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

                                   ----------

                                    FORM 10-Q

(Mark One)

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

                For the quarterly period ended December 31, 2005

                                       OR

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

           For the transition period from ____________ to ____________

                        Commission file number 000-24811

                           SOUND FEDERAL BANCORP, INC.
             (Exact name of registrant as specified in its charter)

          Delaware                                                22-3887679
(State or other jurisdiction of                                (I.R.S. Employer
incorporation or organization)                               Identification No.)

               1311 Mamaroneck Ave., White Plains, New York 10605
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (914) 761-3636
               (Registrant's telephone number including area code)

                                       N/A
              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed from last Report)

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

      Indicate  by check mark  whether  the  Registrant  is a large  accelerated
filer,  an accelerated  filer,  or a  non-accelerated  filer (as defined in Rule
12b-2 of the  Securities  Exchange Act of 1934).  Large  accelerated  filer ____
Accelerated filer X Non-accelerated filer ____.

      Indicate  by check mark  whether  the  registrant  is a shell  company (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes _____ No X .

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

                Class                                          Shares
           ----------------                                Outstanding at
            Common Stock,                                 February 6, 2006
           par value, $0.01                               ----------------
                                                             12,322,206


<PAGE>

                                TABLE OF CONTENTS

                         PART I -- FINANCIAL INFORMATION
                         -------------------------------

Item 1. Financial Statements (Unaudited)

         Consolidated Balance Sheets at December 31, 2005
         and March 31, 2005.................................................   1

         Consolidated Statements of Income for the Three Months and
         Nine Months Ended December 31, 2005 and 2004.......................   2

         Consolidated Statement of Changes in Stockholders' Equity
         for the Nine Months Ended December 31, 2005........................   3

         Consolidated Statements of Cash Flows for the Nine Months

         Ended December 31, 2005 and 2004...................................   4

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

Item 2. Management's Discussion and Analysis of Financial Condition and
         Results of Operations..............................................  11

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.........  24

Item 4.  Controls and Procedures............................................  24

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

Item 1.  Legal Proceedings..................................................  25

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds........  25

Item 3.  Defaults upon Senior Securities....................................  25

Item 4.  Submission of Matters to a Vote of Security Holders................  25

Item 5.  Other Information..................................................  25

Item 6.  Exhibits...........................................................  25

         Signatures.........................................................  26


                                       i


<PAGE>

Part 1. - FINANCIAL INFORMATION
Item 1.  Financial Statements

<TABLE>
<CAPTION>
Sound Federal Bancorp, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)                                            December 31,     March 31,
                                                                      2005           2005
                                                                  ------------    -----------
<S>                                                                <C>            <C>
Assets
Cash and due from banks                                            $    12,591    $    11,512
Federal funds sold and other overnight deposits                         44,116         31,095
                                                                   -----------    -----------
     Total cash and cash equivalents                                    56,707         42,607
                                                                   -----------    -----------
Securities:
   Available for sale, at fair value (including $33,237
       and $37,831 pledged as collateral for borrowings
       under repurchase agreements at December 31,
       2005 and March 31, 2005, respectively)                          227,537        276,154
   Held to maturity, at amortized cost (fair value of
       $106,474 and $78,728 at December 31, 2005 and
       March 31, 2005, respectively)                                   107,931         79,489
                                                                   -----------    -----------
            Total securities                                           335,468        355,643
                                                                   -----------    -----------
Loans, net:
  Mortgage loans                                                       707,288        558,662
  Consumer and commercial loans                                          6,698          5,100
  Allowance for loan losses (Note 5)                                    (3,236)        (3,011)
                                                                   -----------    -----------
            Total loans, net                                           710,750        560,751
                                                                   -----------    -----------

 Accrued interest receivable                                             4,764          4,277
 Federal Home Loan Bank stock                                            3,157          5,738
 Premises and equipment, net                                             5,687          6,214
 Goodwill                                                               13,970         13,970
 Bank-owned life insurance                                              10,747         10,464
 Prepaid pension costs                                                   4,299          3,057
 Deferred income taxes                                                   1,977          2,236
 Other assets                                                            1,800          1,993
                                                                   -----------    -----------
            Total assets                                           $ 1,149,326    $ 1,006,950
                                                                   ===========    ===========

Liabilities and Stockholders' Equity
Liabilities:
  Deposits                                                         $   969,702    $   831,768
  Borrowings (Note 6)                                                   35,000         38,000
  Mortgagors' escrow funds                                               7,302          5,264
  Due to brokers for securities purchased                                5,867          2,513
  Accrued expenses and other liabilities                                 2,804          2,245
                                                                   -----------    -----------
            Total liabilities                                        1,020,675        879,790
                                                                   -----------    -----------
Stockholders' equity:
   Preferred stock ($0.01 par value; 1,000,000 shares
   authorized; none issued and outstanding)                                 --             --
   Common stock ($0.01 par value; 24,000,000 shares
     authorized; 13,636,170 shares issued; 12,322,206
     and 12,377,206 shares outstanding at December 31, 2005
     and March 31, 2005, respectively)                                     136            136
   Additional paid-in capital                                          104,630        103,728
   Treasury stock, at cost (1,313,964 and 1,258,964 shares
     at December 31, 2005 and March 31, 2005, respectively)            (19,013)       (18,131)
   Common stock held by Employee Stock Ownership Plan ("ESOP")          (5,675)        (6,053)
   Unearned stock awards                                                (3,548)        (4,435)
   Retained earnings                                                    55,356         54,638
   Accumulated other comprehensive loss, net of taxes (Note 7)          (3,235)        (2,723)
                                                                   -----------    -----------
            Total stockholders' equity                                 128,651        127,160
                                                                   -----------    -----------
            Total liabilities and stockholders' equity             $ 1,149,326    $ 1,006,950
                                                                   ===========    ===========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                       1
<PAGE>

Sound Federal Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)

<TABLE>
<CAPTION>
                                                        For the Three Months Ended     For the Nine Months Ended
                                                               December 31,                   December 31,
                                                        --------------------------     -------------------------
                                                            2005            2004         2005            2004
                                                            ----            ----         ----            ----
<S>                                                       <C>             <C>          <C>             <C>
Interest and Dividend Income
 Loans                                                    $ 9,834         $ 7,482      $26,972         $21,733
 Mortgage-backed and other securities                       3,166           3,101        9,392           8,917
 Federal funds sold and other overnight deposits              290             113          666             245
 Other earning assets                                          88              32          240              87
                                                          -------         -------      -------         -------
 Total interest and dividend income                        13,378          10,728       37,270          30,982
                                                          -------         -------      -------         -------
Interest Expense
 Deposits                                                   6,286           3,677       16,377          10,002
 Borrowings                                                   362             371        1,084           1,126
 Other interest-bearing liabilities                             7               5           18              15
                                                          -------         -------      -------         -------
 Total interest expense                                     6,655           4,053       17,479          11,143
                                                          -------         -------      -------         -------
 Net interest income                                        6,723           6,675       19,791          19,839
 Provision for loan losses (Note 5)                            75              75          225             225
                                                          -------         -------      -------         -------
 Net interest income after provision for loan losses        6,648           6,600       19,566          19,614
                                                          -------         -------      -------         -------
Non-Interest Income
 Service charges and fees                                     251             244          885             740
 Income on bank-owned life insurance                           95             121          283             287
 Gain on sale of assets                                      --                17          325              17
                                                          -------         -------      -------         -------
 Total non-interest income                                    346             382        1,493           1,044
                                                          -------         -------      -------         -------
Non-Interest Expense
 Compensation and benefits                                  2,969           2,538        8,637           7,412
 Occupancy and equipment                                      748             673        2,236           1,967
 Data processing service fees                                 264             314          910             878
 Advertising and promotion                                    303             189          828             679
 Other                                                        961             886        2,638           2,557
                                                          -------         -------      -------         -------
 Total non-interest expense                                 5,245           4,600       15,249          13,493
                                                          -------         -------      -------         -------
 Income before income tax expense                           1,749           2,382        5,810           7,165
 Income tax expense                                           703             956        2,281           2,811
                                                          -------         -------      -------         -------
 Net income                                               $ 1,046         $ 1,426      $ 3,529         $ 4,354
                                                          =======         =======      =======         =======
Earnings per share (Note 4):
   Basic earnings per share                               $  0.09         $  0.12      $  0.31         $  0.37
                                                          =======         =======      =======         =======
   Diluted earnings per share                             $  0.09         $  0.12      $  0.30         $  0.36
                                                          =======         =======      =======         =======
</TABLE>

See accompanying notes to unaudited consolidated financial statements.


                                       2
<PAGE>

Sound Federal Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

For the Nine Months Ended December 31, 2005
(Unaudited)
(Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                    Common                               Accumulated
                                        Additional                  Stock       Unearned                    Other        Total
                              Common     Paid-in      Treasury     Held  by      Stock       Retained   Comprehensive  Stockholders'
                               Stock     Capital        Stock        ESOP        Awards      Earnings       Loss         Equity
                             ---------  ----------   ----------   ----------   ---------    ---------   -------------  -------------
<S>                          <C>         <C>         <C>          <C>          <C>          <C>          <C>           <C>
Balance at March 31, 2005    $     136   $ 103,728   $ (18,131)   $  (6,053)   $  (4,435)   $  54,638    $  (2,723)    $ 127,160
Net income                        --          --          --           --           --          3,529         --           3,529
Other comprehensive loss
  (Note 7)                        --          --          --           --           --           --           (512)         (512)
                                                                                                                       ---------
  Total comprehensive income                                                                                               3,017
Dividends paid ($0.21 per
  share), net of dividends
  on unallocated ESOP shares      --          --          --           --           --         (2,450)        --          (2,450)
Purchases of treasury stock
  (87,300 shares)                 --          --        (1,349)        --           --           --           --          (1,349)
Reissuance of treasury stock
  for exercise of stock
  options (32,300 shares)         --          --           467         --           --           (361)        --             106
Tax benefit from exercise of
  stock options                   --           171        --           --           --           --           --             171
Vesting of stock awards and
  related tax benefits            --            53        --           --            887         --           --             940
ESOP shares committed to be
  released for allocation         --           678        --            378         --           --           --           1,056
                             ---------   ---------   ---------    ---------    ---------    ---------    ---------     ---------
Balance at December 31, 2005 $     136   $ 104,630   $ (19,013)   $  (5,675)   $  (3,548)   $  55,356    $  (3,235)    $ 128,651
                             =========   =========   =========    =========    =========    =========    =========     =========

</TABLE>

See accompanying notes to unaudited consolidated financial statements.

                                       3
<PAGE>

Sound Federal Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)

<TABLE>
<CAPTION>
                                                                              For the Nine Months Ended
                                                                                     December 31,
                                                                             ---------------------------
                                                                                2005              2004
                                                                             ---------           -------
<S>                                                                           <C>                <C>
Operating Activities
  Net income                                                                  $  3,529           $ 4,354
  Adjustments to reconcile net income to net
      cash provided by operating activities:
      Provision for loan losses                                                    225               225
      Depreciation, amortization and accretion                                   1,728             1,830
      ESOP and stock award expense                                               1,943             1,769
      Income taxes                                                                 712               525
      Origination of loans held for sale                                          --                (777)
      Proceeds from sales of loans held for sale                                  --                 794
      Gain on sale of assets                                                      (325)              (17)
      Pension costs                                                             (1,242)             (407)
      Other adjustments, net                                                        23               159
                                                                              --------          --------
          Net cash provided by operating activities                              6,593             8,455
                                                                              --------          --------
Investing Activities
 Purchases of securities:
     Available for sale                                                         (1,000)          (31,015)
     Held to maturity                                                          (38,524)          (68,620)
 Proceeds from payments, maturities and calls of securities:
     Available for sale                                                         48,267            65,263
     Held to maturity                                                           13,340             3,092
 Net disbursements for loan originations and principal repayments             (148,025)          (64,137)
 Purchase of mortgage loans                                                     (2,532)             --
 Purchases of Federal Home Loan Bank stock                                        (647)             (435)
 Proceeds from redemption of Federal Home Loan Bank stock                        3,228              --
 Proceeds from sale of real estate                                                 396              --
 Purchases of premises and equipment                                              (275)           (1,013)
                                                                              --------          --------
           Net cash used in investing activities                              (125,772)          (96,865)
                                                                              --------          --------
Financing Activities
 Net increase in deposits                                                      137,934            94,660
 Proceeds from borrowings                                                         --               3,000
 Repayment of borrowings                                                        (3,000)             --
 Net increase in mortgagors' escrow funds                                        2,038             1,490
 Purchases of treasury stock                                                    (1,349)           (8,324)
 Proceeds from exercise of stock options                                           106               193
 Payment of cash dividends on common stock                                      (2,450)           (2,177)
                                                                              --------          --------
        Net cash provided by financing activities                              133,279            88,842
                                                                              --------          --------
  Increase in cash and cash equivalents                                         14,100               432
  Cash and cash equivalents at beginning of period                              42,607            31,211
                                                                              --------          --------
  Cash and cash equivalents at end of period                                   $56,707          $ 31,643
                                                                              ========          ========
Supplemental Information
  Interest paid                                                               $ 17,418          $ 11,102
  Income taxes paid                                                              1,593             2,270
  Increase (decrease) in  due to brokers for securities purchased                3,354               (84)
                                                                              ========          ========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.


                                       4
<PAGE>

Sound Federal Bancorp, Inc. and Subsidiary

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Reorganization and Stock Offerings

      On October 8, 1998,  Sound  Federal  Bancorp  issued  shares of its common
stock in connection with a Plan of Reorganization  ("the  "Reorganization")  and
related  Subscription  and  Community  Offering.  In the  Reorganization,  Sound
Federal Savings and Loan Association converted from a federally chartered mutual
savings  association to a federally chartered stock savings  association.  Sound
Federal Savings and Loan Association became the wholly-owned subsidiary of Sound
Federal Bancorp,  which became the  majority-owned  subsidiary of Sound Federal,
MHC (the "Mutual Holding Company").

      On January 6, 2003,  Sound Federal  Bancorp and the Mutual Holding Company
completed its conversion to a fully public holding  company  structure.  At that
time,  the Mutual  Holding  Company  merged into Sound Federal  Savings and Loan
Association,  and no longer exists. Sound Federal Bancorp was succeeded by a new
Delaware corporation named Sound Federal Bancorp,  Inc. (the "Holding Company").
Shares of common stock representing the ownership interest of the Mutual Holding
Company were sold in a subscription  offering and a community  offering.  Shares
owned  by  public  shareholders  (shareholders  other  than the  Mutual  Holding
Company) were converted into the right to receive new shares of Holding  Company
common  stock  determined  pursuant  to an  exchange  ratio.  As part  of  these
transactions,  Sound Federal  Savings and Loan  Association  changed its name to
Sound Federal  Savings (the "Bank"),  which is now a wholly-owned  subsidiary of
the Holding Company.  The Bank and the Holding Company are referred to herein as
"the Company".

2. Basis of Presentation

      The consolidated  financial  statements included herein have been prepared
by the Company  without  audit.  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 periods  presented.  Certain  information  and
footnote  disclosures  normally included in annual financial statements prepared
in conformity  with U.S.  generally  accepted  accounting  principles  have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange  Commission;  however,  the Company  believes that the  disclosures are
adequate to make the information presented not misleading. The operating results
for the  periods  presented  are not  necessarily  indicative  of  results to be
expected for any other interim period or for the entire fiscal year ending March
31, 2006.

      The  consolidated  financial  statements  have been prepared in conformity
with  U.S.  generally   accepted   accounting   principles.   In  preparing  the
consolidated financial statements,  management is required to make estimates and
assumptions that affect the reported amounts of assets, liabilities,  income and
expense.  Actual  results could differ  significantly  from these  estimates.  A
material  estimate that is particularly  susceptible to near-term  change is the
allowance for loan losses, which is discussed in Note 5.

      The unaudited interim  consolidated  financial statements presented herein
should be read in  conjunction  with the annual audited  consolidated  financial
statements of the Company for the fiscal year ended March 31, 2005,  included in
the Company's 2005 Annual Report on Form 10-K.

3. Stock-Based Compensation

      Statement of Financial  Accounting  Standards ("SFAS") No. 123, Accounting
for Stock-Based Compensation, encourages the use of a fair-value-based method of
accounting for employee stock compensation  plans, but permits the continued use
of the  intrinsic-value-based  method of  accounting  prescribed  by  Accounting
Principles Board ("APB") Opinion No. 25. Under SFAS No. 123, the grant-date


                                       5
<PAGE>

fair value of options is  recognized  as  compensation  expense over the vesting
period.  The  Company  has  elected to  continue to apply APB Opinion No. 25 and
disclose the pro forma information  required by SFAS No. 123. In accordance with
APB  Opinion  No. 25,  compensation  expense is not  recognized  for fixed stock
options  if the  exercise  price of the  option  equals  the  fair  value of the
underlying  stock on the date of the  grant.  The  fair  value of stock  awards,
measured at the grant date, is recognized as unearned  compensation (a deduction
from stockholders'  equity) and amortized to compensation  expense as the shares
become vested.

      Had  stock-based  compensation  expense been recognized in accordance with
SFAS No. 123,  the  Company's  net income and earnings per share would have been
adjusted to the following pro forma amounts:
<TABLE>
<CAPTION>

                                                      Three Months Ended       Nine Months Ended
                                                         December 31,            December 31,
                                                      ------------------      ------------------
                                                       2005        2004        2005        2004
                                                      ------      ------      ------      ------
                                                         (In thousands, except per share data)
<S>                                                   <C>         <C>         <C>         <C>
Net income, as reported                               $1,046      $1,426      $3,529      $4,354
Add stock award expense included in reported
   net income, net of related tax effects                180         181         539         542
Deduct stock award and stock option expense
    determined under the fair-value-based
    method, net of related tax effects                  (296)       (296)       (887)       (905)
                                                      ------      ------      ------      ------
Pro forma net income                                  $  930      $1,311      $3,181      $3,991
                                                      ======      ======      ======      ======
Earnings per share:
   Basic, as reported                                 $ 0.09      $ 0.12      $ 0.31      $ 0.37
                                                      ======      ======      ======      ======
   Basic, pro forma                                   $ 0.08      $ 0.11      $ 0.28      $ 0.34
                                                      ======      ======      ======      ======
   Diluted, as reported                               $ 0.09      $ 0.12      $ 0.30      $ 0.36
                                                      ======      ======      ======      ======
   Diluted, pro forma                                 $ 0.08      $ 0.11      $ 0.27      $ 0.33
                                                      ======      ======      ======      ======
</TABLE>

      In December 2004, the Financial  Accounting  Standards  Board (the "FASB")
issued SFAS No. 123 (revised  2004),  "Share-Based  Payment"  ("SFAS No. 123R"),
which  requires  entities to measure the cost of employee  services  received in
exchange for an award of equity  instruments  based on the grant-date fair value
of the award (with  limited  exceptions).  The cost is  recognized as an expense
over the period  during  which the  employee is  required to provide  service in
exchange for the award,  which is usually the vesting period.  The scope of SFAS
No. 123R  includes the Company's  Incentive  Stock Benefit Plan (the "ISB Plan")
which provides for stock awards and stock option grants.  For stock awards under
the ISB Plan,  the  grant-date  fair value of the shares will be  recognized  as
compensation  expense on a  straight-line  basis,  generally over the applicable
vesting  period,  which is the same  accounting  previously  required  under APB
Opinion  No.  25. For  options  granted  under the ISB Plan,  the  Company  will
recognize  the  grant-date  fair value of options as  compensation  expense on a
straight-line  basis,   generally  over  the  applicable  vesting  period.  This
accounting  treatment  differs  significantly  from the previous  accounting for
fixed stock options under APB Opinion No. 25 which  generally  required  expense
recognition  only when the exercise price of the option was less than the market
price of the  underlying  stock on the grant date. As required by SFAS No. 123R,
the Company will  estimate  the fair value of stock  options on each grant date,
using an appropriate valuation approach such as the Black-Scholes option pricing
model. SFAS No. 123R did not change existing accounting principles applicable to
employee stock ownership plans.

      SFAS No. 123R applies to all awards  granted after its effective  date and
to awards modified,  repurchased, or cancelled after that date. SFAS No. 123R is
effective as of the  beginning of the first annual  reporting  period  beginning
after June 15, 2005 (i.e.,  the Company's  fiscal year beginning April 1, 2006).
The standard permits different  transition methods. The Company expects to adopt
SFAS No. 123R by  recognizing  compensation  expense  for (i) all stock  options
granted  after April 1, 2006 and (ii) the portion of  previously  granted  stock
options for which the  requisite  service  had not been  rendered as of April 1,
2006, based on the


                                       6
<PAGE>

grant-date  fair value of those awards  calculated  for purposes of SFAS No. 123
pro forma disclosures.  The additional compensation cost for the Company's stock
options  outstanding  at December 31, 2005 that is expected to be  recognized in
the fiscal year beginning April 1, 2006, as a result of the adoption of SFAS No.
123R, is approximately $557,000 before taxes.

4. Earnings Per Share

      Weighted  average  common  shares  used in  calculating  basic and diluted
earnings per share for the three months ended December 31, 2005 were  11,447,061
and  11,778,153  respectively.  For the three  months  ended  December 31, 2004,
weighted  average common shares used in calculating  basic and diluted  earnings
per share were 11,558,608 and 11,815,966, respectively.

      For the nine months ended December 31, 2005,  weighted average shares used
in  calculating  basic and  diluted  earnings  per  share  were  11,448,692  and
11,746,826,  respectively.  For the nine months ended  December  31,  2004,  the
respective weighted average shares were 11,662,230 and 11,931,624.

5. Allowance for Loan Losses

      The allowance  for loan losses is increased by provisions  for loan losses
charged to income.  Losses are charged to the allowance when all or a portion of
a loan is deemed to be uncollectible. Recoveries of loans previously charged-off
are  credited  to the  allowance  for loan losses  when  realized.  Management's
periodic  determination  of the allowance is based on continuing  reviews of the
portfolio,  using a  consistently-applied  methodology.  The  allowance for loan
losses  consists of losses that are both  probable and  estimable at the date of
the  financial  statements.  In  determining  the  allowance  for  loan  losses,
management  considers  factors such as the Company's past loan loss  experience,
known risks in the portfolio,  adverse situations affecting a borrower's ability
to repay,  the estimated value of underlying  collateral,  and current  economic
conditions.

      Determining the allowance for loan losses involves significant  management
judgments utilizing the best information available.  Those judgments are subject
to further  review by  various  sources,  including  the  Company's  regulators.
Changes in the  allowance  may be  necessary  in the future  based on changes in
economic and real estate market conditions,  new information  obtained regarding
known problem loans, the  identification  of additional  problem loans and other
factors, certain of which are outside of management's control.

      Activity in the  allowance  for loan losses for the periods  indicated  is
summarized as follows:

<TABLE>
<CAPTION>
                                      Three Months Ended             Nine Months Ended        Year Ended
                                         December 31,                  December 31,            March 31,
                                   ---------------------          --------------------        ----------
                                    2005           2004            2005          2004            2005
                                   ---------------------          --------------------          ------
                                                      (In thousands)
<S>                                <C>            <C>             <C>           <C>             <C>
Balance at beginning of period     $3,161         $2,862          $3,011        $2,712          $2,712
Provision for loan losses              75             75             225           225             300
Charge-offs                          --              --             --             --               (1)
                                   ------         ------          ------        ------          ------
Balance at end of period           $3,236         $2,937          $3,236        $2,937          $3,011
                                   ======         ======          ======        ======          ======
</TABLE>


                                       7
<PAGE>

6. Borrowings

      The Company had the  following  outstanding  borrowings  under  securities
repurchase  agreements  with the Federal Home Loan Bank of New York (the "FHLB")
at December 31, 2005:

       Maturity Date                      Coupon Rate         Borrowings
       -------------                      -----------         ----------
                                               (dollars in thousands)
January 2008(1)                              5.42%             $ 10,000
December 2008(1)                             4.72                 5,000
March 2006                                   2.27                 7,000
March 2007                                   2.65                 7,000
March 2008                                   4.13                 6,000
                                                               --------
                                                               $ 35,000
                                                               ========
Weighted average interest rate                                    3.91%
Accrued interest payable                                          $ 186

(1) Callable quarterly

      The  securities   transferred  to  the  FHLB  subject  to  the  repurchase
agreements consist of U.S.  Government and agency securities  available for sale
with a carrying value of $18.3 million and mortgage-backed  securities available
for sale with a carrying value of $15.0 million.  Accrued interest receivable on
the securities was $149,000 at December 31, 2005.

7. Comprehensive Income (Loss)

      Comprehensive income or loss represents the sum of net income and items of
"other comprehensive income or loss" that are reported directly in stockholders'
equity,  such as the change during the period in the  after-tax  net  unrealized
gain or loss on  securities  available for sale.  The Company  reports its total
comprehensive  income  (loss)  in  the  consolidated  statement  of  changes  in
stockholders' equity.

      The Company's other comprehensive income (loss) is summarized as follows:

                                           Three Months Ended  Nine Months Ended
                                              December 31,        December 31,
                                           ------------------  -----------------
                                            2005     2004       2005      2004
                                                    (In thousands)

Net unrealized holding (loss)
  gain arising during
  the period on securities available
  for sale                                 $(876)    $264      $(853)   $(3,256)
Related deferred income tax effect           350     (105)       341      1,285
                                           -----     ----      -----    -------
Other comprehensive (loss) income          $(526)    $159      $(512)   $(1,971)
                                           =====     ====      =====    =======


                                       8
<PAGE>

      The Company's  accumulated other  comprehensive loss, which is included in
stockholders' equity, is summarized as follows:

                                                        December 31,   March 31,
                                                           2005          2005
                                                        ------------   ---------
                                                              (In thousands)

Net unrealized holding loss on
  securities available for sale                          $(5,387)       $(4,534)
Related deferred income taxes                              2,152          1,811
                                                         -------        -------
Accumulated other comprehensive loss                     $(3,235)       $(2,723)
                                                         =======        =======

8. Postretirement Plans

      Pension Plans

      The Company maintains two  non-contributory  defined benefit pension plans
that cover  substantially  all  full-time  employees  who meet  certain  age and
service  requirements.  Benefits are based on the employee's years of accredited
service and average  compensation for the three  consecutive  years that produce
the highest average.  The Company's  funding policy is to contribute the amounts
required  by  applicable   regulations,   although  additional  amounts  may  be
contributed  from time to time.  Contributions  of $1.4 million and $1.6 million
were  made  during  the  three  and  nine  months   ended   December  31,  2005,
respectively.  The contribution  made during the three months ended December 31,
2005 was based on an  estimated  actuarial  valuation  using a December 31, 2005
measurement  date and  considering  among other things,  the maximum  deductible
contribution  limits for tax purposes and the amount  required to fully fund the
accumulated benefit obligation.  The Company does not expect to make any further
contributions to the plans in fiscal 2006.

      Plan assets are invested in the Guaranteed Deposit Fund ("GDF") which is a
group annuity  insurance product issued by Prudential  Retirement  Insurance and
Annuity  Company  ("PRIAC").  Deposits  to the GDF are  deposited  into  PRIAC's
general account.  Payment obligations under the GDF represent an insurance claim
supported by all general  account  assets.  The guarantee from PRIAC is based on
the  claims-paying  ability of PRIAC and not the value of securities held in the
GDF. As such,  the GDF does not operate like a mutual fund,  annuity  product or
other similar  investment.  The GDF is an  intermediate-term,  high-grade  fixed
income portfolio  consisting of commercial  mortgages,  private placement bonds,
publicly traded debt securities and asset-backed securities.

      The components of the net periodic expense for the plans were as follows:

                                        Three Months Ended    Nine Months Ended
                                           December 31,         December 31,
                                       -------------------    -----------------
                                        2005      2004         2005      2004
                                       -----     -----        -----     -----
                                                   (In thousands)

Service cost                           $ 115     $  91        $ 345     $ 273
Interest cost                            172       160          516       480
Expected return on plan assets          (231)     (225)        (693)     (675)
Recognized net actuarial loss             52      --            156      --
Amortization of prior service cost         1        28            3        84
                                       -----     -----        -----     -----
     Net periodic pension expense      $ 109     $  54        $ 327     $ 162
                                       =====     =====        =====     =====


                                       9
<PAGE>

      Director Retirement Plan

      The Company maintains a non-qualified,  unfunded Director  Retirement Plan
which is an amendment and  restatement  of the former  Director  Emeritus  Plan.
Under the Director  Retirement Plan, any person who was a director on January 1,
2004,  who retires or dies after age 70 and who completes 15 years of continuous
service as a director becomes entitled to an annual  retirement  benefit for the
longer of 20 years or his/her lifetime,  equal to the amount of annual fees paid
for  attendance at regular  monthly board meetings  during the preceding  twelve
months,  plus the amount of any annual  stipend  paid to such  director  in that
year.  The Director  Retirement  Plan also provides for benefits in the event of
early retirement or disability.  In the event of a change in control,  directors
will be credited  with years of service as if they had  remained  members of the
Board of  Directors  until age 70 and be entitled to benefits  payable in a lump
sum, at the time of the change in control.  A retired  director will receive the
present  value  of the  remaining  benefit,  paid in a lump sum at the time of a
change in control.

      The components of the net periodic expense for the plan were as follows:

                                         Three Months Ended    Nine Months Ended
                                            December 31,         December 31,
                                         ------------------    -----------------
                                          2005      2004         2005      2004
                                         -----     -----        -----     -----
                                                    (In thousands)

Service cost                             $  36     $  16        $ 108     $  48
Interest cost                               29        24           87        72
Recognized net actuarial gain               (3)       (4)          (9)      (12)
Amortization of prior service cost          33        45           99       135
                                         -----     -----        -----     -----
     Net periodic expense                $  95     $  81        $ 285     $ 243
                                         =====     =====        =====     =====


                                       10
<PAGE>

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

General

      Our principal business has historically  consisted of offering savings and
other  deposits to the general public and using the funds from these deposits to
make loans secured by residential real estate.  Our net income depends primarily
upon our net interest  income,  which is the difference  between interest income
earned  on  interest-earning  assets,  such as loans  and  investments,  and the
interest expense paid on deposits and borrowings.  To a much lesser degree,  our
net income is affected by non-interest  income,  such as banking service charges
and fees.  Net income is also  affected by, among other things,  provisions  for
loan losses and  non-interest  expenses.  Our  principal  non-interest  expenses
consist of compensation and benefits,  occupancy and equipment,  data processing
service  fees,  advertising  and  promotion  and  other  expenses,  such  as ATM
expenses,  professional  fees and  insurance  premiums.  Our net income  also is
affected   significantly  by  general   economic  and  competitive   conditions,
particularly  changes  in market  interest  rates;  government  legislation  and
policies affecting fiscal affairs, housing and financial institutions;  monetary
policies  of the Federal  Reserve  System;  and the  actions of bank  regulatory
authorities.

Forward-Looking Statements

      When used in this report on Form 10-Q,  the words or phrases  "will likely
result," "are  expected  to," "will  continue,"  "is  anticipated,"  "estimate,"
"project"  or similar  expressions  are  intended to  identify  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995. Such statements reflect our current view with respect to future-looking
events and are  subject  to certain  risks and  uncertainties  that could  cause
actual results to differ  materially  from  Management's  current  expectations.
Among others, these risks and uncertainties  include changes in general economic
conditions,  changes in policies by regulatory agencies,  hostilities  involving
the United  States,  fluctuations  in  interest  rates,  demand for loans in the
Company's  market area,  changes in the quality or  composition of the Company's
loan and investment portfolios,  changes in accounting  principles,  policies or
guidelines  and other  economic,  competitive,  governmental  and  technological
factors  affecting our operations,  markets and products.  The Company wishes to
caution  readers  not  to  place  undue  reliance  on any  such  forward-looking
statements,  which speak only as of the date made.  The Company wishes to advise
readers  that the factors  listed  above could  affect the  Company's  financial
performance  and could cause the Company's  actual results for future periods to
differ  materially  from its  forward-looking  statements.  We do not  intend to
update these forward-looking statements.

Critical Accounting Policies

      Accounting  policies  considered  particularly  critical to our  financial
results  include the allowance for loan losses and accounting for goodwill.  The
methodology  for  determining  the  allowance  for loan losses is  considered  a
critical  accounting  policy by  management  due to the high  degree of judgment
involved,  the  subjectivity of the  assumptions  utilized and the potential for
changes in the economic  environment  that could result in changes to the amount
of the  allowance for loan losses  considered  necessary.  Management  considers
accounting for goodwill to be a critical policy because  goodwill must be tested
for  impairment at least annually using an approach that involves the estimation
of fair values.  Estimating  fair values  involves a high degree of judgment and
subjectivity in the assumptions utilized.


                                       11
<PAGE>

Financial Condition

      Assets.  The Company's  total assets  amounted to $1.1 billion at December
31, 2005 as  compared  to $1.0  billion at March 31,  2005.  The $142.4  million
increase in assets primarily consisted of a $150.0 million increase in net loans
to $710.8 million,  partially  offset by a decrease in total securities of $20.2
million.  Our asset growth was funded  principally by an $137.9 million increase
in deposits to $969.7 million.

      Liabilities.  Total  deposits were $969.7 million at December 31, 2005, an
increase  of $137.9  million as compared  to $831.8  million at March 31,  2005.
Certificates of deposit  increased  $145.2 million to $698.1 million from $552.9
million;  savings and club accounts  decreased  $16.9 million to $133.6  million
from $150.5  million;  and money market,  NOW and commercial  checking  accounts
increased  $9.6 million to $138.0 million from $128.4  million.  The increase in
deposits,  primarily  certificates of deposits,  reflects  deposit growth in two
branches  opened  during the fourth  quarter of fiscal 2005 as well as growth in
our existing  branches.  We have used our  certificates  of deposit product as a
promotional product to attract new customers to our branches. Borrowings totaled
$35.0 million at December 31, 2005 and $38.0 million at March 31, 2005.

      Stockholders' Equity. Total stockholders' equity increased $1.5 million to
$128.7  million at December 31, 2005 as compared to $127.2  million at March 31,
2005.  The increase  reflects  net income of $3.5 million and  increases of $2.3
million related to stock options, stock awards and ESOP shares, partially offset
by common stock  purchases  at a cost of $1.3  million,  dividends  paid of $2.5
million and an increase of $512,000 in the accumulated other comprehensive loss.

      The accumulated other  comprehensive  loss of $3.2 million at December 31,
2005  represents the after-tax net unrealized  loss on securities  available for
sale ($5.4 million pre-tax).  The Company invests  primarily in  mortgage-backed
securities  issued by Ginnie Mae,  Fannie Mae and  Freddie  Mac, as well as U.S.
Government and Agency  securities.  The  unrealized  losses at December 31, 2005
were caused by increases in market yields subsequent to purchase.  There were no
debt securities past due or securities for which the Company currently  believes
it is not  probable  that it will  collect  all  amounts  due  according  to the
contractual  terms of the security.  Because the Company has the ability to hold
securities with unrealized losses until a market price recovery (which, for debt
securities may be until maturity), the Company did not consider these securities
to be other-than-temporarily impaired at December 31, 2005.


                                       12
<PAGE>

Comparison of Results of Operations for the Three Months Ended December 31, 2005
and 2004

      Average  Balance  Sheets.  The following  table sets forth average balance
sheets,  average yields and costs,  and certain other  information for the three
months ended  December  31, 2005 and 2004.  The table  reflects  the  annualized
average  yield on  interest-earning  assets and the  annualized  average cost of
interest-bearing liabilities (derived by dividing the annualized interest income
or  expense  by the  monthly  average  balance  of  interest-earning  assets  or
interest-bearing  liabilities,  respectively),  as  well  as the  net  yield  on
interest-earning  assets. No tax-equivalent  yield adjustments were made, as the
effect  thereof  was  not  material.  Nonaccrual  loans  were  included  in  the
computation of average  balances and therefore have a zero yield. The yields set
forth below include the effect of deferred loan  origination fees and costs, and
purchase  discounts  and  premiums  that are  amortized  or accreted to interest
income.  Interest income on loans for the 2005 and 2004 periods has been reduced
by amortization of net deferred loan origination  costs of $78,000 and $136,000,
respectively.  Interest income on mortgage-backed securities has been reduced by
amortization  of purchase  premiums  (net of discounts) of $187,000 and $245,000
for those same respective  periods.

<TABLE>
<CAPTION>
                                                            For the Three Months Ended December 31,
                                      ------------------------------------------------------------------------------------
                                                        2005                                         2004
                                      ------------------------------------------------------------------------------------
                                        Average                                      Average
                                      Outstanding                  Average          Outstanding                  Average
                                        Balance       Interest    Yield/Rate          Balance      Interest     Yield/Rate
                                        -------       --------    ----------          -------      --------     ----------
                                                                   (Dollars in thousands)
<S>                                   <C>               <C>          <C>             <C>              <C>          <C>
Interest-earning assets:
Loans (1)                             $  691,217        9,834        5.64%           $ 534,924        7,482        5.55%
Mortgage-backed securities (2)           221,194        2,121        3.80%             262,272        2,319        3.51%
Other securities (2)                     113,998        1,045        3.64%              95,115          782        3.26%
Federal funds sold and other
overnight deposits (3)                    36,752          290        3.13%              30,436          113        1.47%
Other (4)                                  5,721           88        6.10%               5,871           32        2.16%
                                      ----------       ------                        ---------       ------
Total interest-earning assets          1,068,882       13,378        4.97%             928,618       10,728        4.58%
                                                       ------                                        ------
Non-interest earning assets               46,593                                        45,253
                                      ----------                                     ---------
Total assets                          $1,115,475                                     $ 973,871
                                      ==========                                     =========
Interest-bearing liabilities:
Savings and club accounts             $  135,763          199        0.58%           $ 152,068          205        0.53%
Money market accounts                     38,115          119        1.24%              47,346           97        0.81%
NOW accounts                              70,659          103        0.58%              60,880           38        0.25%
Certificates of deposit                  668,790        5,865        3.48%             520,719        3,337        2.54%
Borrowings                                35,000          362        4.10%              38,000          371        3.87%
Mortgagors' escrow funds                   5,547            7        0.50%               4,458            5        0.44%
                                      ----------       ------                        ---------       ------
Total interest-bearing liabilities       953,874        6,655        2.77%             823,471        4,053        1.95%
                                                       ------                                        ------
Non-interest-bearing liabilities          33,922                                        21,316
                                      ----------                                     ---------
Total liabilities                        987,796                                       844,787
Stockholders' equity                     127,679                                       129,084
                                      ----------                                     ---------
Total liabilities and

stockholders' equity                  $1,115,475                                     $ 973,871
                                      ==========                                     =========
Net interest income                                     6,723                                         6,675
                                                       ======                                        ======
Net interest rate spread (5)                                         2.20%                                         2.63%
Net earning assets (6)                $  115,008                                     $ 105,147
                                      ==========                                     =========
Net interest margin (7)                                              2.50%                                         2.85%
Ratio of interest-earning assets
to interest-bearing liabilities             1.12 x                                        1.13 x
</TABLE>

(1)   Balances are net of the allowance for loan losses.

(2)   Average outstanding balances are based on amortized cost. As a result, the
      average  balances  and yields do not include the effect of changes in fair
      value of securities available for sale.

(3)   Other overnight deposits represent an  interest-earning  demand account at
      the Federal Home Loan Bank of New York.

(4)   Consists primarily of Federal Home Loan Bank stock.

(5)   Net interest rate spread  represents the  difference  between the yield on
      average  interest-earning assets and the cost of average  interest-bearing
      liabilities.

(6)   Net earning  assets  represent  total  interest-earning  assets less total
      interest-bearing liabilities.

(7)   Net interest  margin  represents  net interest  income  divided by average
      total interest-earning assets.


                                       13
<PAGE>

      Rate/Volume  Analysis.  The following  table presents the dollar amount of
changes in interest  income and  interest  expense for the major  categories  of
interest-earning  assets and interest-bearing  liabilities,  with respect to (i)
changes  attributable to changes in volume (i.e., changes in balances multiplied
by the prior-period rate) and (ii) changes  attributable to rate (i.e.,  changes
in rate  multiplied  by  prior-period  balances).  For  purposes  of this table,
changes attributable to both rate and volume,  which cannot be segregated,  have
been allocated proportionately to the change due to volume and the change due to
rate.

                                        For the Three Months Ended December 31,
                                                      2005 vs. 2004
                                      ------------------------------------------
                                      Increase (Decrease) Due to
                                      --------------------------  Total Increase
                                       Volume        Rate           (Decrease)
                                      -----------------------------------------
                                                  (In thousands)

Interest-earning assets:
Loans                                 $ 2,228       $  124             $2,352
Mortgage-backed securities             (1,126)         928               (198)
Other securities                          166           97                263
Federal funds and other
  overnight deposits                       28          149                177
Other                                      (5)          61                 56
                                      -------       ------             ------
Total interest-earning assets           1,291        1,359              2,650
                                      -------       ------             ------
Interest-bearing liabilities:
Savings and club accounts                 (84)          78                 (6)
Money market accounts                    (104)         126                 22
NOW accounts                                7           58                 65
Certificates of deposit                 1,098        1,430              2,528
Borrowings                               (105)          96                 (9)
Mortgage escrow funds                       1            1                  2
                                      -------       ------             ------
Total interest-bearing liabilities        813        1,789              2,602
                                      -------       ------             ------
Net interest income                   $   478       $ (430)            $   48

      Net Income.  Net income amounted to $1.05 million or diluted  earnings per
share of $0.09 for the  quarter  ended  December  31,  2005 as compared to $1.43
million or diluted  earnings per share of $0.12 for the quarter  ended  December
31, 2004. Net income decreased  $380,000 for the quarter ended December 31, 2005
which is primarily  attributable to a $645,000 increase in non-interest expense,
partially  offset by a $48,000  increase in net  interest  income and a $253,000
decrease in income tax expense.

      Interest  Income.  Interest income increased $2.7 million to $13.4 million
for the quarter  ended  December 31, 2005,  as compared to $10.7 million for the
quarter ended December 31, 2004. The increase reflects a $140.3 million increase
in average  interest-earning  assets to $1.1  billion  during the quarter  ended
December  31,  2005 as compared  to $928.6  million for the same  quarter in the
prior  year  and  a  39  basis  point   increase   in  the   average   yield  on
interest-earning  assets  to 4.97%.  The  increase  in the  average  balance  of
interest-earning  assets was due primarily to a $156.3  million  increase in the
average  balance  of net loans to $691.2  million,  partially  offset by a $22.2
million  decrease in the average balance of total  securities to $335.2 million.
The  increase  in average  interest-earning  assets was  funded  principally  by
deposit  growth in the Bank's  branches.  The  increase in the average  yield on
interest-earning assets reflects the purchase of securities


                                       14
<PAGE>

at higher rates than the  existing  portfolio  and  increased  yields  earned on
Federal  funds as a result of recent  increases in  short-term  market  interest
rates.

      Loans.  Interest income on loans increased $2.3 million, or 31.4%, to $9.8
million for the quarter ended  December 31, 2005 as compared to $7.5 million for
the same quarter in 2004.  This increase is due to a $156.3 million  increase in
the average  balance of loans to $691.2  million and a 9 basis point increase in
the yield  earned to 5.64%.  While  short-term  interest  rates have  increased,
longer-term interest rates have remained substantially unchanged at December 31,
2005.  The interest  rates on loan products are typically  based on  longer-term
interest rates, such as the 10-year Treasury bond. As a result, the rates on new
mortgage loans have remained substantially unchanged at December 31, 2005. Loans
originated during the quarter ended December 31, 2005 amounted to $71.7 million.
If long-term  market interest rates increase,  our average yield on loans should
increase,  however loan  originations  may decrease which would result in slower
growth or a decrease in the loan portfolio.

      Mortgage-Backed   and  Other  Securities.   Interest  on   mortgage-backed
securities  totaled  $2.1  million for the quarter  ended  December  31, 2005, a
decrease of $198,000  from the same  quarter in 2004.  The  decrease is due to a
$41.1 million decrease in the average balance of  mortgage-backed  securities to
$221.2  million,  partially  offset by a 29 basis point  increase in the average
yield to 3.80% during the current quarter.  The increase in the average yield is
due primarily to rising short-term  interest rates.  Mortgage-backed  securities
with   adjustable   rates   amounted  to  $117.7   million  or  54.5%  of  total
mortgage-backed  securities  at December 31, 2005.  The interest  rates on these
securities  typically  adjust  using an index  that is based on the yield of the
1-year Treasury bill.

      Interest on other  securities  increased  $263,000 to $1.0 million for the
quarter ended December 31, 2005, as compared to $782,000 for the same quarter in
2004. The increase is due to an $18.9 million increase in the average balance of
other  securities to $114.0 million and a 38 basis point increase in the average
yield to 3.64%.  The increase in both the average  balance and the average yield
of other  securities  is due primarily to recent  purchases of bonds,  issued by
Government-sponsored  entities,  with  maturity or call dates of less than three
years. As a result of recent increases in market interest rates in this maturity
timeframe,  securities  purchased  during  fiscal 2006 have been at higher rates
than the existing portfolio.

      Federal  Funds Sold and Other  Overnight  Deposits.  For the quarter ended
December 31, 2005,  interest on Federal funds sold and other overnight  deposits
increased  $177,000 to $290,000,  reflecting  a 166 basis point  increase in the
average yield to 3.13%,  and a $6.3 million  increase in the average  balance to
$36.8 million. The increase in the average yield is a result of increases by the
Federal Reserve in the Federal funds rate.

      Other Earning  Assets.  Other earning assets consist  primarily of FHLB of
New York common  stock.  Dividends on FHLB of New York common stock  amounted to
$84,000 for the quarter  ended  December 31, 2005 as compared to $32,000 for the
same quarter in 2004.

      Interest Expense. Interest expense for the quarter ended December 31, 2005
increased  $2.6  million to $6.7  million,  as compared to $4.1  million for the
quarter  ended  December  31,  2004.  The  average  balance of  interest-bearing
liabilities  increased  $130.4  million to $953.9  million for the quarter ended
December  31,  2005 as compared  to $823.5  million for the same  quarter in the
prior  year,  while the average  cost of these  liabilities  increased  82 basis
points to  2.77%.  The  increase  in the  average  balance  of  interest-bearing
liabilities includes deposit growth in the most recently opened branches as well
as  growth  in the  existing  branches.  The  increase  in the  average  cost of
liabilities is a result of increasing  short-term  market  interest rates and an
increase in certificates of deposit  accounts as a percentage of total deposits.
The average balance of certificates of deposit  represented 70.1% of the average
balance of total interest-bearing liabilities for the quarter ended December 31,
2005, as compared to 63.2% for the quarter ended December 31, 2004. Certificates
of deposit are  generally  offered at higher rates than savings  accounts and we
have used these  accounts to attract  customers  to our recently  opened  branch
locations.


                                       15
<PAGE>

      Interest  expense on certificates of deposit  amounted to $5.9 million for
the current  quarter as compared to $3.3  million for the same  quarter in 2004.
The  increase  is due  primarily  to a $148.1  million  increase  in the average
balance to $668.8  million  from $520.7  million for the same quarter last year,
while the average cost of certificates  of deposit  increased 94 basis points to
3.48%.

      Interest on savings accounts  amounted to $199,000 for the current quarter
as compared to $205,000 for the quarter ended  December 31, 2004.  This decrease
is the result of a $16.3  million  decrease  in the  average  balance of savings
accounts to $135.8  million for the quarter ended  December 31, 2005 as compared
to $152.1 million for the same quarter in 2004,  partially offset by an increase
of 5 basis points in the average cost of savings accounts to 0.58%.

      Interest expense on NOW and money market accounts amounted to $222,000 for
quarter ended  December 31, 2005 as compared to $135,000 for the same quarter in
the prior year.  The average  cost  increased  32 basis  points to 0.81% and the
average balance of these accounts increased $548,000 to $108.8 million.

      For the quarter ended  December 31, 2005,  interest  expense on borrowings
amounted to $362,000 as compared to $371,000 for the same  quarter in 2004.  The
average  balance of borrowings for the current quarter was $35.0 million and the
average  cost was 4.10%,  an increase of 23 basis  points from the same  quarter
last year.

      Net Interest  Income.  Net interest  income for the quarter ended December
31, 2005 increased $48,000 to $6.72 million as compared to $6.68 million for the
same quarter in the prior year. The net interest rate spread was 2.20% and 2.63%
for the  quarters  ended  December  31,  2005 and  2004,  respectively.  The net
interest  margin  for  those  periods  was 2.50% and  2.85%,  respectively.  The
decreases in interest  rate spread and net  interest  margin are  primarily  the
result of a decrease in the spread between short- and long-term  market interest
rates. At December 31, 2005, the spread between the 1-month and 10-year Treasury
yield rates was 38 basis  points as compared to 205 basis points at December 31,
2004. As a result,  the Company's average cost of  interest-bearing  liabilities
has  increased  faster  than the  yield on  interest-earning  assets  which  are
affected by longer-term interest rates.

      Provision for Loan Losses. Management regularly reviews the loan portfolio
and makes  provisions  for loan  losses in  amounts  required  to  maintain  the
allowance  for loan losses in  accordance  with  generally  accepted  accounting
principles.  The  allowance  consists  of  losses  that  are both  probable  and
estimable at the date of the financial statements. The allowance for loan losses
consists of amounts  allocated to specific  nonperforming  loans and to loans in
each major portfolio category. Loan categories such as single-family residential
mortgage loans, which represented 84.6% of total loans at December 31, 2005, are
generally  evaluated on an aggregate or "pool"  basis.  Our  allowance  for loan
losses is  predominately  determined on a pool basis by applying loss factors to
the current  balances  of the  various  loan  categories.  The loss  factors are
determined  by  management  based  on  an  evaluation  of  our  historical  loss
experience,  delinquency trends,  volume and type of lending conducted,  and the
impact of current economic conditions in our market area.

      The provision for loan losses was $75,000 for the quarters  ended December
31, 2005 and 2004.  Non-performing  loans  amounted to $2.7  million or 0.38% of
total  loans at  December  31,  2005,  as compared to $734,000 or 0.14% of total
loans at December  31,  2004.  The  allowance  for loan losses  amounted to $3.2
million and $3.0 million at December 31, 2005 and March 31, 2005,  respectively.
The increase in the allowance for loan losses is primarily due to an increase in
the origination of adjustable rate mortgage loans, commercial mortgage loans and
commercial  loans  (not  secured by real  estate)  as well as overall  portfolio
growth.  Adjustable-rate  mortgage  loans can involve  greater  credit risk than
fixed-rate loans because as interest rates increase,  the underlying payments by
the borrower increase,  thus increasing the risk of default by the borrower.  At
the same time, the  marketability of the underlying  collateral may be adversely
affected by higher interest  rates. At December 31, 2005,  adjustable rate loans
accounted for 45.2% of total loans as compared to 37.8% at March 31, 2005.


                                       16
<PAGE>

      Non-Interest  Income.  Non-interest income consists principally of service
charges on deposit  accounts,  fees earned on the sale of  investment  products,
late  charges  on loans,  various  other  service  fees and  changes in the cash
surrender value of bank-owned life insurance ("BOLI").  Service charges and fees
totaled $251,000 and $244,000 for the quarters ended December 31, 2005 and 2004,
respectively.  The  increase  in service  charges and fees is  primarily  due to
service  charges on deposits as a result of increases in the fee  structure  and
deposit  account  growth.  The increase in the cash surrender  value of the BOLI
amounted to $95,000 and $121,000 for those same respective periods.

      Non-Interest  Expense.  Non-interest  expense totaled $5.2 million for the
quarter  ended  December  31, 2005 as  compared to $4.6  million for the quarter
ended December 31, 2004. This increase is primarily due to increases of $431,000
in  compensation  and  benefits  expense,  $75,000 in  occupancy  and  equipment
expense,  $114,000 in  advertising  and  promotion  expense and $75,000 in other
non-interest  expense.  These  increases were partially  offset by a decrease of
$50,000  in  data   processing   service  fees.  The  increases   include  costs
attributable  to two new  branches  opened  during the fourth  quarter of fiscal
2005.

      The increase in  compensation  and benefits  expense is due primarily to a
$170,000  increase in  compensation  costs due primarily to additional  staff to
support the growth in the Company's lending operations and the new branches. The
adoption  of SFAS No.  123R will result in  additional  compensation  costs with
respect to stock options  beginning April 1, 2006, as described in Note 3 of the
Notes to Unaudited Consolidated Financial Statements in Item 1.

        Income Taxes. Income tax expense amounted to $703,000 and $956,000 for
the quarters ended December 31, 2005 and 2004, respectively. The effective tax
rates for those same periods were 40.2% and 40.1%, respectively.


                                       17
<PAGE>

Comparison of Results of Operations  for the Nine Months Ended December 31, 2005
and 2004

      Average  Balance  Sheets.  The following  table sets forth average balance
sheets,  average yields and costs,  and certain other  information  for the nine
months ended  December  31, 2005 and 2004.  The table  reflects  the  annualized
average  yield on  interest-earning  assets and the  annualized  average cost of
interest-bearing liabilities (derived by dividing the annualized interest income
or  expense  by the  monthly  average  balance  of  interest-earning  assets  or
interest-bearing  liabilities,  respectively),  as  well  as the  net  yield  on
interest-earning  assets. No tax-equivalent  yield adjustments were made, as the
effect  thereof  was  not  material.  Nonaccrual  loans  were  included  in  the
computation of average  balances and therefore have a zero yield. The yields set
forth below include the effect of deferred loan  origination fees and costs, and
purchase  discounts  and  premiums  that are  amortized  or accreted to interest
income.  Interest income on loans for the 2005 and 2004 periods has been reduced
by amortization of net deferred loan origination costs of $333,000 and $412,000,
respectively.  Interest income on mortgage-backed securities has been reduced by
amortization  of purchase  premiums  (net of discounts) of $593,000 and $742,000
for those same respective  periods.

<TABLE>
<CAPTION>
                                                                      For the Nine Months Ended December 31,
                                                ------------------------------------------------------------------------------------
                                                                  2005                                        2004
                                                ------------------------------------------------------------------------------------
                                                  Average                                      Average
                                                Outstanding                  Average          Outstanding                  Average
                                                  Balance       Interest    Yield/Rate          Balance      Interest     Yield/Rate
                                                  -------       --------    ----------          -------      --------     ----------
                                                                               (Dollars in thousands)
<S>                                             <C>                  <C>          <C>           <C>              <C>         <C>

Interest-earning assets:
Loans (1)                                       $  637,920           26,972       5.61%      $  511,669          21,733      5.64%
Mortgage-backed securities (2)                     238,325            6,507       3.62%         258,305           6,753      3.47%
Other securities (2)                               108,006            2,885       3.55%          90,827           2,164      3.16%
Federal funds sold and other
overnight deposits (3)                              32,715              666       2.70%          30,991             245      1.05%
Other (4)                                            6,338              240       5.03%           5,824              87      1.98%
                                                ----------           ------                  ----------          ------
Total interest-earning assets                    1,023,304           37,270       4.83%         897,616          30,982      4.58%
                                                                     ------                                      ------
Non-interest earning assets                         48,713                                       43,960
                                                ----------                                   ----------
Total assets                                    $1,072,017                                   $  941,576
                                                ==========                                   ==========
Interest-bearing liabilities:
Savings and club accounts                       $  141,738              585       0.55%      $  151,278             596      0.52%
Money market accounts                               41,181              358       1.15%          46,717             275      0.78%
NOW accounts                                        66,136              235       0.47%          58,783             110      0.25%
Certificates of deposit                            620,891           15,199       3.25%         493,267           9,021      2.43%
Borrowings                                          35,971            1,084       4.00%          37,029           1,126      4.04%
Mortgagors' escrow funds                             5,381               18       0.44%           4,299              15      0.46%
                                                ----------           ------                  ----------          ------
Total interest-bearing liabilities                 911,298           17,479       2.55%         791,373          11,143      1.87%
                                                                     ------                                      ------
Non-interest-bearing liabilities                    33,036                                       21,069
                                                ----------                                   ----------
Total liabilities                                  944,334                                      812,442
Stockholders' equity                               127,683                                      129,134
                                                ----------                                   ----------
Total liabilities and
stockholders' equity                            $1,072,017                                   $  941,576
                                                ==========                                   ==========
Net interest income                                                  19,791                                      19,839
                                                                     ======                                      ======
Net interest rate spread (5)                                                      2.28%                                      2.71%
Net earning assets (6)                          $  112,006                                   $  106,243
                                                ==========                                   ==========
Net interest margin (7)                                                           2.57%                                      2.93%
Ratio of interest-earning assets
to interest-bearing liabilities                       1.12 x                                       1.13 x
</TABLE>

(1)   Balances are net of the allowance for loan losses.

(2)   Average outstanding balances are based on amortized cost. As a result, the
      average  balances  and yields do not include the effect of changes in fair
      value of securities available for sale.

(3)   Other overnight deposits represent an  interest-earning  demand account at
      the Federal Home Loan Bank of New York.

(4)   Consists primarily of Federal Home Loan Bank stock.

(5)   Net interest rate spread  represents the  difference  between the yield on
      average  interest-earning assets and the cost of average  interest-bearing
      liabilities.

(6)   Net earning  assets  represent  total  interest-earning  assets less total
      interest-bearing liabilities.

(7)   Net interest  margin  represents  net interest  income  divided by average
      total interest-earning assets.


                                       18
<PAGE>

      Rate/Volume  Analysis.  The following  table presents the dollar amount of
changes in interest  income and  interest  expense for the major  categories  of
interest-earning  assets and interest-bearing  liabilities,  with respect to (i)
changes  attributable to changes in volume (i.e., changes in balances multiplied
by the prior-period rate) and (ii) changes  attributable to rate (i.e.,  changes
in rate  multiplied  by  prior-period  balances).  For  purposes  of this table,
changes attributable to both rate and volume,  which cannot be segregated,  have
been allocated proportionately to the change due to volume and the change due to
rate.

                                       For the Nine Months Ended December 31,
                                                    2005 vs. 2004
                                     -------------------------------------------
                                     Increase (Decrease) Due to
                                     --------------------------   Total Increase
                                         Volume         Rate        (Decrease)
                                     -------------------------------------------
                                                    (In thousands)

Interest-earning assets:
Loans                                   $ 5,430      $  (191)        $ 5,239
Mortgage-backed securities                 (655)         409            (246)
Other securities                            436          285             721
Federal funds and other
  overnight deposits                         14          407             421
Other                                         8          145             153
                                        -------      -------         -------
Total interest-earning assets             5,233        1,055           6,288
                                        -------      -------         -------
Interest-bearing liabilities:
Savings and club accounts                   (53)          42             (11)
Money market accounts                       (52)         135              83
NOW accounts                                 15          110             125
Certificates of deposit                   2,681        3,497           6,178
Borrowings                                  (31)         (11)            (42)
Mortgage escrow funds                         4           (1)              3
                                        -------      -------         -------
Total interest-bearing liabilities        2,564        3,772           6,336
                                        -------      -------         -------
Net interest income                     $ 2,669      $(2,717)        $   (48)
                                        =======      =======         =======

      Net Income.  Net income amounted to $3.53 million or diluted  earnings per
share of $0.30 for the nine months ended December 31, 2005, as compared to $4.35
million  or  diluted  earnings  per  share of $0.36  for the nine  months  ended
December 31,  2004, a decrease of $825,000 or 18.9% in net income.  The decrease
in net  income  for the  nine  months  ended  December  31,  2005  is  primarily
attributable  to a $1.7  million  increase in  non-interest  expense,  partially
offset by a $449,000 increase in non-interest  income and a $530,000 decrease in
income tax expense.

      Interest  Income.  Interest income increased $6.3 million to $37.3 million
for the nine months ended  December 31, 2005,  as compared to $31.0  million for
the nine months ended December 31, 2004. The increase  reflects a $125.7 million
increase  in average  interest-earning  assets to $1.0  billion  during the nine
months ended December 31, 2005 as compared to $897.6 million for the same period
in the  prior  year  and a 25  basis  point  increase  in the  average  yield on
interest-earning  assets  to 4.83%.  The  increase  in the  average  balance  of
interest-earning  assets was due primarily to a $126.3  million  increase in the
average  balance  of net loans to  $637.9  million,  partially  offset by a $2.8
million  decrease in the average balance of total  securities to $346.3 million.
The  increase  in average  interest-earning  assets was  funded  principally  by
deposit  growth in


                                       19
<PAGE>

the Bank's  branches.  The  increase  in the average  yield on  interest-earning
assets  reflects  the purchase of  securities  at higher rates than the existing
portfolio  and  increased  yields  earned on Federal funds as a result of recent
increases in short-term market interest rates.

      Loans. Interest income on loans increased $5.3 million, or 24.1%, to $27.0
million for the nine months ended December 31, 2005 as compared to $21.7 million
for the same period in 2004.  This increase is due to a $126.3 million  increase
in the average balance of loans to $637.9 million, partially offset by a 3 basis
point  decrease in the yield earned to 5.61%.  While  short-term  interest rates
have increased, longer-term interest rates have remained substantially unchanged
at December 31, 2005. The interest rates on loan products are typically based on
longer-term  interest rates, such as the 10-year Treasury bond. As a result, the
rates on new mortgage  loans have remained  substantially  unchanged at December
31,  2005.  Loans  originated  during the nine months  ended  December  31, 2005
amounted to $246.3 million.  If long-term  market  interest rates increase,  our
average yield on loans should increase,  however loan  originations may decrease
which would result in slower growth or a decrease in the loan portfolio.

      Mortgage-Backed   and  Other  Securities.   Interest  on   mortgage-backed
securities  totaled $6.5 million for the nine months ended  December 31, 2005, a
decrease of 246,000 from the nine months ended  December 31, 2004.  The decrease
is due to a $20.0  million  decrease in the average  balance of  mortgage-backed
securities to $238.3 million,  partially  offset by a 15 basis point increase in
the average  yield to 3.62%.  The increase in the average yield is due primarily
to rising short-term interest rates.  Mortgage-backed securities with adjustable
rates amounted to $117.7 million or 54.5% of total mortgage-backed securities at
December 31, 2005. The interest rates on these securities typically adjust using
an index that is based on the yield of the 1-year Treasury bill.

      Interest on other  securities  increased  $721,000 to $2.9 million for the
nine months ended  December  31, 2005,  as compared to $2.2 million for the same
nine  months in 2004.  The  increase is due to a $17.2  million  increase in the
average  balance of other  securities  to $108.0  million  and a 39 basis  point
increase in the average yield to 3.55%. The increase in both the average balance
and the average yield of other  securities is due primarily to recent  purchases
of bonds, issued by  Government-sponsored  entities, with maturity or call dates
of less than three years.  As a result of recent  increases  in market  interest
rates in this maturity timeframe,  securities  purchased during fiscal 2006 have
been at higher rates than the existing portfolio.

      Federal Funds Sold and Other Overnight Deposits. For the nine months ended
December 31, 2005,  interest on Federal funds sold and other overnight  deposits
increased  $421,000 to $666,000,  reflecting  a 165 basis point  increase in the
average yield to 2.70%,  and a $1.7 million  increase in the average  balance to
$32.7 million. The increase in the average yield is a result of increases by the
Federal Reserve in the Federal funds rate.

      Other Earning  Assets.  Other earning assets consist  primarily of FHLB of
New York common  stock.  Dividends on FHLB of New York common stock  amounted to
$230,000 for nine months ended  December 31, 2005 as compared to $82,000 for the
same nine months in 2004.

      Interest Expense.  Interest expense for the nine months ended December 31,
2005 increased  $6.4 million to $17.5 million,  as compared to $11.1 million for
the nine months ended December 31, 2004. The average balance of interest-bearing
liabilities  increased  $119.9  million to $911.3 million during the nine months
ended  December  31, 2005 as  compared to $791.4  million for the same period in
2004, while the average cost of these  liabilities  increased 68 basis points to
2.55%.  The  increase in the  average  balance of  interest-bearing  liabilities
includes  deposit growth in the most recently  opened branches as well as growth
in the existing  branches.  The increase in the average cost of liabilities is a
result  of  increasing  short-term  market  interest  rates and an  increase  in
certificates of deposit accounts as a percentage of total deposits.  The average
balance of certificates of deposit  represented  68.1% of the average balance of
total interest-bearing  liabilities for the nine months ended December 31, 2005,
as compared to 62.3% for the nine months ended  December 31, 2004.  Certificates
of deposit are  generally  offered at higher rates than savings  accounts and we
have used these  accounts to attract  customers  to our recently  opened  branch
locations.


                                       20
<PAGE>

      Interest  expense on certificates of deposit amounted to $15.2 million for
the nine months ended December 31, 2005 as compared to $9.0 million for the nine
months  ended  December  31,  2004.  The  increase is due  primarily to a $127.6
million  increase in the average  balance to $620.9 million from $493.3 million,
and an 82 basis point increase in the average cost of certificates of deposit to
3.25%.

      Interest on savings  accounts  amounted  to  $585,000  for the nine months
ended  December  31,  2005 as compared  to  $596,000  for the nine months  ended
December 31, 2004. This decrease is the result of a $9.6 million decrease in the
average balance of savings  accounts to $141.7 million for the nine months ended
December  31, 2005 as  compared  to $151.3  million for the same period in 2004,
while the average cost of savings accounts increased 3 basis points to 0.55%.

      Interest expense on NOW and money market accounts amounted to $593,000 for
nine months  ended  December  31, 2005 as compared to $385,000 for the same nine
months in the prior year. The average cost of these deposits  increased 25 basis
points to 0.73% and the average balance of these accounts increased $1.8 million
to $107.3 million.

      For  the  nine  months  ended  December  31,  2005,  interest  expense  on
borrowings  amounted to $1.08  million as compared to $1.13 million for the same
nine months in 2004. The average balance of borrowings for the nine months ended
December  31, 2005 was $36.0  million as compared to $37.0  million for the same
period in 2004.  The average  cost of  borrowings  decreased  4 basis  points to
4.00%.

      Net  Interest  Income.  Net  interest  income  for the nine  months  ended
December  31,  2005  decreased  $48,000 to $19.79  million as compared to $19.84
million for the same nine months in the prior year. The net interest rate spread
was 2.28%  and  2.71% for the nine  months  ended  December  31,  2005 and 2004,
respectively.  The net  interest  margin for those same  respective  periods was
2.57% and 2.93%.  The decreases in interest rate spread and net interest  margin
are  primarily  the  result of a  decrease  in the  spread  between  short-  and
long-term  market  interest  rates. At December 31, 2005, the spread between the
1-month and 10-year  Treasury yield rates was 38 basis points as compared to 205
basis points at December 31, 2004. As a result,  the  Company's  average cost of
interest-bearing   liabilities   has   increased   faster   than  the  yield  on
interest-earning assets which are affected by longer-term interest rates.

      Provision for Loan Losses.  The provision for loan losses was $225,000 for
the nine months ended December 31, 2005 and 2004.  Non-performing loans amounted
to $2.7  million or 0.38% of total loans at December  31,  2005,  as compared to
$734,000 or 0.14% of total loans at December 31, 2004.  The  allowance  for loan
losses  amounted to $3.2 million and $3.0 million at December 31, 2005 and March
31,  2005,  respectively.  The  increase  in the  allowance  for loan  losses is
primarily  due to an increase in the  origination  of  adjustable  rate mortgage
loans,  commercial  mortgage  loans and  commercial  loans (not  secured by real
estate) as well as overall portfolio growth.  Adjustable-rate mortgage loans can
involve  greater  credit risk than  fixed-rate  loans because as interest  rates
increase, the underlying payments by the borrower increase,  thus increasing the
risk of default by the  borrower.  At the same time,  the  marketability  of the
underlying  collateral may be adversely  affected by higher  interest  rates. At
December 31, 2005,  adjustable  rate loans accounted for 45.2% of total loans as
compared to 37.8% at March 31, 2005.

      Non-Interest  Income.  Service  charges  and  fees  totaled  $885,000  and
$740,000 for the nine months ended December 31, 2005 and 2004, respectively. The
increase  in  service  charges  and  fees is  primarily  due to an  increase  in
prepayment  fees on loans and to  service  charges  on  deposits  as a result of
increases in the fee structure and deposit account  growth.  The increase in the
cash  surrender  value of the BOLI  amounted to $283,000  and $287,000 for those
same respective periods.  The Company also had a gain on the sale of real estate
of $325,000  during the nine months ended  December 31, 2005.  The property sold
was  contiguous  to an existing  branch site.  Management  determined  that this
property  was not  going  to be used in  connection  with the  operation  of the
branch.


                                       21
<PAGE>

      Non-Interest  Expense.  Non-interest expense totaled $15.2 million for the
nine months ended  December  31, 2005 as compared to $13.5  million for the nine
months ended  December 31, 2004.  This increase is primarily due to increases of
$1.2  million in  compensation  expense,  $269,000 in  occupancy  and  equipment
expense,  $32,000 in data processing  service fees,  $149,000 in advertising and
promotion  expense and $81,000 in other  non-interest  expense.  These increases
include  costs  attributable  to the two new branches  opened  during the fourth
quarter of fiscal 2005.

      The increase in  compensation  and benefits  expense is due primarily to a
$576,000  increase in  compensation  costs due primarily to additional  staff to
support the growth in the Company's lending operations and the new branches. The
adoption  of SFAS No.  123R will result in  additional  compensation  costs with
respect to stock options  beginning April 1, 2006, as described in Note 3 of the
Notes to Unaudited Consolidated Financial Statements in Item 1.

      Income Taxes. Income tax expense amounted to $2.3 million and $2.8 million
for the nine  months  ended  December  31,  2005  and  2004,  respectively.  The
effective tax rates for those same periods were 39.3% and 39.2%, respectively.

Liquidity and Capital Resources

      The Company's  primary  sources of funds are  deposits,  the proceeds from
principal and interest payments on loans and mortgage-backed securities, and the
proceeds  from  maturities  of  investments.   While  maturities  and  scheduled
amortization of loans and securities are a predictable source of funds,  deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition.

      The Company's primary investing activities are the origination of mortgage
loans,  and the purchase of  short-term  investments,  government  agency bonds,
mortgage-backed  securities  and  collateralized  mortgage  obligations.   These
activities are funded  primarily by deposit  growth and principal  repayments on
loans,  mortgage-backed  securities and other investment securities.  During the
nine months  ended  December 31, 2005,  the Company  originated  loans of $246.3
million,  purchased  loans of $2.5  million and  purchased  securities  of $39.5
million. These disbursements were funded by $61.6 million in principal payments,
maturities  and  calls  of  securities  and  $99.3  million  in  loan  principal
repayments.  During the year ended March 31, 2005, the Company originated $207.9
million of loans and purchased $113.3 million of securities.

      Liquidity management for the Company is both a daily and long-term process
which is part of the Company's  overall  management  strategy.  Excess funds are
generally  invested  in  short-term   investments  such  as  Federal  funds  and
certificates  of deposit.  In the event that the Bank should require  additional
sources  of funds,  it could  borrow  from the FHLB under an  available  line of
credit.

      At December 31, 2005,  the Company had  outstanding  loan  commitments  of
$98.5  million.  The  Company  anticipates  that it will have  sufficient  funds
available  to meet  its  current  loan  commitments.  Certificates  of  deposits
scheduled to mature in one year or less from December 31, 2005,  totaled  $513.7
million.  Management  believes that a significant  portion of such deposits will
remain with the Company.

      The Bank is subject to certain minimum  leverage,  tangible and risk-based
capital  requirements  established by regulations of the OTS. These  regulations
require savings associations to meet three minimum capital standards: a tangible
capital  ratio  requirement  of 1.5% of total  assets as adjusted  under the OTS
regulations;  a  leverage  ratio  requirement  of 4.0% of core  capital  to such
adjusted  total assets;  and a risk-based  capital ratio  requirement of 8.0% of
core and  supplementary  capital  to total  risk-based  assets.  The OTS  prompt
corrective  action  regulations  impose  a 4.0%  core  capital  requirement  for
categorization  as an  "adequately  capitalized"  thrift and a 5.0% core capital
requirement for categorization as a "well capitalized" thrift. Goodwill and most
other  intangible  assets are  deducted in  determining  regulatory  capital for
purposes of all  capital  ratios.  In  determining  the amount of  risk-weighted
assets for purposes of the risk-based capital requirement, a savings association
must  compute  its  risk-based  assets by  multiplying  its assets  and  certain
off-


                                       22
<PAGE>

balance  sheet  items  by  risk-weights,  which  range  from  0%  for  cash  and
obligations  issued by the United States  Government or its agencies to 100% for
consumer and commercial  loans, as assigned by the OTS capital  regulations.  At
December 31, 2005, the Bank exceeded all of the OTS minimum  regulatory  capital
requirements,   and  was  classified  as  a  well-capitalized   institution  for
regulatory purposes.

      The  following  table sets forth the  capital  position  of the Bank as of
December 31, 2005 and March 31, 2005. The actual capital  amounts and ratios set
forth below are for the Bank only and,  accordingly,  do not include  additional
capital retained by the Holding Company.

<TABLE>
<CAPTION>
                                                                           OTS Requirements
                                                            --------------------------------------------------
                                                              Minimum Capital           Classification as Well
                                    Bank Actual                   Adequacy                    Capitalized
                               ----------------------       ---------------------       ----------------------
                                 Amount        Ratio         Amount        Ratio         Amount        Ratio
                               ----------------------       ---------------------       ----------------------
                                                           (Dollars in thousands)
<S>                            <C>             <C>          <C>            <C>          <C>            <C>
December 31, 2005
-----------------
Tangible capital               $106,279         9.4%        $ 16,910         1.5%
Tier I (core) capital           106,279         9.4           45,094         4.0        $ 56,368         5.0%
Risk-based capital:
     Tier I                     106,279        20.1           21,124         4.0          31,685         6.0
     Total                      109,515        20.7           42,247         8.0          52,809        10.0

March 31, 2005
--------------
Tangible capital               $101,814        10.3%        $ 14,888         1.5%
Tier I (core) capital           101,814        10.3           39,703         4.0        $ 49,627         5.0%
Risk-based capital:
     Tier I                     101,814        22.9           17,729         4.0          26,591         6.0
     Total                      104,825        23.6           35,455         8.0          44,319        10.0
</TABLE>

Accounting Standards

      In May 2005, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards ("SFAS") No. 154, "Accounting Changes and Error
Corrections," which replaces APB Opinion No. 20, "Accounting  Changes," and SFAS
No. 3,  "Reporting  Accounting  Changes in Interim  Financial  Statements,"  and
changes the  requirements  for the  accounting  for and reporting of a change in
accounting  principle.  SFAS  No.  154  applies  to  all  voluntary  changes  in
accounting principle and to changes required by an accounting pronouncement when
the pronouncement does not include specific transition provisions.  SFAS No. 154
requires retrospective  application of a change in accounting principle to prior
periods' financial statements unless it is impracticable to determine either the
period-specific  effects or the cumulative effect of the change. APB Opinion No.
20 previously  required that most voluntary  changes in accounting  principle be
recognized  by including the  cumulative  effect of the change in net income for
the period of the change in accounting  principle.  SFAS No. 154 carries forward
without  change the guidance  contained in APB Opinion No. 20 for  reporting the
correction of an error in previously issued financial statements and a change in
accounting  estimate.  SFAS No. 154 also  carries  forward  the  guidance in APB
Opinion No. 20 requiring  justification  of a change in accounting  principle on
the basis of preferability. SFAS No. 154 is effective for accounting changes and
corrections  of errors made in fiscal years  beginning  after December 15, 2005,
with early  adoption  permitted.  The Company's  adoption of SFAS No. 154 is not
expected to have an impact on its financial condition or results of operations.

      See Note 3 of the Notes to Unaudited  Consolidated Financial Statements in
Item 1 for a discussion  of SFAS No. 123R,  which will result in a change in the
Company's accounting for stock options beginning April 1, 2006.

      FASB  Staff  Position  No.  FAS  115-1  and FAS  124-1,  "The  Meaning  of
Other-Than-Temporary Impairment and Its Application to Certain Investments" (the
"FSP"), was issued in November 2005 and


                                       23
<PAGE>

addresses  the  determination  of when an  investment  is  considered  impaired;
whether the impairment is other than temporary; and how to measure an impairment
loss.  The  FSP  also  addresses  accounting  considerations  subsequent  to the
recognition  of an  other-than-temporary  impairment  on a  debt  security,  and
requires  certain  disclosures  about  unrealized  losses  that  have  not  been
recognized as other-than-temporary  impairments. The FSP replaces the impairment
guidance  in EITF  Issue No.  03-1 with  references  to  existing  authoritative
literature concerning other-than-temporary  determinations (principally SFAS No.
115 and SEC Staff Accounting Bulletin 59). Under the FSP, impairment losses must
be recognized in earnings equal to the entire difference  between the security's
cost and its fair value at the financial  statement  date,  without  considering
partial  recoveries  subsequent  to that  date.  The FSP also  requires  that an
investor  recognize an  other-than-temporary  impairment loss when a decision to
sell a security has been made and the investor does not expect the fair value of
the security to fully  recover  prior to the expected  time of sale.  The FSP is
effective for reporting  periods  beginning after December 15, 2005. The Company
does not expect that the  application of the FSP will have a material  impact on
its  financial   condition,   results  of  operations  or  financial   statement
disclosures.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

      The Company's most  significant form of market risk is interest rate risk,
as the majority of the Company's assets and liabilities are sensitive to changes
in interest rates. The Company's assets consist primarily of fixed rate mortgage
loans, which have longer maturities than the Company's liabilities which consist
primarily  of  deposits.  The  Company's  mortgage  loan  portfolio,  consisting
primarily of loans secured by residential  real property  located in Westchester
County,  New York and Fairfield  County,  Connecticut,  is also subject to risks
associated with the local economy.  The Company does not own any trading assets.
At December  31,  2005,  the Company  did not have any hedging  transactions  in
place,  such as interest rate swaps and caps.  The Company's  interest rate risk
management  program focuses primarily on evaluating and managing the composition
of the Company's  assets and liabilities in the context of various interest rate
scenarios.  Factors beyond management's  control,  such as market interest rates
and competition, also have an impact on interest income and interest expense.

      During the nine months ended December 31, 2005,  there were no significant
changes in the Company's assessment of market risk.

Item 4.  Controls and Procedures

      The Company's management,  including the Chief Executive Officer and Chief
Financial  Officer,  evaluated the  effectiveness of the design and operation of
the Company's  disclosure  controls and procedures (as defined in Rule 13a-14(c)
under the Securities  Exchange Act of 1934, as amended) (the "Exchange  Act") as
of December 31, 2005 (the "Evaluation  Date").  Based upon that evaluation,  the
Company's management,  including the Chief Executive Officer and Chief Financial
Officer,  concluded  that, as of the Evaluation  Date, the Company's  disclosure
controls and procedures were effective to ensure that information required to be
disclosed in the reports the Company files and submits under the Exchange Act is
recorded, processed,  summarized and reported as and when required and that such
information  is  accumulated  and  communicated  to management as appropriate to
allow timely decisions regarding required disclosure.

      There were no changes in the  Company's  internal  control over  financial
reporting  during  the  period  covered  by this  report  that  have  materially
affected,  or are reasonably likely to materially affect, the Company's internal
control over financial reporting.


                                       24
<PAGE>

Part II - OTHER INFORMATION

Item 1.  Legal Proceedings

      The Company is not involved in any pending  legal  proceedings  other than
routine legal  proceedings  occurring in the ordinary  course of business.  Such
routine  legal  proceedings  in the  aggregate  are believed by management to be
immaterial to the Company's financial condition and results of operations.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

      Information  regarding Company purchases of its equity securities  (common
stock) during the three months ended December 31, 2005 is summarized below:

<TABLE>
<CAPTION>
                                                                               Total number of
                                                                              shares purchased       Maximum number of
                                                                              under a publicly      shares that may yet
                                Total number of       Average price paid    announced repurchase    be purchased under
                               shares purchased           per share              plan (1)           repurchase plan (1)
                               ----------------       ------------------    --------------------    -------------------
<S>                            <C>                    <C>                   <C>                     <C>
October 1-October 31                   --                      --                    --                      321,544
November 1-November 30                 --                      --                    --                      321,544
December1-December 31                  --                      --                    --                      321,544
</TABLE>

(1) On June 11,  2004,  the  Company  announced  a program to  repurchase  up to
658,844 shares of its common stock. This program has no expiration date.

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

        (a) Exhibit 31.1 - Certification of Chief Executive Officer  pursuant
                             to Section 302 of the Sarbanes-Oxley Act of 2002.

        (b) Exhibit 31.2 - Certification of Chief Financial Officer pursuant to
                             Section 302 of the Sarbanes-Oxley Act of 2002.

        (c) Exhibit 32.1 - Certification  pursuant to 18 U.S.C. Section 1350, as
                             adopted pursuant to Section 906 of the
                             Sarbanes-Oxley Act of 2002.


                                       25
<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.


                                        Sound Federal Bancorp, Inc.
                                        ----------------------------------------
                                           (Registrant)


                                    By: /s/ Anthony J. Fabiano
                                        ----------------------------------------
                                        Anthony J. Fabiano
                                        Duly Authorized and Chief Financial and
                                        Accounting Officer

February 7, 2006


                                       26