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, 1998

                                       OR

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

           For the transition period from ____________ to ____________

                        Commission file number 000-24811

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

          Federal                                             13-4029393
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)

                 300 Mamaroneck Ave., Mamaroneck, New York 10543
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (914) 698-6400
               (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 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 5, 1999
                                                                ----------------
                                                                   
       par value, $0.10                                            5,212,218





<PAGE>



                                TABLE OF CONTENTS


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

Item 1.  Financial Statements (Unaudited)

         Consolidated Balance Sheets at December 31, 1998 and
         March 31,1998.........................................................1

         Consolidated Statements of Operations for the Quarter and Nine months
         ended December 31, 1998 and 1997......................................2

         Consolidated Statement of Changes in Stockholders' Equity  for the
         Nine months ended December 31, 1998...................................3

         Consolidated Statements of Cash Flows for the Nine months
         ended December 31, 1998 and 1997......................................4

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

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations................................................ 8

Item 3.  Quantitative and Qualitative Disclosures about Market Risk...........15


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

Item 1.  Legal Proceedings....................................................16

Item 2.  Changes in Securities and Use of Proceeds............................16

Item 3.  Defaults upon Senior Securities......................................16

Item 4.  Submission of Matters to a Vote of Security Holders..................16

Item 5.  Other Information....................................................16

Item 6.  Exhibits and Reports on Form 8-K.....................................16

         Signatures...........................................................17


                                        i


<PAGE>




Item 1.  Financial Statements


Sound Federal Bancorp and Subsidiary
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Unaudited)

(In thousands, except share data)                                                  December 31,             March 31,
                                                                                      1998                   1998
                                                                             -----------------------     ------------

Assets

<S>                                                                                       <C>                  <C>          
Cash and due from banks............................................                 $    5,493           $       5,711
Federal funds sold.................................................                     50,000                  36,400
Certificates of deposit............................................                     10,092                  11,483
Securities:
      Held-to-maturity, at amortized cost (fair value of $53,898 and
      $65,091 at December 31 and March 31, 1998, respectively)                          54,369                  64,898
   Available-for-sale, at fair value...............................                     22,493                   2,994
                                                                                  ------------            ------------
      Total securities.............................................                     76,862                  67,892
                                                                                  ------------            ------------

 Loans, net:                                                                                          
  Mortgage loans...................................................                    138,436                 127,515
  Consumer loans...................................................                      1,246                   2,027
  Allowance for loan losses........................................                    (1,134)                   (984)
                                                                                  ------------            ------------
     Total loans, net..............................................                    138,548                 128,558
                                                                                  ------------            ------------

 Accrued interest receivable.......................................                      1,445                     888
 Federal Home Loan Bank stock......................................                      1,745                   1,745
 Premises and equipment, net.......................................                      1,700                   1,552
 Other assets......................................................                     1,074                      520
                                                                                  -----------             ------------
   Total assets....................................................               $    286,959            $    254,749
                                                                                  ============            ============

Liabilities and Stockholders' Equity

  Liabilities:
      Deposits.....................................................               $    229,701           $     219,913
      Mortgagors' escrow deposits.................................                       2,354                   2,364
      Accrued expenses and other liabilities.......................                       485                      571
                                                                                  ------------            ------------
     Total liabilities.............................................                   232,540                  222,848
                                                                                  ------------            ------------
  Stockholders' equity (note 1):
     Preferred stock ($0.10 par value; 10,000,000 shares
     authorized;             none issued and outstanding)...........                        -                        -
     Common stock ($0.10 par value; 20,000,000 shares                                     521                        -
        authorized; 5,212,218 shares issued and outstanding at
        December 31, 1998).........................................
     Additional paid-in capital....................................                    22,437                        -
     Retained earnings.............................................                    33,223                   31,905
     Unallocated common stock held by ESOP ........................                    (1,729)                       -
     Accumulated other comprehensive income (net unrealized loss
     on securities available for sale, net of taxes)...............                       (33)                      (4)
                                                                                  ------------            ------------
      Total stockholders' equity...................................                    54,419                   31,901
                                                                                  ------------            ------------
      Total liabilities and stockholders' equity...................               $    286,959            $    254,749
                                                                                  ============            ============
</TABLE>

See accompanying notes to the unaudited consolidated financial statements.


                                        1


<PAGE>



Sound Federal Bancorp and Subsidiary

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>

                                                                    For the Quarter Ended          For the Nine Months Ended
                                                                         December 31,                     December 31,
                                                                    ---------------------          -------------------------

                                                                    1998          1997                1998            1997
                                                                    ----        ------                ----           -----

Interest and Dividend Income

<S>                                                            <C>              <C>                 <C>             <C>       
 Loans........................................................ $      2,791     $     2,635         $   8,263       $    7,800
 Securities...................................................        1,003           1,054             3,141            3,236
 Federal funds sold and certificates of deposit...............          860             657             2,271            2,029
 Other earning assets.........................................           39              39               130              112
                                                                  ---------       ---------         ---------       ----------
 Total interest and dividend income...........................        4,693           4,385            13,805           13,177
                                                                  ---------       ---------         ---------       ----------

Interest Expense
 Deposits.....................................................        2,278           2,191             6,839            6,494
 Other interest-bearing liabilities..........................            14              11                61               32
                                                                  ---------       ---------         ---------       ----------
 Total interest expense.......................................       2,292            2,202             6,900            6,526
                                                                  ---------       ---------         ---------       ----------

 Net interest income..........................................        2,401           2,183             6,905            6,651
 Provision for loan losses....................................           71               7               222               83
                                                                  ---------       ---------         ---------       ----------
 Net interest income after provision for loan losses..........        2,330           2,176             6,683            6,568
                                                                  ---------       ---------         ---------       ----------

Non-Interest Income
 Service charges and fees.....................................           44              42               133              141
                                                                  ---------       ---------         ---------       ----------
Non-Interest Expense
 Compensation and benefits....................................          793             544             2,073            1,588
 Occupancy and equipment......................................          157              92               305              289
 Federal deposit insurance costs..............................           32              38                99              105
 Data processing service fees.................................          100              61               220              170
 Advertising and promotion....................................           54              54               122              137
 Contribution of common stock to the Sound Federal            
  Savings and Loan Association Charitable Foundation     
  (note 1)....................................................        1,022               -             1,022               -
 Other........................................................          253             231               697              662
                                                                  ---------       ---------         ---------       ----------
 Total non-interest expense...................................        2,411           1,020             4,538            2,951
                                                                  ---------       ---------         ---------       ----------

 Income (loss) before income tax expense......................          (37)          1,198             2,278            3,758
 Income tax expense...........................................           57             499               960            1,566
                                                                  ---------       ---------         ---------       ----------
 Net income (loss)............................................ $        (94)   $        699      $      1,318    $       2,192
                                                                  ==========      =========         =========       ==========

Basic and diluted loss per share, from date of  
  stock conversion (October 8, 1998) (note 3)
                                              ...............   $     (0.02)                        $   (0.02)
                                                                     =======                           =======
</TABLE>




See accompanying notes to the unaudited consolidated financial statements.

                                        2


<PAGE>




Sound Federal Bancorp and Subsidiary

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months Ended December 31, 1998
(Unaudited)
(Dollars in thousands)


<TABLE>
<CAPTION>


                                                                                                            Accumulated
                                                               Additional                 Unallocated        Other
                                     Preferred     Common       Paid-In      Retained        ESOP       Comprehensive
                                       Stock        Stock       Capital      Earnings       Stock           Income          Total
                                       -----        -----       -------      --------       -----           ------          -----


<S>                                    <C>          <C>           <C>          <C>              <C>           <C>              <C>  
Balance at March 31, 1998.........  $   --       $  --        $     --   $    31,905    $       --    $         (4)    $      31,901
Net income........................      --          --              --         1,318            --              --             1,318
Issuance of 5,212,218 common
  shares..........................      --          521         22,444            --            --              --            22,965
Shares purchased by ESOP
  (192,130 shares)................      --          --              --            --        (1,921)             --           (1,921)
ESOP shares released for
  allocation (19,213 shares)......      --          --              (7)           --           192              --               185
Change in net unrealized loss on
  securities available for sale,
  net of tax effect...............      --          --              --            --            --             (29)             (29)
                                    -------      -----        --------      --------       -------       ----------       ----------
Balance at December 31, 1998      $     --     $    521     $   22,437   $   233,223    $   (1,729)   $        (33)    $      54,419
                                   ========     =======       ========    ==========       ========      ==========       ==========
</TABLE>




See accompanying notes to the unaudited consolidated financial statements.


                                       3

<PAGE>



Sound Federal Bancorp and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 In thousands)
<TABLE>
<CAPTION>

                                                                                      For the Nine Months Ended
                                                                                            December 31, 
                                                                                   --------------------------------
                                                                                      1998                  1997
                                                                                   -----------------    -----------
OPERATING ACTIVITIES
<S>                                                                          <C>                    <C>            
  Net income...............................................................  $         1,318        $         2,192
  Adjustments to reconcile net income to net
      cash provided by operating activities:
  Contribution of common stock to the Sound Federal Savings and
     Loan Association Charitable Foundation................................            1,022                     --
  Provision for loan losses................................................              222                     83
  Depreciation expense.....................................................              117                     86
  ESOP expense.............................................................              185                     --
  Amortization of deferred fees, premiums and discounts, net...............              135                    (69)
  Deferred income tax (benefit) expense....................................              (15)                     2
  Other adjustments, net...................................................             (907)                  (252)
                                                                                  -----------          ------------
    Net cash provided by operating activities..............................            2,077                  2,042
                                                                                  ----------           ------------


INVESTING ACTIVITIES
 Purchases of securities:
   Held-to-maturity........................................................           (9,976)               (12,215)
   Available-for-sale......................................................          (19,776)                (1,000)
 Proceed from principal payments, maturities and calls of
     securities ...........................................................           20,338                 10,737
  Disbursements for loan originations......................................          (30,051)               (21,077)
  Principal collection on loans............................................           19,842                 15,889
  Net decrease in certificates of deposit..................................            1,391                    603
  Purchases of premises and equipment......................................             (263)                  (226)
                                                                                  -----------          -------------
       Net cash used in investing activities...............................          (18,495)                (7,289)
                                                                                  -----------          -------------


FINANCING ACTIVITIES
 Net increase in deposits..................................................              9,788                4,710
 Net decrease in mortgage escrow deposits..................................                (10)                 (86)
 Net proceeds from stock Offering..........................................             20,022                    -
                                                                                  ------------          -----------
        Net cash provided by financing activities..........................             29,800                4,624
                                                                                  ------------          -----------

  Increase (decrease) in cash and cash equivalents.........................             13,382                 (623)
  Cash and cash equivalents at beginning of period.........................             42,111               39,552
                                                                                  ------------          -----------
  Cash and cash equivalents at end of period...............................  $          55,493       $       38,929
                                                                                  ============          ===========

SUPPLEMENTAL INFORMATION
  Interest paid............................................................  $           6,838       $        6,491
  Income taxes paid........................................................              1,360                1,595
  Loans transferred to real estate owned...................................                357                    -
                                                                                  ============          ===========
</TABLE>



See accompanying notes to the unaudited consolidated financial statements.


                                       4

<PAGE>





Sound Federal Bancorp and Subsidiary

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.       Reorganization and Offering

     On October 8 1998,  Sound  Federal  Bancorp (the  "Company")  completed the
issuance of 5,212,218 shares of common stock (the "Offering") in connection with
a Plan of Reorganization ("the "Reorganization"). As part of the Reorganization,
Sound  Federal  Savings  and Loan  Association  (the  "Bank")  converted  from a
federally  chartered mutual savings  association to a federally  chartered stock
savings  association  and became a wholly-owned  subsidiary of the Company.  The
Company became the majority-owned  subsidiary of Sound Federal, MHC (the "Mutual
Holding Company" or "MHC"), a federal mutual holding company.  The Bank provides
banking services primarily to individuals from its main office in Mamaroneck and
three full-service branches in Rye Brook, Harrison and New City, New York.

     The Mutual Holding Company owns 53.92% or 2,810,510 shares of the Company's
outstanding  common  stock.  The remaining  46.08% (or 2,401,708  shares) of the
common stock is owned by the minority stockholders (the "Minority Stockholders")
and the Sound Federal Savings and Loan  Association  Charitable  Foundation (the
"Foundation").  The Company contributed 1.96% or 102,200 shares of the Company's
common stock issued in the  Reorganization to the Charitable  Foundation,  which
resulted  in a  charge  to  expense  equal to the  fair  value  of those  shares
(approximately  $1.0 million  before  taxes) in the quarter  ended  December 31,
1998. The Bank's Employee Stock Ownership Plan ("ESOP") purchased 192,130 shares
in the Offering using the proceeds of a loan provided by the Company.

     The  following  is an  analysis  of  the  net  increase  in  the  Company's
consolidated  stockholders'  equity and the net cash  proceeds from the Offering
(dollars in thousands):


Issuance of 2,401,708 shares to Minority Stockholders at $10
per share........................................................$        24,017
Issuance of 2,810,510 shares to the MHC..........................            -- 
Less Offering costs..............................................        (1,052)
                                                                          ------
Net increase in common stock and additional paid-in-capital
from issuance of 5,212,218 shares................................         22,965
Less 192,130 shares purchased by the ESOP using the proceeds
of a loan provided by the Company................................        (1,921)
                                                                          ------
Net increase in stockholders' equity.............................         21,044
Less 102,200 shares contributed to the Foundation                        (1,022)
                                                                          ------
Net cash proceeds from the Offering..............................$        20,022
                                                                          ======



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 accordance with generally  accepted
accounting  principles have been condensed or omitted  pursuant to the rules and
regulations of the Securities and Exchange Commission. The Company believes that
the disclosures  are adequate to make the information  presented not misleading;
however, the results for the periods presented are not necessarily indicative of
results to be expected for the entire fiscal year ending March 31, 1999.


                                       5



<PAGE>



     The unaudited quarterly and year-to-date  consolidated financial statements
presented herein should be read in conjunction with the annual audited financial
statements of the Bank for the fiscal year ended March 31, 1998, included in the
Company's prospectus dated August 13, 1998.


3.   Earnings Per Share

     The Company completed the  Reorganization  and Offering on October 8, 1998.
As a result,  per share data has not been  presented  for the  quarter  and nine
months  ended  December  31, 1997 and per share data for the nine  months  ended
December 31, 1998 is for the three month period following the Offering. Weighted
average common shares of 5,039,318  were used in  calculating  basic and diluted
earnings per share for the quarter ended  December 31, 1998.  In computing  both
basic and diluted EPS,  outstanding  shares include all shares issued to the MHC
and the  Foundation,  but  exclude  unallocated  ESOP  shares that have not been
committed to be released to participants.


4.       Allowance for Loan Losses

     The allowance  for loan losses is increased by  provisions  for loan losses
charged to income and decreased by charge-offs  (net of  recoveries).  Loans 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 evaluation of the
adequacy of the allowance is based on the Company's past loan experience,  known
and  inherent  risks in the  portfolio  adverse  situations  that may affect the
borrowers'  ability to repay,  the estimated value of underlying  collateral and
current  economic  conditions.  Management  believes that the allowance for loan
losses is adequate to absorb probable losses in the existing loan portfolio.

     Establishing the allowance for loan losses involves significant  management
judgements  utilizing the best information  available at the time of the review.
Those judgements are subject to further review by various sources, including the
Company's  regulators.  Adjustments  to the  allowance  may be  necessary in the
future based on changes in economic and real estate market  conditions,  further
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>

                                               Quarter Ended                    Nine Months Ended          Year Ended
                                                December 31,                      December 31,              March 31,
                                      ---------------------------------   ------------------------------   ------------
                                            1998             1997             1998             1997            1998
                                      ---------------- ----------------   -----------     --------------   ------------
                                                                   (Dollars in thousands)

<S>                                   <C>              <C>              <C>               <C>              <C>     
Balance at beginning of period....... $     1,063      $       905      $      984        $       845      $    845
Provision for loan losses............          71                7             222                 83           155
LOANS CHARGED OFF                    
     Mortgage........................           -                -             (72)               (16)          (16)
     Consumer loans..................           -                -               -                  -            -
                                        --------------   --------------   ---------         -------------    ---------
Total loans charged off..............           -                -             (72)               (16)          (16)
                                        --------------   --------------   ---------         -------------    ---------
RECOVERIES
     Mortgage........................           -                -               -                  -             -
     Consumer loans..................           -                -               -                  -             -
                                        --------------   --------------   ---------         -------------    ---------
     Total recoveries................           -                -               -                  -             -
                                        --------------   --------------   ---------         -------------    ---------
     Net charge-offs.................           -                -             (72)               (16)          (16)
                                        --------------   --------------   ---------         -------------    ---------
Balance at end of period............. $     1,134      $       912      $    1,134        $       912      $    984
                                        ==============   ==============   =========         =============    =========
Ratio of net charge-offs to average
 net loans outsta--%ing (annualized..          --%              --%           0.07%            0.02%            0.01%
                                        ==============   ==============   =========         =============    =========
</TABLE>


                                       6
<PAGE>


5.   Comprehensive Income

     The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting  Comprehensive  Income" which establishes
standards for reporting and display of  comprehensive  income and its components
(revenues,  expenses,  gains,  and  losses)  in a full  set  of  general-purpose
financial  statements.  In accordance  with the  provisions of SFAS No. 130, the
Company's  total  comprehensive  income  (loss) for the  quarter and nine months
ended December 31, 1998 was $(117,000) and $1,289,000,  respectively.  For those
same periods in 1997,  total  comprehensive  income was $695,000 and $2,191,000,
respectively.  The  difference  between  the  Company's  net  income  and  total
comprehensive  income for these periods  equals the change in the net unrealized
loss on securities available for sale during the applicable periods.


6.   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.












                                       7
<PAGE>





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

General

     As discussed in Note 1 to the unaudited  consolidated financial statements,
on October 8, 1998,  the Company  completed the issuance of 5,212,218  shares of
common stock in connection with the Reorganization and the Bank converted from a
federally  chartered mutual savings  association to a federally  chartered stock
savings  association  and became a wholly-owned  subsidiary of the Company.  The
Company  became the  majority-owned  subsidiary of the Mutual  Holding  Company,
which owns 53.92% or 2,810,510 shares of the Company's outstanding common stock.
The remaining  46.08% (or 2,401,708  shares) of the common stock is owned by the
Minority Stockholders and the Foundation which was established in furtherance of
the Bank's commitment to its local community.

     The  financial  condition  and  results of  operations  of the  Company are
primarily  dependent upon those of the Bank. The Bank's  principal  business has
historically  consisted  of Offering  savings and other  deposits to the general
public  and  using the  funds  from  such  deposits  to make  loans  secured  by
residential real estate.  The Bank's results of operations depend primarily upon
its net interest  income,  which is the difference  between the interest  income
earned on its loan and  securities  portfolios an its cost of funds,  consisting
primarily of the interest  paid on its  deposits.  The Bank's net income is also
affected by, among other  things,  provisions  for loan losses and  non-interest
expense.  The Bank's principal operating expenses,  other than interest expense,
consist of  compensation  and  benefits,  occupancy  expenses,  federal  deposit
insurance  premiums and other  general and  administrative  expenses.  Operating
results are also  significantly  affected 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.

     This  report  on Form  10-Q  contains  certain  forward-looking  statements
consisting  of estimates  with respect to the  financial  condition,  results of
operations and business of the Company and the Bank. These estimates are subject
to various  factors that could cause actual  results to differ  materially  from
these estimates. Such factors include (i) the effect that an adverse movement in
interest  rates could have on net interest  income,  (ii) customer  preferences,
(iii)  national  and local  economic  and market  conditions,  (iv)  higher than
anticipated  operating  expenses  and (v) a lower  level of or  higher  cost for
deposits than  anticipated.  The Company  disclaims  any  obligation to publicly
announce  future  events or  developments  that may affect  the  forward-looking
statements herein.

Capability of the Bank's Data Processing to Accommodate the Year 2000

     Like many  financial  institutions,  the Bank relies upon computers for the
daily  conduct of its business  and for data  processing  generally.  There is a
concern that on January 1, 2000  computers will be unable to "read" the new year
and as a consequence, there may be widespread computer malfunctions.  Management
has  developed  a formal  plan to  resolve  the  Year  2000  issue  and has been
addressing this issue with the Bank's data processing  service center (the "Data
Center").  The Data Center has advised the Bank that the Year 2000 issue  should
not affect the Bank's  external data  processing.  The Bank is in the process of
testing its computer  applications and hardware to ensure that they will be able
to read the Year 2000.  The Data Center  completed  the first round of tests and
identified  problem areas and failed tests.  These exceptions were addressed and
Phase 2  testing  began on  February  1,  1999.  This  phase is  expected  to be
completed  by March 1,  1999.  The Data  Center and the Bank will then begin the
final  phase of testing  which is expected to be  completed  by March 31,  1999.
Given the  near-term  timing of the test plan,  the Bank has not  completed  its
contingency plan, but anticipates doing so by March 1, 1999.

     The Bank has  contacted  each of its other vendors to ensure that they will
be able to provide  service in light of the Year 2000 issue.  Most  vendors have
represented to management that they are addressing the Year


                                       8
<PAGE>



2000 issue and expect to be able to provide the  services for which the Bank has
contracted.  In addition, since over 98% of the Bank's loans are secured by real
property and the remaining portion of the loan portfolio is composed of consumer
loans and personal  loans,  the ability of the Bank's  borrowers to be Year 2000
compliant  is not material to the Bank's  lending  operations.  Management  will
continue  to  monitor  this  issue and  report to the  Board of  Directors  on a
quarterly basis until full compliance is obtained from all vendors.

     Costs  related to the year 2000 issue will be expensed  as incurred  except
for the costs,  if any, for new hardware and software that is  purchased,  which
will be  capitalized.  At December 31, 1998,  the costs  incurred to address the
Year 2000 issue amounted to approximately  $127,000,  which includes capitalized
expenditures of approximately  $110,000.  The Company anticipates that the total
costs for this project  will be  approximately  $400,000.  The costs of the Year
2000  project  are based on  managemen  s best  estimates,  which  were  derived
utilizing  numerous   assumptions  of  future  events  including  the  continued
availability  of certain  resources,  third party  modification  plans and other
factors.  However,  there  can be no  guarantee  that  these  estimates  will be
achieved,  and actual results could differ materially from those plans. Specific
factors that might cause such material  differences include, but are not limited
to, the availability and cost of personnel  trained in this area, the ability to
locate and correct all relevant  computer  codes and similar  uncertainties.  In
addition, there can be no guarantee that the systems of other companies on which
the Bank's systems rely will be timely  converted,  or that a failure to convert
by another  company,  or that a conversion that is incompatible  with the Bank's
systems, would not have a material adverse effect on the Bank.

Financial Condition              

     The  Company's  total  assets  were $287.0  million  and $254.7  million at
December 31, 1998 and March 31, 1998,  respectively.  The $32.2 million increase
was due  primarily to net Offering  proceeds of $20.0 million and a $9.8 million
increase in deposits. The net proceeds from the Offering were primarily invested
in Federal  funds,  which totaled $50.0 million at December 31, 1998 as compared
to $36.4 million at March 31, 1998. The increase in total assets also reflects a
$10.0 million increase in net loans to $138.5 million at December 31, 1998. Loan
demand was strong in the first half of fiscal 1999 but slowed during the current
quarter.  Total  deposits  amounted to $229.7  million at December 31, 1998,  as
compared to $219.9  million at March 31,  1998.  Total  equity  increased  $22.5
million to $54.4  million at December  31, 1998 as compared to $31.9  million at
March 31, 1998, primarily due to the Offering.

Results of Operations    

         General.  The  Company  reported a net loss of $94,000  for the quarter
ended  December 31, 1998,  as compared to net income of $699,000 for the quarter
ended  December 31,  1997.  For the nine months  ended  December  31, 1998,  the
Company  earned $1.3  million as compared to $2.2 million for the same period in
1997.  The  results for the quarter  and nine  months  ended  December  31, 1998
included a $1,022,000  pre-tax charge for the  contribution of 102,200 shares of
the Company's  common stock to the Foundation.  The results for the 1998 quarter
also  include  a  pre-tax  charge  of  $185,000   attributable  to  a  full-year
contribution  to the ESOP,  which was made during the quarter in accordance with
the terms of that plan.  Since the  Reorganization  was completed in the quarter
ended  December 31, 1998, and the ESOP plan year ends on December 31, the entire
cost was charged to expense in the current  quarter.  Net income for the current
quarter would have been approximately $633,000, excluding the contribution t the
Foundation  and  assuming  quarterly  ESOP  expense of  $46,000.  Excluding  the
contribution  to the  Foundation  and assuming  ESOP expense of $138,000 for the
nine-month  period, net income for the nine months ended December 31, 1998 would
have been approximately $2.0 million.

     Net Interest Income. Net interest income for the quarter ended December 31,
1998 amounted to $2.4 million,  a $218,000  increase from the same period in the
prior  year.  The  Company's  interest  rate


                                       9

<PAGE>


spread was 2.93% and 3.20% for the  quarters  ended  December 31, 1998 and 1997,
respectively.  The Company's net interest margin for those periods was 3.47% and
3.60%,  respectively.  Average net interest earning assets totaled $44.9 million
during the quarter ended  December 31, 1998 as compared to $24.1 million for the
same quarter in the prior year. For the nine months ended December 31, 1998, net
interest income  increased  $254,000 to $6.9 million as compared to $6.7 million
for the same period in the prior year.  The  Company's  interest rate spread was
3.07% for the nine months  ended  December 31, 1998 as compared to 3.29% for the
same period in the prior year. For those same periods,  the net interest  margin
was 3.53% and 3.69%, respectively.  For the nine months ended December 31, 1998,
average net interest  earning  assets totaled $31.7 million as compared to $23.6
million for the same period in 1997.  The  decreases in the  Company's  interest
rate  spread and net  interest  margin are a result of the  general  decrease in
interest rates on loans and mortgage-backed securities.

     Interest Income.  Interest income totaled $4.7 million in the quarter ended
December  31, 1998 as compared to $4.4  million for the same period in the prior
year. This increase is due to an increase in average  interest-earning assets to
$274.6  million during the quarter ended December 31, 1998 as compared to $240.6
million for the same quarter in the prior year,  partially  offset by a 45 basis
point decrease in the average yield earned on interest-earning  assets to 6.78%.
The  increase in the average  balance of  interest-earning  assets was due to an
increase in deposits and the net proceeds from the Company's Offering.

     Interest income on loans increased $156,000 or 5.9% to $2.8 million for the
current  quarter,  due  primarily  to a $12.3  million  increase  in the average
balance to $138.3  million.  The increase in the average  balance was  partially
offset by a 29 basis point decrease in the yield earned to 8.00% for the quarter
ended  December 31, 1998 as compared to the same quarter in the prior year.  The
growth of the loan  portfolio is a result of the low interest rate  environment,
which has created a strong  demand for fixed rate loans (the  Company's  primary
mortgage loan product). The low interest rates have also created a strong market
for  home  purchases  and the  refinancing  of  existing  mortgage  loans in the
Company's market area. The new loan production and the refinancing activity were
also the primary  reason for the decrease in the yields earned on mortgage loans
since the rates on these loans are lower than those of the  existing  portfolio.
Interest on Federal funds  increased  $218,000 to $693,000 for the quarter ended
December  31, 1998 as compared to  $475,000  for the same  quarter in 1997.  The
average  balance  of  Federal  funds was $54.1  million  for the  quarter  ended
December 31, 1998 as compared to $33.6 million for the same quarter in the prior
year.  The increase in the average  balance was  partially  offset by a 53 basis
point decrease in the yield earned to 5.08%.  Interest earned on certificates of
deposit at other financial  institutions  decreased  $15,000 to $167,000 for the
1998  quarter as compared to $182,000 for the quarter  ended  December 31, 1997.
Interest  income on  mortgage-backed  securities  amounted to  $753,000  for the
quarter ended  December 31, 1998 as compared to $868,000 for the same quarter in
1997.  This  decrease is due to a $266,000  decrease  in the average  balance of
mortgage-backed  securities to $53.7  million and an 82 basis point  decrease in
the yield earned to 5.56%. Many of these  mortgage-backed  securities have rates
that adjust annually, typically based on Treasury bill rates. As a result, these
securities  have also  experienced  declining  yields.  In  addition,  principal
prepayments have resulted in declining yields on the mortgage-backed  securities
portfolio from the  acceleration  of premium  amortization.  Interest  income on
other securities amounted to $250,000 for the quarter ended December 31, 1998 as
compared  to $186,000  for the same  quarter in the prior  year.  This  increase
reflects a 65 basis point  increase in the average  yield  earned to 6.30% and a
$2.7  million  increase  in the  average  balance of other  securities  to $15.8
million for the 1998 quarter from $13.1 million for the same quarter in 1997.

     For the nine months  ended  December 31, 1998,  interest  income  increased
$628,000  or 4.8% to $13.8  million as  compared  to $13.2  million for the nine
months ended December 31, 1997. For those same periods, average interest-earning
assets  increased  $20.5  million to $259.9  million  from $239.4  million.  The
increase in  interest-earning  assets was  partially  offset by a 25 basis point
decrease in the average yield earned on total interest-earning assets to 7.05%.

         Interest  income on loans  totaled $8.3 million  during the nine months
ended December 31, 1998 as compared to $7.8 million for the same period in 1997,
due  primarily  to a $10.7  million  increase in the  average


                                       10

<PAGE>



balance to $134.2  million.  The increase in the average  balance was  partially
offset by a 21 basis point decrease in the yield earned to 8.17% during the nine
months ended December 31, 1998 as compared to 8.38% for the same period in 1997.
Interest earned on Federal funds increased $287,000 to $1.8 million for the nine
months  ended  December 31, 1998 as compared to $1.5 million for the same period
in 1997. This increase was due to a $9.2 million increase in the average balance
to $43.5  million for the nine  months  ended  December  31, 1998 as compared to
$34.4 million for the same period in 1997,  partially offset by a 32 basis point
decrease  in the yield  earned  to 5.34%.  Interest  income on  certificates  of
deposit  decreased  $46,000  to  $519,000.  Interest  income on  mortgage-backed
securities  amounted to $2.4 million for the nine months ended December 31, 1998
as compared to $2.6  million for the same period in 1997.  This  decrease is due
primarily to a 43 basis point  decrease in the yield  earned to 6.07%.  Interest
income on other  securities  amounted to $706,000  during the nine months  ended
December  31,  1998 as compared  to  $622,000  for the same period in 1997.  The
average balance of other securities increased $1.6 million to $15.2 million from
$13.6  million for those same  periods and the yield  earned  increased to 6.18%
from 6.08%.

     Interest Expense.  Interest expense for the quarter ended December 31, 1998
totaled $2.3 million as compared to $2.2 million for the quarter ended  December
31, 1997. The average balance of  interest-bearing  liabilities  increased $13.2
million to $229.7  million for the quarter  ended  December 31, 1998 from $216.5
million  for the same  quarter in the prior  year.  The  increase in the average
balance is due  primarily to a $9.5 million  increase in the average  balance of
deposits to $224.0  million.  Th average  cost of  interest-bearing  liabilities
decreased  18 basis points to 3.85% for the quarter  ended  December 31, 1998 as
compared to the same quarter in the prior year.

     Interest on time deposits  totaled $1.6 million for the current  quarter as
compared  to $1.5  million  for the same  quarter  in  1997.  This  increase  is
primarily a result of a $12.2 million or 10.8%  increase in the average  balance
of time deposits to $125.5  million for the quarter  ended  December 31, 1998 as
compared to the same  quarter in 1997.  The  increase in the average  balance of
time deposits was partially  offset by a 19 basis point  decrease in the average
cost to 5.21%. Total interest expense on other deposit accounts (passbook, club,
money  market and NOW  accounts)  amounted  to $631,000  for the  quarter  ended
December  31, 1998 as compared  to  $650,000  for the same  quarter in the prior
year.  The  average  balance of these  accounts  was $98.5  million for the 1998
quarter as compared  to $101.2  million  for the same  quarter in 1997,  and the
overall average rate was 2.54% and 2.55% for the respective periods.

     For the nine months ended December 31, 1998,  interest expense totaled $6.9
million as compared to $6.5  million for the  corresponding  period in the prior
year,  due  primarily  to a $344,000  increase  in  interest on deposits to $6.8
million.  The average  balance of  interest-bearing  liabilities  for these same
periods  increased $12.3 million to $228.2 million and the average cost of these
liabilities  decreased  3 basis  points to 3.98%.  The  increase  in the average
balance of  interest-bearing  liabilities  is due  primarily to a $10.0  million
increase  in the  average  balance of  deposits  to $224.0  million for the nine
months ended  December  31, 1998 from $214.0  million for the same period in the
prior year.

     Interest  expense on time deposits totaled $4.9 million for the nine months
ended  December  31, 1998 as compared to $4.6 million for the same period in the
prior year.  This increase was due primarily to a $10.7 million  increase in the
average  balance of time  deposits to $123.3  million for the nine months  ended
December 31, 1998 as compared to $112.6 million for the same period in 1997. The
average cost of these deposits decreased 7 basis points to 5.32%. Total interest
expense on other  deposit  accounts  amounted to $1.9  million for both the nine
months ended  December 31, 1998 and 1997.  For those same  periods,  the average
balance  of  these  deposits   totaled   $100.7  million  and  $101.4   million,
respectively and the average cost was 2.50% and 2.52%, respectively.


     Provision  for Loan Losses.  The  provision for loan losses was $71,000 for
the quarter ended  December 31, 1998 as compared to $7,000 for the quarter ended
December 31, 1997.  For the nine months


                                       11



<PAGE>


ended  December 31, 1998 and 1997,  the  provision  for loan losses  amounted to
$222,000  and  $83,000,  respectively.  Non-performing  loans  amounted  to $1.5
million or 1.06% of total loans at December 31, 1998 as compared to $2.0 million
or 1.50% of total  loans at March 31,  1998 and $1.7  million  or 1.33% of total
loans at December  31,  1997.  The  allowance  for loan losses  amounted to $1.1
million  at  December  31,  1998 as  compared  to  $984,000  at March 31,  1998.
Charge-offs,  net of recoveries,  were none and $72,000 for the quarter and nine
months ended  December 31, 1998,  respectively,  as compared to none and $16,000
for the quarter and nine months ended December 31, 1997, respectively.

     In  determining  the adequacy of the allowance for loan losses,  management
considers  historical loan loss experience,  the level of non-performing  loans,
the volume and type of lending conducted and general economic  conditions in the
Company's  market area.  Although the Company  maintains  its allowance for loan
losses at a level which it  considers  to be  adequate  to provide for  probable
losses on existing  loans,  there can be no assurance  that such losses will not
exceed the current estimated  amounts.  As a result,  higher provisions for loan
losses may be necessary in future periods which would adversely affect operating
results.

     Non-Interest  Income.  Non-interest  income totaled $44,000 and $42,000 for
the quarters ended December 31, 1998 and 1997, respectively. For the nine months
ended  December  31, 1998 and 1997,  non-interest  income  totaled  $133,000 and
$141,000,  respectively.  Non-interest  income  consists  principally of service
charges on deposit  accounts,  late charges on loans and various  other  service
fees.

         Non-Interest Expense. Non-interest expense totaled $2.4 million for the
quarter  ended  December  31, 1998 as  compared to $1.0  million for the quarter
ended  December 31, 1997.  This increase is due primarily to the expense of $1.0
million  recognized in the 1998 quarter for the fair value of shares contributed
to the Foundation. In addition,  compensation and benefits increased $249,000 to
$793,000 in the quarter  ended  December 31, 1998 as compared to $544,000 in the
quarter ended December 31, 1997. The increase in  compensation  and benefits was
due  primarily  to the  Bank's  contribution  to the ESOP in the  quarter  ended
December 31, 1998 which represented the full annual  contribution for the ESOP's
plan year ended December 31, 1998. The  contribution  resulted in the allocation
of 19,213  shares (or 10% of total ESOP  shares)  to plan  participants  and the
recognition  of  $185,000 in expense  equal to the  average  fair value of those
shares for the quarter.  Occupancy and equipment  increased  $65,000 to $157,000
due primarily to rental expense on two new branch locations. For the nine months
ended  December  31,  1998,  non-interest  expense,  including  the $1.0 million
contribution to the Foundation, totaled $4.5 million as compared to $3.0 million
for  the  same  period  last  year.  In  addition  to  the  contribution  to the
Foundation,  this  increase  reflects a $485,000  increase in  compensation  and
benefits  to  $2.1  million,  a  $50,000  increase  in data  processing  fees to
$220,000, and a $35,000 increase in other non-interest expenses to $697,000. The
increase in  compensation  and benefits is primarily due to the  contribution to
the ESOP,  increased costs associated with the Reorganization and Offering,  and
normal salary  increases.  The increase in data processing fees is due primarily
to upgrades being made by the Company and the service bureau in preparation  for
the Year 2000.


     Income Taxes.  Income tax expense amounted to $57,000 for the quarter ended
December 31, 1998 as compared to $499,000 for the same period in the prior year.
For the nine months  ended  December 31,  1998,  income tax expense  amounted to
$960,000 as compared to $1.6  million for the same period in 1997,  resulting in
effective tax rates of 42.1% and 41.7%, 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.


                                       12



<PAGE>



     The Bank is required to maintain an average  daily balance of liquid assets
as a percentage of net withdrawable deposit accounts plus short-term  borrowings
as defined by the regulations of the Office of Thrift Supervision  ("OTS").  The
minimum  required  liquidity  ratio is currently 4.0%. At December 31, 1998, the
Bank's liquidity ratio under OTS regulations was approximately 32.6%.

     The primary  investing  activities  of the Company are the  origination  of
loans and the  purchase of  securities.  For the  quarter and nine months  ended
December 31, 1998 and for the year ended March 31, 1998, the Company  originated
loans totaling $7.2 million, $30.1 million and $29.4 million,  respectively. The
Company purchased securities,  including  mortgage-backed  securities,  totaling
$29.8 million for the nine months ended  December 31, 1998 and $22.4 million for
the year ended March 31, 1998.

     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 Federal  Home Loan Bank of New York
under an available line of credit.

     At December 31, 1998, the Company had outstanding loan commitments of $20.5
million. The Company anticipates that it will have sufficient funds available to
meet its current loan commitments. Time deposits scheduled to mature in one year
or less from December 31, 1998, totaled $118.5 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 3.0% 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 3.0% core capital
requirement has been effectively  superseded by the OTS prompt corrective action
regulations,  which 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.  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-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
regulation  based on the risks OTS  believes are inherent in the type of assets.
At December  31,  1998,  the Bank  exceeded  all of the OTS  minimum  regulatory
capital requirements.


                                       13



<PAGE>



     The  following  table  sets  forth  the  capital  position  of the  Bank as
calculated at December 31, 1998. The increase in the Bank's capital level during
the nine months  ended  December  31, 1998  reflects the receipt of $9.1 million
from the Company for the Bank's  issuance of common  stock,  equal to 50% of the
net proceeds received by the Company in the Offering.
<TABLE>
<CAPTION>

                                                                                    OTS Requirements
                                                                  -------------------------------------------------
                                                                     Minimum Capital              Classification as
                                             Bank Actual                Adequacy                   Well Capitalized
                                           ----------------       -------------------------------------------------
                                        Amount          Ratio      Amount          Ratio         Amount      Ratio
                                        ------          -----      ------          -----         ------      -----
                                     (Dollars in thousands)

December 31, 1998
-----------------
<S>                                  <C>                <C>        <C>         <C>                 <C>           <C>
Tangible capital.................... $42,958            15.0%      4,305       $     1.5%                      
Tier I (core) capital...............  42,958            15.0       8,611             3.0       $   14,352       5.0%
Risk-based capital:
   Tier I...........................  42,958            40.5                                        6,360       6.0
   Total............................  43,930            41.4       8,480             8.0           10,600      10.0

March 31, 1998
--------------
Tangible capital.................... $31,901            12.5%      3,821       $     1.5%                      
Tier I (core) capital...............  31,901            12.5       7,642             3.0       $   12,737       5.0%
Risk-based capital:
   Tier I...........................  31,901            33.9                                        5,645       6.0
   Total............................  32,885            34.9       7,527             8.0            9,409      10.0
</TABLE>




         The following is a reconciliation  of the Bank's equity under generally
accepted   accounting   principles  ("GAAP")  and  its  regulatory  capital  (in
thousands):
<TABLE>
<CAPTION>


                                                                                        December 31,        March 31,
                                                                                            1998              1998
                                                                                            ----              ----
<S>                                                                                  <C>                <C>        
         GAAP equity (equals tangible, tier I core and tier I risk-based capital)    $     42,958       $    31,901
         General allowance for loan losses...........................................         972               984
                                                                                      -----------        ----------
                  Total risk-based capital...........................................$     43,930       $    32,885
                                                                                      ===========        ==========
</TABLE>









                                       14
<PAGE>





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,  is also subject to risk associated with the local economy.  The Company
does not own any trading assets.  At December 31, 1998, 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 impac on interest
income and interest expense.

     During the nine months ended  December 31, 1998,  there were no significant
changes in the Company's assessment of market risk.




















                                       15


<PAGE>




Part II--OTHER INFORMATION
         -----------------

Item 1.  Legal Proceedings

         The  information  set  forth  in Note 6 to the  unaudited  consolidated
financial  statements  ("Legal  Proceedings") in Part I, Item 1, is incorporated
herein by reference.


Item 2.  Changes in Securities and Use of Proceeds

         None


Item 3.  Defaults upon Senior Securities

         None


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

         None.


Item 5.  Other Information

         None.


Item 6.  Exhibits and Reports on Form 8-K

                           (a)      Exhibit 27--Financial Data schedule*


                           (b)      Reports on Form 8-K

                                    None


                           *   Submitted only with filing in electronic format.





                                       16

<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 
                                         ---------------------------------------
                                         (Registrant)





                                By:      /s/ Anthony J. Fabiano
                                         ---------------------------------------
                                         Anthony J. Fabiano
                                         Duly Authorized and Chief Financial and
                                         Accounting Officer
February 5, 1999















                                       17