were incurred on sales of $13.8 million in the prior-year period. The
increase in service charges and fee income primarily reflects increases in
transaction volume.

     Non-Interest Expense. Non-interest expense for the nine months ended June
30, 1998 increased $1.1 million to $5.8 million from $4.7 million for the nine
months ended June 30, 1997. The increase was primarily attributable to increases
in compensation and benefits expense of $449,000, other non-interest expense of
$431,000, and occupancy and equipment expense of $157,000. The increase in
compensation and benefits expense primarily reflects increased costs due to (i)
additional staffing resulting from the establishment of an in-store branch and
the expansion of lending operations, and (ii) a $113,000 increase in employee
stock ownership plan expenses due to an increase in the Company's stock price.
The increase in other non-interest expense was primarily attributable to
additional costs associated with the expansion of the Company's business
activities and review of additional growth opportunities. The increase in
occupancy and equipment expense primarily reflects increased costs associated
with the establishment of an in-store branch.

     Income Tax Expense. Income tax expense increased $109,000 to $1.5 million
for the nine months ended June 30, 1998 from $1.4 million for the nine months
ended June 30, 1997, primarily reflecting higher pre-tax income.

Liquidity and Capital Resources

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

     The main sources of liquidity for the Holding Company are net proceeds from
the sale of stock and dividends received from the Association, if any. The main
cash flows 

                                      17
<PAGE>
 
are payments of dividends to shareholders and any repurchases of the Holding
Company's common stock.

     The Association is required to maintain an average daily balance of total
liquid assets as a percentage of net withdrawable deposit accounts plus
short-term borrowings, as defined by the regulations of the Office of Thrift
Supervision. Effective November 24, 1997, the OTS reduced the total liquidity
ratio requirement from 5.0% to 4.0% and eliminated the 1.0% short-term liquidity
ratio requirement. At June 30, 1998, the Association's total liquidity ratio was
26.2%. The level of liquid assets is dependent on the Association's operating,
financing and investing activities during any given period.

     The primary investing activities of the Company are the origination of real
estate mortgage and other loans, and the purchase of mortgage-backed and other
securities. At June 30, 1998, the Company had outstanding loan origination
commitments of $21.6 million, unadvanced home equity lines of credit of $3.8
million and undisbursed construction loans in process of $977,000. The Company
anticipates that it will have sufficient funds available to meet its current
loan origination and other commitments. At June 30, 1998, the Company had the
ability to obtain additional FHLB advances of approximately $92.2 million.
Certificates of deposit scheduled to mature in one year or less from June 30,
1998 totaled $77.3 million. Based on the Company's most recent experience and
pricing strategy, management believes that a significant portion of such
deposits will remain with the Company.

     The Company's borrowings at June 30, 1998 included $119.9 million in
borrowings under securities repurchase agreements. In these agreements, the
Company borrows funds through the transfer of debt securities to the FHLB of New
York, as counterparty, and concurrently agrees to repurchase the identical
securities at a fixed price on a specified date. The Company accounts for these
agreements as secured financing transactions since it maintains effective
control over the transferred securities. Accordingly, the transaction proceeds
are recorded as borrowings and the underlying securities continue to be carried
in the Company's debt securities portfolio. Repurchase agreements are
collateralized by the securities sold and, in certain cases, by additional
margin securities. During the nine months ended June 30, 1998, the average
borrowings under these agreements amounted to $72.4 million and the maximum
month-end balance outstanding was $119.9 million.

                                      18
<PAGE>
 
     Additional information concerning outstanding repurchase agreements with
the FHLB of New York as of June 30, 1998 is summarized as follows:

                    Repurchase Borrowings
---------------------------------------------------------------
                                        Accrued        Weighted    Fair Value
 Remaining Term                         Interest        Average   Of Collateral
  to Maturity               Amount      Payable (1)      Rate     Securities (2)
  -----------               ------      -----------      ----     --------------
                                         (Dollars in thousands)
                                         ----------------------
Under 30 days             $ 49,549      $     95         5.62%       $ 48,447
30 days to 1 year            9,329            74         5.97          10,233
1 year to 3 years           13,100             8         5.81          13,168
3 years to 5 years          22,500           176         5.80          25,822
Over 5 years                25,412           199         5.55          26,708
                          --------      --------                     --------
           Total          $119,890      $    552         5.69%       $124,378
                          ========      ========                     ========

(1)  Included in other liabilities in the consolidated balance sheet.
(2)  Represents the fair value of the mortgage-backed securities ($85.6 million)
     and other debt  securities ($38.8 million) which were transferred to
     the counterparty, including accrued interest receivable of $1.3 million.
     These securities consist of available-for-sale securities and
     held-to-maturity securities with fair values of $106.5 million and $16.5
     million, respectively.

     At June 30, 1998, the Company's "amount at risk" on outstanding repurchase
agreements was approximately $3.9 million. The amount at risk represents the
excess of the carrying amount, or market value if higher, of the securities
transferred to the FHLB of New York over the amount of the repurchase liability
(including the effect of accrued interest receivable and payable). The weighted
average remaining maturity of the agreements outstanding at June 30, 1998 was
approximately 3.4 years.

     At June 30, 1998, the Association exceeded all of its regulatory capital
requirements with a tangible capital level of 8.95% of total adjusted assets,
which is above the required level of 1.5%; core capital of 8.95% of total
adjusted assets, which is above the required level of 4.0%; and total risk-based
capital of 25.1%, which is above the required level of 8.0%. These regulatory
capital requirements, which are applicable to the Association only, do not
consider additional capital held at the Holding Company level, and require
certain adjustments to stockholder's equity to arrive at the various capital
amounts.



Year 2000 Compliance

     The Company, like all companies that utilize computer technology is
facing significant challenges associated with the inability of computer systems
to recognize the 

                                      19
<PAGE>
 
year 2000. Many existing computer programs and systems use only two digits to
identify the calendar year in the date field. These programs and systems were
designed and developed without considering the impact on the upcoming change in
the century. Like most financial service providers, the Company and its
operations may be significantly affected by the year 2000 issue due to the
nature of financial information. Software, hardware, and equipment both within
and outside the Company's direct control and with whom the Company
electronically or operationally interfaces (e.g. third party vendors providing
data processing, information system management, maintenance of computer systems,
and credit bureau information) are likely to be affected. If not corrected, many
computer applications could fail or create erroneous results by or at the year
2000. As a result, many calculations which rely on the date field information,
such as interest, payment or due dates and other operating functions, will
generate results which could be significantly misstated, and the Company could
experience a temporary inability to process transactions or engage in normal
business activities. In addition, under certain circumstances, failure to
adequately address the year 2000 issue could adversely affect the viability of
the Company's suppliers and creditors and the creditworthiness of its borrowers.
Therefore, if not adequately addressed, the Year 2000 Problem could result in a
significant adverse impact on the Company's products, services and competitive
condition.

     The Company, working with its outside service providers, has developed a
plan to ensure that its computer systems are year 2000 compliant. The Company
presently believes that with modifications to existing hardware and software and
conversions to new software, the year 2000 issue will be mitigated without
causing a material adverse impact on the operations of the Company. The Company
believes that the costs associated with ensuring year 2000 compliance will not
materially affect the Company's future operating results or financial condition.


Part I. Item 3.

Quantitative and Qualitative Disclosures About Market Risk

     There have been no material changes in the Company's interest rate risk
position since September 30, 1997. 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.


                                      20
<PAGE>
 
PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 2. Changes in Securities

        None

Item 3. Defaults Upon Senior Securities

        None

Item 4. Submission of Matters to a Vote of Security Holders

        None

Item 5. Other Information

        None

Item 6. Exhibits and Reports on Form 8-K
        (a) Exhibits

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

        (b) Reports on Form 8-K

              None


                                      21
<PAGE>
 
SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


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


Date:  August 14, 1998               /s/  Richard F. Komosinski
                                     --------------------------
                                     Richard F. Komosinski,
                                     President and Chief Executive Officer
                                     (Principal Executive Officer)


Date:  August 14, 1998                /s/  Joseph D. Roberto
                                     -----------------------
                                     Joseph D. Roberto
                                     Vice President, Treasurer and
                                     Chief Financial Officer
                                     (Principal Financial Officer)


                                      22