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 September 30, 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 an accelerated  filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes X  No   .
                                                                  ---   ---

      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.

                                                                Shares
                                                             Outstanding at
         Class                                              November 7, 2005
      ----------------                                      ----------------
      Common Stock,                                             12,310,206
      par value, $0.01


<PAGE>

                                TABLE OF CONTENTS

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

Item 1. Financial Statements (Unaudited)

        Consolidated Balance Sheets at September 30, 2005
        and March 31, 2005 ................................................    1

        Consolidated Statements of Income for the Three Months and
        Six Months Ended September 30, 2005 and 2004 ......................    2

        Consolidated Statement of Changes in Stockholders' Equity for
        the Six Months Ended September 30, 2005 ...........................    3

        Consolidated Statements of Cash Flows for the Six Months
        Ended September 30, 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 .................................................   24

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds .......   24

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
Sound Federal Bancorp, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                                       September 30,      March 31,
                                                                                                            2005            2005
                                                                                                       -------------     -----------
<S>                                                                                                     <C>             <C>
Assets
Cash and due from banks                                                                                 $    10,850     $    11,512
Federal funds sold and other overnight deposits                                                              18,037          31,095
                                                                                                        -----------     -----------
     Total cash and cash equivalents                                                                         28,887          42,607
                                                                                                        -----------     -----------
Securities:
   Available for sale, at fair value  (including  $35,140 and $37,831 pledged as
       collateral for borrowings  under  repurchase  agreements at September 30,
       2005 and March 31, 2005,
       respectively)                                                                                        242,657         276,154
   Held to maturity, at amortized cost (fair value of $93,679 and $78,728 at September 30, 2005
       and March 31, 2005, respectively)                                                                     94,741          79,489
                                                                                                        -----------     -----------
            Total securities                                                                                337,398         355,643
                                                                                                        -----------     -----------
Loans, net:
  Mortgage loans                                                                                            664,447         558,662
  Consumer and commercial loans                                                                               6,733           5,100
  Allowance for loan losses (Note 5)                                                                         (3,161)         (3,011)
                                                                                                        -----------     -----------
            Total loans, net                                                                                668,019         560,751
                                                                                                        -----------     -----------

 Accrued interest receivable                                                                                  4,741           4,277
 Federal Home Loan Bank stock                                                                                 6,385           5,738
 Premises and equipment, net                                                                                  5,902           6,214
 Goodwill                                                                                                    13,970          13,970
 Bank-owned life insurance                                                                                   10,652          10,464
 Prepaid pension costs                                                                                        3,078           3,057
 Deferred income taxes                                                                                        2,431           2,236
 Other assets                                                                                                 1,602           1,993
                                                                                                        -----------     -----------
            Total assets                                                                                $ 1,083,065     $ 1,006,950
                                                                                                        ===========     ===========

Liabilities and Stockholders' Equity
Liabilities:
  Deposits                                                                                              $   913,722     $   831,768
  Borrowings (Note 6)                                                                                        35,000          38,000
  Mortgagors' escrow funds                                                                                    3,368           5,264
  Due to brokers for securities purchased                                                                        --           2,513
  Accrued expenses and other liabilities                                                                      2,796           2,245
                                                                                                        -----------     -----------
            Total liabilities                                                                               954,886         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;
      12,310,206 and 12,377,206 shares outstanding at September 30, 2005 and March 31, 2005,
      respectively)                                                                                             136             136
   Additional paid-in capital                                                                               104,258         103,728
   Treasury stock, at cost (1,325,964 and 1,258,964 shares at September 30, 2005 and March 31,
      2005, respectively)                                                                                   (19,186)        (18,131)
   Common stock held by Employee Stock Ownership Plan ("ESOP")                                               (5,801)         (6,053)
   Unearned stock awards                                                                                     (3,844)         (4,435)
   Retained earnings                                                                                         55,325          54,638
   Accumulated other comprehensive loss, net of taxes (Note 7)                                               (2,709)         (2,723)
                                                                                                        -----------     -----------
            Total stockholders' equity                                                                      128,179         127,160
                                                                                                        -----------     -----------
            Total liabilities and stockholders' equity                                                  $ 1,083,065     $ 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 Six Months Ended
                                                                                   September 30,                  September 30,
                                                                           --------------------------       ------------------------
                                                                               2005            2004            2005            2004
                                                                               ----            ----            ----            ----
<S>                                                                          <C>             <C>             <C>             <C>
Interest and Dividend Income
 Loans                                                                       $ 8,874         $ 7,354         $17,138         $14,251
 Mortgage-backed and other securities                                          3,184           3,024           6,226           5,816
 Federal funds sold and other overnight deposits                                 195              73             376             132
 Other earning assets                                                             85              34             152              55
                                                                             -------         -------         -------         -------
 Total interest and dividend income                                           12,338          10,485          23,892          20,254
                                                                             -------         -------         -------         -------
Interest Expense
 Deposits                                                                      5,423           3,384          10,091           6,325
 Borrowings                                                                      361             390             722             755
 Other interest-bearing liabilities                                                6               5              11              10
                                                                             -------         -------         -------         -------
 Total interest expense                                                        5,790           3,779          10,824           7,090
                                                                             -------         -------         -------         -------

 Net interest income                                                           6,548           6,706          13,068          13,164
 Provision for loan losses (Note 5)                                               75              75             150             150
                                                                             -------         -------         -------         -------
 Net interest income after provision for loan losses                           6,473           6,631          12,918          13,014
                                                                             -------         -------         -------         -------
Non-Interest Income
 Service charges and fees                                                        359             220             634             496
 Income on bank-owned life insurance                                              94              90             188             166
 Gain on sale of assets                                                          325              --             325              --
                                                                             -------         -------         -------         -------
 Total non-interest income                                                       778             310           1,147             662
                                                                             -------         -------         -------         -------
Non-Interest Expense
 Compensation and benefits                                                     2,841           2,462           5,668           4,874
 Occupancy and equipment                                                         751             661           1,488           1,294
 Data processing service fees                                                    354             264             646             564
 Advertising and promotion                                                       187             239             525             490
 Other                                                                           901             975           1,677           1,671
                                                                             -------         -------         -------         -------
 Total non-interest expense                                                    5,034           4,601          10,004           8,893
                                                                             -------         -------         -------         -------

 Income before income tax expense                                              2,217           2,340           4,061           4,783
 Income tax expense                                                              858             909           1,578           1,855
                                                                             -------         -------         -------         -------
 Net income                                                                  $ 1,359         $ 1,431         $ 2,483         $ 2,928
                                                                             =======         =======         =======         =======
Earnings per share (Note 4):
   Basic earnings per share                                                  $  0.12         $  0.12         $  0.22         $  0.25
                                                                             =======         =======         =======         =======
   Diluted earnings per share                                                $  0.12         $  0.12         $  0.21         $  0.25
                                                                             =======         =======         =======         =======
</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 Six Months Ended September 30, 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                                --           --         --         --         --       2,483           --         2,483
Other comprehensive income (Note 7)       --           --         --         --         --          --           14            14
                                                                                                                        ---------
  Total comprehensive income                                                                                                2,497
Dividends paid ($0.135 per share),
   net of dividends on unallocated
   ESOP shares                            --           --         --         --         --      (1,569)          --        (1,569)
Purchases of treasury stock
   (87,300 shares)                        --           --     (1,349)        --         --          --           --        (1,349)
Reissuance of treasury stock for
   exercise of stock options
   (20,300 shares)                        --           --        294         --         --        (227)          --            67
Tax benefit from exercise of
   stock options                          --          102         --         --         --          --           --           102
Vesting of stock awards                   --           --         --         --        591          --           --           591
ESOP shares committed to be
   released for allocation                --          428         --        252         --          --           --           680
                                      ------     --------   --------    -------    -------    --------      -------     ---------
Balance at September 30, 2005         $  136     $104,258   $(19,186)   $(5,801)   $(3,844)   $ 55,325      $(2,709)    $ 128,179
                                      ======     ========   ========    =======    =======    ========      =======     =========
</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 Six Months Ended
                                                                                       September 30,
                                                                                 --------------------------
                                                                                   2005              2004
                                                                                 ---------         --------
<S>                                                                              <C>               <C>
Operating Activities
  Net income                                                                     $   2,483         $  2,928
  Adjustments to reconcile net income to net
      cash provided by operating activities:
      Provision for loan losses                                                        150              150
      Depreciation, amortization and accretion                                       1,199            1,185
      ESOP and stock award expense                                                   1,271            1,158
      Income taxes                                                                     515              347
      Gain on sale of assets                                                          (325)              --
      Pension costs                                                                    (21)              67
      Other adjustments, net                                                          (398)            (625)
                                                                                 ---------         --------
          Net cash provided by operating activities                                  4,874            5,210
                                                                                 ---------         --------

Investing Activities
 Purchases of securities:
     Available for sale                                                             (1,000)         (30,015)
     Held to maturity                                                              (26,210)         (38,620)
 Proceeds from payments, maturities and calls of securities:
     Available for sale                                                             34,175           42,783
     Held to maturity                                                                8,384            1,489
 Net disbursements for loan originations and principal repayments                 (105,141)         (51,608)
 Purchase of mortgage loans                                                         (2,532)              --
 Purchases of Federal Home Loan Bank stock                                            (647)            (435)
 Proceeds from sale of assets                                                          396               --
 Purchases of premises and equipment                                                  (226)            (477)
                                                                                 ---------         --------
           Net cash used in investing activities                                   (92,801)         (76,883)
                                                                                 ---------         --------

Financing Activities
 Net increase in deposits                                                           81,954           81,464
 Proceeds from borrowings                                                               --            3,000
 Repayment of borrowings                                                            (3,000)              --
 Net decrease in mortgagors' escrow funds                                           (1,896)          (2,115)
 Purchases of treasury stock                                                        (1,349)          (8,324)
 Proceeds from exercise of stock options                                                67               94
 Payment of cash dividends on common stock                                          (1,569)          (1,458)
                                                                                 ---------         --------
        Net cash provided by financing activities                                   74,207           72,661
                                                                                 ---------         --------

  (Decrease) increase in cash and cash equivalents                                 (13,720)             988
  Cash and cash equivalents at beginning of period                                  42,607           31,211
                                                                                 ---------         --------
  Cash and cash equivalents at end of period                                     $  28,887         $ 32,199
                                                                                 =========         ========

Supplemental Information
  Interest paid                                                                  $  10,781         $  7,056
  Income taxes paid                                                                  1,050            1,450
  (Decrease) increase in  due to brokers for securities purchased                   (2,513)             200
                                                                                 =========         ========
</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             Six Months Ended
                                                        September 30,                 September 30,
                                                   ----------------------        -----------------------
                                                     2005           2004           2005            2004
                                                   -------        -------        --------        -------
                                                           (In thousands, except per share data)
<S>                                                <C>            <C>            <C>             <C>
Net income, as reported                            $ 1,359        $ 1,431        $  2,483        $ 2,928
Add stock award expense included in reported
   net income, net of related tax effects              179            180             359            361
Deduct stock award and stock option expense
    determined under the fair-value-based
    method, net of related tax effects                (295)          (296)           (591)          (609)
                                                   -------        -------        --------        -------
Pro forma net income                               $ 1,243        $ 1,315        $  2,251        $ 2,680
                                                   =======        =======        ========        =======
Earnings per share:
   Basic, as reported                              $  0.12        $  0.12        $   0.22        $  0.25
                                                   =======        =======        ========        =======
   Basic, pro forma                                $  0.11        $  0.11        $   0.20        $  0.23
                                                   =======        =======        ========        =======

   Diluted, as reported                            $  0.12        $  0.12        $   0.21        $  0.25
                                                   =======        =======        ========        =======
   Diluted, pro forma                              $  0.11        $  0.11        $   0.19        $  0.22
                                                   =======        =======        ========        =======
</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  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 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 September 30, 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 September 30, 2005 were 11,335,532
and  11,622,821,  respectively.  For the three months ended  September 30, 2004,
weighted  average common shares used in calculating  basic and diluted  earnings
per share were 11,489,126 and 11,760,206, respectively.

      For the six months ended September 30, 2005,  weighted average shares used
in  calculating  basic and  diluted  earnings  per  share  were  11,350,635  and
11,625,444,  respectively.  For the six months ended  September  30,  2004,  the
respective weighted average shares were 11,673,803 and 11,948,613.

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                 Six Months Ended            Year Ended
                                             September 30,                     September 30,              March 31,
                                       ------------------------          ------------------------        ----------
                                         2005             2004             2005            2004              2005
                                       ------------------------          ------------------------          -------
                                                             (In thousands)
<S>                                    <C>              <C>              <C>              <C>              <C>
Balance at beginning of period         $ 3,086          $ 2,787          $ 3,011          $ 2,712          $ 2,712
Provision for loan losses                   75               75              150              150              300
Charge-offs                                 --               --               --               --               (1)
                                       ------------------------          ------------------------          -------
Balance at end of period               $ 3,161          $ 2,862          $ 3,161          $ 2,862            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 September 30, 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                                     $   177

      (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 $16.8 million.  Accrued interest receivable on
the securities was $281,000 at September 30, 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:

<TABLE>
<CAPTION>
                                                                       Three Months Ended            Six Months Ended
                                                                          September 30,                September 30,
                                                                      --------------------          ------------------
                                                                       2005           2004          2005          2004
                                                                       ----           ----          ----          ----
                                                                                        (In thousands)
<S>                                                                   <C>            <C>            <C>         <C>
Net unrealized holding (loss) gain arising during
     the period on securities available for sale                      $(1,999)       $ 4,689        $ 23        $(3,520)
Related deferred income tax effect                                        800         (1,780)         (9)         1,390
                                                                      -------        -------        ----        -------
Other comprehensive (loss) income                                     $(1,199)       $ 2,909        $ 14        $(2,130)
                                                                      =======        =======        ====        =======
</TABLE>


                                       8
<PAGE>

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

                                                  September 30,     March 31,
                                                     2005             2005
                                                  -------------     ---------
                                                         (In thousands)

Net unrealized holding loss on securities
  available for sale                               $(4,511)          $(4,534)
Related deferred income taxes                        1,802             1,811
                                                   -------           -------
Accumulated other comprehensive loss               $(2,709)          $(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. The Company expects to contribute $300,000 to the
plans in fiscal 2006.  Contributions of $231,000 were made during the six months
ended September 30, 2005.

      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:

<TABLE>
<CAPTION>
                                                       Three Months Ended                Six Months Ended
                                                         September 30,                     September 30,
                                                    ----------------------            ----------------------
                                                     2005             2004             2005             2004
                                                    -----            -----            -----            -----
                                                                        (In thousands)
<S>                                                 <C>              <C>              <C>              <C>
   Service cost                                     $ 115            $  91            $ 230            $ 182
   Interest cost                                      172              160              344              320
   Expected return on plan assets                    (231)            (225)            (462)            (450)
   Recognized net actuarial loss                       52                1              104                2
   Amortization of prior service cost                   1               27                2               54
                                                    -----            -----            -----            -----
        Net periodic pension expense                $ 109            $  54            $ 218            $ 108
                                                    =====            =====            =====            =====
</TABLE>


                                       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:

<TABLE>
<CAPTION>
                                                   Three Months Ended                Six Months Ended
                                                      September 30,                    September 30,
                                                  --------------------             ---------------------
                                                  2005            2004             2005             2004
                                                  ----            ----             ----             ----
                                                                     (In thousands)
<S>                                               <C>             <C>             <C>              <C>
Service cost                                      $ 36            $ 16            $  72            $  32
Interest cost                                       29              24               58               48
Recognized net actuarial gain                       (3)             (4)              (6)              (8)
Amortization of prior service cost                  33              45               66               90
                                                  ----            ----            -----            -----
     Net periodic expense                         $ 95            $ 81            $ 190            $ 162
                                                  ====            ====            =====            =====
</TABLE>


                                       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 September
30,  2005 as  compared  to $1.0  billion at March 31,  2005.  The $76.1  million
increase in assets primarily consisted of a $107.3 million increase in net loans
to $668.0 million,  partially  offset by a decrease in total securities of $18.2
million. Our asset growth was funded principally by an $81.9 million increase in
deposits to $913.7 million.

      Liabilities.  Total deposits were $913.7 million at September 30, 2005, an
increase  of $81.9  million as  compared  to $831.8  million at March 31,  2005.
Certificates  of deposit  increased  $88.1 million to $641.0 million from $552.9
million;  savings and club accounts  decreased  $11.2 million to $139.3  million
from $150.5  million;  and money market,  NOW and commercial  checking  accounts
increased  $5.0 million to $133.4 million from $128.4  million.  The increase in
deposits,  primarily certificates of deposits,  reflects deposit growth in three
branches  opened during 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.  The  Brookfield  branch opened in June
2004, and the Carmel and Bethel branches opened in February 2005 and March 2005,
respectively.  Borrowings  totaled $35.0 million at September 30, 2005 and $38.0
million at March 31, 2005.

      Stockholders' Equity. Total stockholders' equity increased $1.0 million to
$128.2  million at September 30, 2005 as compared to $127.2 million at March 31,
2005.  The increase  reflects  net income of $2.5 million and  increases of $1.4
million related to stock options, stock awards and ESOP shares, partially offset
by common stock  purchases at a cost of $1.3 million and dividends  paid of $1.6
million.

      The accumulated other  comprehensive loss of $2.7 million at September 30,
2005  represents the after-tax net unrealized  loss on securities  available for
sale ($4.5 million pre-tax).  The Company invests  primarily in  mortgage-backed
securities guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac, as well as U.S.
Government and Agency  securities.  The unrealized  losses at September 30, 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 September 30, 2005.


                                       12
<PAGE>

Comparison  of Results of  Operations  for the Three Months Ended  September 30,
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  September  30, 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 $140,000 and $117,000,
respectively.  Interest income on mortgage-backed securities has been reduced by
amortization  of purchase  premiums  (net of discounts) of $209,000 and $228,000
for those same respective periods.

<TABLE>
<CAPTION>
                                                                For the Three Months Ended September 30,
                                          ------------------------------------------------------------------------------------
                                                             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)                                 $  631,188          8,874          5.58%       $518,127       7,354         5.63%
Mortgage-backed securities (2)               239,743          2,195          3.63%        260,946       2,276         3.46%
Other securities (2)                         110,368            989          3.56%         92,852         748         3.20%
Federal funds sold and other
overnight deposits (3)                        29,278            195          2.64%         28,074          73         1.03%
Other (4)                                      6,712             85          5.02%          5,826          34         2.32%
                                          ----------       --------                      --------      ------
Total interest-earning assets              1,017,289         12,338          4.81%        905,825      10,485         4.59%
                                                           --------                                    ------
Non-interest earning assets                   49,219                                       41,063
                                          ----------                                     --------
Total assets                              $1,066,508                                     $946,888
                                          ==========                                     ========
Interest-bearing liabilities:
Savings and club accounts                 $  142,773            197          0.55%       $151,682         199         0.52%
Money market accounts                         41,188            121          1.17%         46,893          93         0.79%
NOW accounts                                  64,732             72          0.44%         58,100          36         0.25%
Certificates of deposit                      613,656          5,033          3.25%        498,775       3,056         2.43%
Borrowings                                    35,000            361          4.09%         38,000         390         4.07%
Mortgagors' escrow funds                       5,774              6          0.41%          4,582           5         0.43%
                                          ----------       --------                      --------      ------
Total interest-bearing liabilities           903,123          5,790          2.54%        798,032       3,779         1.88%
                                                           --------                                    ------
Non-interest-bearing liabilities              33,257                                       24,295
                                          ----------                                     --------
Total liabilities                            936,380                                      822,327
Stockholders' equity                         130,128                                      124,561
                                          ----------                                     --------
Total liabilities and

stockholders' equity                      $1,066,508                                     $946,888
                                          ==========                                     ========
Net interest income                                           6,548                                     6,706
                                                           ========                                    ======
Net interest rate spread (5)                                                 2.27%                                    2.71%
Net earning assets (6)                    $  114,166                                     $107,793
                                          ==========                                     ========
Net interest margin (7)                                                      2.55%                                    2.94%
Ratio of interest-earning assets
to interest-bearing liabilities                 1.13x                                        1.14x
</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.

<TABLE>
<CAPTION>
                                                       For the Three Months Ended September 30,
                                                                    2005 vs. 2004
                                                 ----------------------------------------------------
                                                 Increase (Decrease) Due to
                                                 ------------------------------        Total Increase
                                                 Volume                  Rate            (Decrease)
                                                 ----------------------------------------------------
                                                                    (In thousands)
<S>                                                <C>                 <C>                 <C>
Interest-earning assets:
Loans                                              $ 1,958             $  (438)            $ 1,520
Mortgage-backed securities                            (604)                523                 (81)
Other securities                                       151                  90                 241
Federal funds and other overnight deposits               3                 119                 122
Other                                                    6                  45                  51
                                                   -------             -------             -------

Total interest-earning assets                        1,514                 339               1,853
                                                   -------             -------             -------

Interest-bearing liabilities:
Savings and club accounts                              (47)                 45                  (2)
Money market accounts                                  (66)                 94                  28
NOW accounts                                             5                  31                  36
Certificates of deposit                                802               1,175               1,977
Borrowings                                             (42)                 13                 (29)
Mortgage escrow funds                                    3                  (2)                  1
                                                   -------             -------             -------

Total interest-bearing liabilities                     655               1,356               2,011
                                                   -------             -------             -------

Net interest income                                $   859             $(1,017)            $  (158)
</TABLE>

      Net Income.  Net income amounted to $1.36 million or diluted  earnings per
share of $0.12 for the quarter  ended  September  30, 2005 and $1.43  million or
diluted  earnings per share of $0.12 for the quarter  ended  September 30, 2004.
Net income  decreased  $72,000 for the quarter ended September 30, 2005 which is
primarily  attributable  to a $433,000  increase in  non-interest  expense and a
$158,000  decrease  in net  interest  income,  partially  offset  by a  $468,000
increase in non-interest income and a $51,000 decrease in income tax expense.

      Interest  Income.  Interest income increased $1.8 million to $12.3 million
for the quarter  ended  September 30, 2005, as compared to $10.5 million for the
quarter  ended  September  30,  2004.  The  increase  reflects a $111.5  million
increase in average  interest-earning  assets to $1.0 billion during the quarter
ended  September 30, 2005 as compared to $905.8  million for the same quarter in
the  prior  year  and  a 22  basis  point  increase  in  the  average  yield  on
interest-earning  assets  to 4.81%.  The  increase  in the  average  balance  of
interest-earning  assets was due primarily to a $113.1  million  increase in the
average  balance  of net loans to  $631.2  million,  partially  offset by a $3.7
million  decrease in the average balance of total  securities to $350.1 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 $1.5 million, or 20.7%, to $8.9
million for the quarter ended September 30, 2005 as compared to $7.4 million for
the same quarter in 2004.  This increase is due to a $113.1 million  increase in
the average  balance of loans to $631.2 million,  partially  offset by a 5 basis
point decrease in the yield earned to 5.58%. The decrease in the yield earned is
primarily a result of loan  originations  during fiscal years 2005 and 2004 that
were at rates lower than the average  yield being  earned on the loan  portfolio
during those periods.  Loans  originated  during the quarter ended September 30,
2005 amounted to $91.7 million.  As 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 $2.2  million for the quarter  ended  September  30, 2005, a
decrease  of $81,000  from the same  quarter in 2004.  The  decrease is due to a
$21.2 million decrease in the average balance of  mortgage-backed  securities to
$239.7  million,  partially  offset by a 17 basis point  increase in the average
yield to 3.63% during the current quarter.

      Interest  on other  securities  increased  $241,000  to  $989,000  for the
quarter  ended  September 30, 2005, as compared to $748,000 for the same quarter
in 2004. The increase is due to a $17.5 million  increase in the average balance
of other  securities  to $110.4  million  and a 36 basis  point  increase in the
average yield to 3.56%.

      Federal  Funds Sold and Other  Overnight  Deposits.  For the quarter ended
September 30, 2005,  interest on Federal funds sold and other overnight deposits
increased  $122,000 to $195,000,  reflecting  a 161 basis point  increase in the
average yield to 2.64%,  and a $1.2 million  increase in the average  balance to
$29.3 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
$85,000 for the quarter ended  September 30, 2005 as compared to $34,000 for the
same quarter in 2004.

      Interest  Expense.  Interest  expense for the quarter ended  September 30,
2005 increased $2.0 million to $5.8 million, as compared to $3.8 million for the
quarter  ended  September  30,  2004.  The average  balance of  interest-bearing
liabilities  increased  $105.1  million to $903.1  million for the quarter ended
September  30, 2005 as compared  to $798.0  million for the same  quarter in the
prior  year,  while the average  cost of these  liabilities  increased  66 basis
points to  2.54%.  The  increase  in the  average  balance  of  interest-bearing
liabilities includes deposit growth in the new 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  67.9% of the  average  balance  of total
interest-bearing  liabilities  for the quarter  ended  September  30,  2005,  as
compared to 62.5% for the quarter  ended  September  30, 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.

      Interest  expense on certificates of deposit  amounted to $5.0 million for
the current  quarter as compared to $3.1  million for the same  quarter in 2004.
The  increase  is due  primarily  to a $114.9  million  increase  in the average
balance to $613.7  million  from $498.8  million for the same quarter last year,
while the average cost of certificates  of deposit  increased 82 basis points to
3.25%.

      Interest on savings accounts  amounted to $197,000 for the current quarter
as compared to $199,000 for the quarter ended  September 30, 2004. This decrease
is the result of an $8.9  million  decrease  in the  average  balance of savings
accounts to $142.8 million for the quarter ended September 30, 2005 as compared


                                       15
<PAGE>

to $151.7 million for the same quarter in 2004,  partially offset by an increase
of 3 basis points in the average cost of savings accounts to 0.55%.

      Interest expense on NOW and money market accounts amounted to $193,000 for
quarter ended September 30, 2005 as compared to $129,000 for the same quarter in
the prior year.  The average  cost  increased  23 basis  points to 0.72% and the
average balance of these accounts increased $927,000 to $105.9 million.

      For the quarter ended September 30, 2005,  interest  expense on borrowings
amounted to $361,000 as compared to $390,000 for the same  quarter in 2004.  The
average  balance of borrowings for the current quarter was $35.0 million and the
average cost was 4.09%, an increase of 2 basis points from the same quarter last
year.

      Net Interest  Income.  Net interest income for the quarter ended September
30, 2005 decreased  $158,000 to $6.5 million as compared to $6.7 million for the
same quarter in the prior year. The net interest rate spread was 2.27% and 2.71%
for the  quarters  ended  September  30,  2005 and 2004,  respectively.  The net
interest  margin  for  those  periods  was 2.55% and  2.94%,  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.  The Federal  Reserve  began raising the Federal funds rate in July 2004.
Since that time and through  September 30, 2005, the Federal  Reserve has raised
the Federal  funds rate by 275 basis points to 3.75%.  However,  long term rates
have  only  begun  to  increase,  resulting  in a  flattening  yield  curve.  As
short-term   interest  rates  increased,   the  cost  of  our   interest-bearing
liabilities 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  85.2% of total loans at September 30, 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 September
30, 2005 and 2004.  Non-performing  loans  amounted to $1.3  million or 0.19% of
total loans at  September  30,  2005,  as compared to $963,000 or 0.18% of total
loans at September  30, 2004.  The  allowance  for loan losses  amounted to $3.2
million and $3.0 million at September 30, 2005 and March 31, 2005, respectively.
There were no charge-offs or recoveries in the quarters ended September 30, 2005
and 2004.  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 September 30,
2005,  adjustable  rate loans  accounted for 42.9% of total loans as compared to
37.8% at March 31, 2005.

      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  $359,000 and $220,000 for the  quarters  ended  September  30, 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


                                       16
<PAGE>

increase in the cash surrender value of the BOLI amounted to $94,000 and $90,000
for those same  respective  periods.  The Company also had a gain on the sale of
real estate of $325,000 for the quarter ended  September 30, 2005.  The property
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.

      Non-Interest  Expense.  Non-interest  expense totaled $5.0 million for the
quarter  ended  September  30, 2005 as compared to $4.6  million for the quarter
ended  September  30,  2004.  This  increase is  primarily  due to  increases of
$379,000 in compensation expense, $90,000 in occupancy and equipment expense and
$90,000 in data processing service fees,  partially offset by a $52,000 decrease
in  advertising  and  promotion   expense.   The  increases  include  costs  are
attributable to the three new branches opened during fiscal 2005.

      The increase in  compensation  and benefits  expense is due primarily to a
$258,000  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 $858,000 and $909,000 for the
quarters  ended  September  30, 2005 and 2004,  respectively.  The effective tax
rates for those same periods were 38.7% and 38.8%, respectively.


                                       17
<PAGE>

Comparison of Results of Operations for the Six Months Ended  September 30, 2005
and 2004

      Average  Balance  Sheets.  The following  table sets forth average balance
sheets,  average  yields and costs,  and certain other  information  for the six
months ended  September  30, 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 $255,000 and $275,000,
respectively.  Interest income on mortgage-backed securities has been reduced by
amortization  of purchase  premiums  (net of discounts) of $406,000 and $470,000
for those same respective periods.

<TABLE>
<CAPTION>
                                                                 For the Six Months Ended September 30,
                                          ------------------------------------------------------------------------------------
                                                             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)                                 $  611,137         17,138         5.59%        $499,979      14,251         5.69%
Mortgage-backed securities (2)               246,934          4,386         3.54%         256,307       4,434         3.45%
Other securities (2)                         104,987          1,840         3.50%          88,673       1,382         3.11%
Federal funds sold and other
overnight deposits (3)                        30,672            376         2.45%          31,269         132         0.84%
Other (4)                                      6,654            152         4.56%           5,800          55         1.89%
                                          ----------       --------                      --------      ------
Total interest-earning assets              1,000,384         23,892         4.76%         882,028      20,254         4.58%
                                                           --------                                    ------
Non-interest earning assets                   46,365                                       43,313
                                          ----------                                     --------
Total assets                              $1,046,749                                     $925,341
                                          ==========                                     ========

Interest-bearing liabilities:

Savings and club accounts                 $  144,743            386         0.53%        $150,880         391         0.52%
Money market accounts                         42,722            239         1.12%          46,402         178         0.77%
NOW accounts                                  63,870            132         0.41%          57,722          72         0.25%
Certificates of deposit                      596,794          9,334         3.12%         479,469       5,684         2.36%
Borrowings                                    36,459            722         3.95%          36,541         755         4.12%
Mortgagors' escrow funds                       5,297             11         0.41%           4,218          10         0.47%
                                          ----------       --------                      --------      ------
Total interest-bearing liabilities           889,885         10,824         2.43%         775,232       7,090         1.82%
                                                           --------                                    ------
Non-interest-bearing liabilities              30,020                                       20,950
                                          ----------                                     --------
Total liabilities                            919,905                                      796,182
Stockholders' equity                         126,844                                      129,159
                                          ----------                                     --------
Total liabilities and
stockholders' equity                      $1,046,749                                     $925,341
                                          ==========                                     ========
Net interest income                                          13,068                                    13,164
                                                           ========                                    ======
Net interest rate spread (5)                                                2.33%                                     2.76%
Net earning assets (6)                    $  110,499                                     $106,796
                                          ==========                                     ========
Net interest margin (7)                                                     2.61%                                     2.98%
Ratio of interest-earning assets
to interest-bearing liabilities                 1.12x                                       1.14x
</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.


<TABLE>
<CAPTION>
                                                           For the Six Months Ended September 30,
                                                                        2005 vs. 2004
                                                   ---------------------------------------------------
                                                     Increase (Decrease) Due to
                                                   -------------------------------      Total Increase
                                                      Volume             Rate             (Decrease)
                                                   ---------------------------------------------------
                                                                   (In thousands)
<S>                                                  <C>                <C>                <C>
Interest-earning assets:
Loans                                                $ 3,602            $  (715)           $ 2,887
Mortgage-backed securities                              (297)               249                (48)
Other securities                                         272                186                458
Federal funds and other overnight deposits                (8)               252                244
Other                                                      9                 88                 97
                                                     -------            -------            -------
Total interest-earning assets                          3,578                 60              3,638
                                                     -------            -------            -------
Interest-bearing liabilities:
Savings and club accounts                                (24)                19                 (5)
Money market accounts                                    (39)               100                 61
NOW accounts                                               8                 52                 60
Certificates of deposit                                1,576              2,074              3,650
Borrowings                                                (2)               (31)               (33)
Mortgage escrow funds                                      4                 (3)                 1
                                                     -------            -------            -------
Total interest-bearing liabilities                     1,523              2,211              3,734
                                                     -------            -------            -------
Net interest income                                  $ 2,055            $(2,151)           $   (96)

</TABLE>

      Net Income.  Net income  amounted to $2.5 million or diluted  earnings per
share of $0.21 for the six months ended  September 30, 2005, as compared to $2.9
million  or  diluted  earnings  per  share of  $0.25  for the six  months  ended
September  30,  2004,  a decrease  of 15.2% in net income.  The  decrease in net
income for the six months ended September 30, 2005 is primarily  attributable to
a $1.1 million increase in non-interest expense,  partially offset by a $485,000
increase in non-interest income and a $277,000 decrease in income tax expense.

      Interest  Income.  Interest income increased $3.6 million to $23.9 million
for the six months ended  September  30, 2005,  as compared to $20.3 million for
the six months ended September 30, 2004. The increase  reflects a $118.4 million
increase  in  average  interest-earning  assets to $1.0  billion  during the six
months  ended  September  30, 2005 as  compared  to $882.0  million for the same
period in the prior year and an 18 basis point  increase in the average yield on
interest-earning  assets  to 4.76%.  The  increase  in the  average  balance  of
interest-earning  assets was due primarily to a $111.2  million  increase in net
loans to $611.1  million and a $6.9 million  increase in the average  balance of
total  securities to $351.9  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 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.



                                       19
<PAGE>

      Loans. Interest income on loans increased $2.8 million, or 20.3%, to $17.1
million for the six months ended September 30, 2005 as compared to $14.3 million
for the same period in 2004.  This increase is due to a $111.2 million  increase
in the  average  balance of loans to $611.1  million,  partially  offset by a 10
basis point  decrease in the yield  earned to 5.59%.  The  decrease in the yield
earned is primarily a result of loan  originations  during fiscal years 2005 and
2004 that were at rates  lower than the average  yield being  earned on the loan
portfolio  during those periods.  Loans  originated  during the six months ended
September  30,  2005  amounted  to  $174.6  million.  As 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 $4.4 million for the six months ended  September 30, 2005, a
decrease of $48,000 from the six months ended  September 30, 2004.  The decrease
is due to a $9.4  million  decrease  in the average  balance of  mortgage-backed
securities to $246.9  million,  partially  offset by a 9 basis point increase in
the average yield to 3.54%.

      Interest on other  securities  increased  $458,000 to $1.8 million for the
six months ended  September  30, 2005,  as compared to $1.4 million for the same
six months in 2004.  The  increase  is due to a $16.3  million  increase  in the
average  balance of other  securities  to $105.0  million  and a 39 basis  point
increase in the average yield to 3.50%.

      Federal Funds Sold and Other Overnight Deposits.  For the six months ended
September 30, 2005,  interest on Federal funds sold and other overnight deposits
increased  $244,000 to $376,000,  reflecting  a 161 basis point  increase in the
average yield to 2.45%,  partially offset by a $597,000  decrease in the average
balance to $30.7  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
$146,000 for six months ended  September 30, 2005 as compared to $50,000 for the
same six months in 2004.

      Interest Expense.  Interest expense for the six months ended September 30,
2005 increased  $3.7 million to $10.8  million,  as compared to $7.1 million for
the six months ended September 30, 2004. The average balance of interest-bearing
liabilities  increased  $114.7  million to $889.9  million during the six months
ended  September  30, 2005 as compared to $775.2  million for the same period in
2004, while the average cost of these  liabilities  increased 61 basis points to
2.43%.  The  increase in the  average  balance of  interest-bearing  liabilities
includes  deposit  growth in the new  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  67.1% of the  average  balance  of total
interest-bearing  liabilities  for the six months ended  September  30, 2005, as
compared to 61.8% for the six months ended  September 30, 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.

      Interest  expense on certificates of deposit  amounted to $9.3 million for
the six months ended  September 30, 2005 as compared to $5.7 million for the six
months  ended  September  30, 2004.  The  increase is due  primarily to a $117.3
million  increase in the average  balance to $596.8 million from $479.5 million,
and a 76 basis point increase in the average cost of  certificates of deposit to
3.12%.

      Interest on savings accounts amounted to $386,000 for the six months ended
September  30, 2005 as compared to $391,000 for the six months  ended  September
30, 2004. This decrease is the result of a $6.1 million  decrease in the average
balance of savings accounts to $144.7 million for the six months ended September
30, 2005 as compared  to $150.9  million for the same period in 2004,  while the
average cost of savings accounts increased 1 basis point to 0.53%.



                                       20
<PAGE>

      Interest expense on NOW and money market accounts amounted to $371,000 for
six months  ended  September  30, 2005 as compared to $250,000  for the same six
months in the prior year. The average cost of these deposits  increased 21 basis
points to 0.69% and the average balance of these accounts increased $2.5 million
to $106.6 million.

      For  the  six  months  ended  September  30,  2005,  interest  expense  on
borrowings  amounted to $722,000 as compared to $755,000 for the same six months
in 2004. The average  balance of borrowings  for the six months ended  September
30,  2005 was $36.5  million,  substantially  unchanged  from the same period in
2004, and the average cost decreased 17 basis points to 3.95%.

      Net  Interest  Income.  Net  interest  income  for  the six  months  ended
September  30,  2005  decreased  $96,000 to $13.1  million as  compared to $13.2
million for the same six months in the prior year.  The net interest rate spread
was 2.33%  and  2.76% for the six  months  ended  September  30,  2005 and 2004,
respectively.  The net  interest  margin for those same  respective  periods was
2.61% and 2.98%.  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.  The Federal Reserve began raising the Federal
funds rate in July 2004,  Since that time and through  September  30, 2005,  the
Federal  Reserve has raised the Federal funds rate by 275 basis points to 3.75%.
However, long term rates have only begun to increase,  resulting in a flattening
yield  curve.  As  short-term   interest  rates  increased,   the  cost  of  our
interest-bearing liabilities 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 $150,000 for
each of the six-month periods ended September 30, 2005 and 2004.  Non-performing
loans amounted to $1.3 million or 0.19% of total loans at September 30, 2005, as
compared  to  $963,000  or 0.18%  of total  loans at  September  30,  2004.  The
allowance for loan losses amounted to $3.2 million and $3.0 million at September
30,  2005 and  March  31,  2005,  respectively.  There  were no  charge-offs  or
recoveries in the six months ended  September 30, 2005 and 2004. 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 September 30, 2005,  adjustable rate loans
accounted for 42.9% of total loans as compared to 37.8% at March 31, 2005.

      Non-Interest  Income.  Service  charges  and  fees  totaled  $634,000  and
$496,000 for the six months ended September 30, 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 $188,000  and $166,000 for those
same respective periods.  The Company also had a gain on the sale of real estate
of $325,000  during the six months ended  September  30, 2005.  The property 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.

      Non-Interest  Expense.  Non-interest expense totaled $10.0 million for the
six months  ended  September  30, 2005 as  compared to $8.9  million for the six
months ended  September 30, 2004. This increase is primarily due to increases of
$794,000 in compensation  expense,  $194,000 in occupancy and equipment expense,
and  $82,000 in data  processing  service  fees.  The  increases  include  costs
attributable to the three new branches opened during fiscal 2005.

      The increase in  compensation  and benefits  expense is due primarily to a
$494,000  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



                                       21
<PAGE>

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 $1.6 million and $1.9 million
for the six  months  ended  September  30,  2005  and  2004,  respectively.  The
effective  tax rates for those same periods were 38.9% and 38.8%,  respectively.
The 14.9% decrease in the income tax expense for the six months ended  September
30, 2005 primarily reflects the 15.1% decrease in pre-tax income.

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
six months ended  September  30, 2005,  the Company  originated  loans of $174.6
million,  purchased  loans of $2.5  million and  purchased  securities  of $27.2
million. These disbursements were funded by $42.6 million in principal payments,
maturities  and  calls  of  securities  and  $70.2  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 September 30, 2005,  the Company had  outstanding  loan  commitments of
$98.9  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 September 30, 2005,  totaled $367.4
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-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
September 30, 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
September 30, 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.



                                       22
<PAGE>

<TABLE>
<CAPTION>
                                                                               OTS Requirements
                                                        ------------------------------------------------------
                                                                                      Classification as Well
                                  Bank Actual            Minimum Capital Adequacy           Capitalized
                            ----------------------      -------------------------   --------------------------
                              Amount        Ratio         Amount        Ratio         Amount        Ratio
                            ----------------------      -------------------------   --------------------------
                                                           (Dollars in thousands)
<S>                          <C>             <C>          <C>            <C>         <C>            <C>
September 30, 2005
------------------
Tangible capital             $104,817         9.8%        $16,040        1.5%
Tier I (core) capital         104,817         9.8          42,773        4.0         $53,466         5.0%
Risk-based capital:
     Tier I                   104,817        21.1          19,899        4.0          29,849         6.0
     Total                    107,978        21.7          39,798        8.0          49,748        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 FASB issued 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 on November 3, 2005 and 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
tempoary 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   Statement   of  Financial
Accounting  Standards 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.



                                       23
<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,  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 September  30,  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 six months ended September 30, 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 September 30, 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.

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 September 30, 2005 is summarized below:



                                       24
<PAGE>

<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>
July 1-July 31                    --                --                    --                   321,544
August 1-August 31                                  --                    --                   321,544
September 1-September 30          --                --                    --                   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

      The Company held its Annual  Meeting of  Stockholders  on August 11, 2005.
The purpose of the meeting was the  election of three  directors  of the Company
and  the  ratification  of the  appointment  of  KPMG  LLP  as  the  independent
registered  public  accounting  firm for the  Company for the fiscal year ending
March 31, 2006. The results of the votes were as follows:

      Proposal 1 - Election of Directors

                                           For          Withheld
                                           ---          --------
            Bruno J. Gioffre            10,200,996       896,016
            Richard P. McStravick       10,244,955       852,057
            James Staudt                10,254,655       842,357

      Proposal 2 - Ratification of Appointment of KPMG LLP

          For          Against       Abstain
      ----------       -------       -------
      10,599,752       432,648       64,612

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

November 8, 2005


                                       26