United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549


                                    Form 10-Q

 [x] Quarterly Report pursuant to Section 13 or 15 (d)
     of the Securities Exchange Act of 1934

                     For the Quarter Ended December 31, 1998

                                       OR

[ ] Transition Report pursuant to Section 13 or 15(d)
    of the Securities Exchange Act of 1934

                         Commission File Number 0-27178

                         Peekskill Financial Corporation
           (Exact name of the registrant as specified in its charter)

Delaware                                                  13-3858258
(State of incorporation)                    (I.R.S. Employer Identification No.)

                   1019 Park Street, Peekskill, New York 10566
                    (Address of principal executive offices)

                                 (914) 737-2777
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports)  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days.

              Yes     x                                   No             

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

                                           Shares Outstanding 
             Class:                        at February 5, 1999

Common Stock, $0.01 par value                   2,042,029



<PAGE>


                         Peekskill Financial Corporation

                                    Form 10-Q

                  Three and Six Months Ended December 31, 1998

                         Part I - Financial Information

ITEM 1 - FINANCIAL STATEMENTS  (Unaudited)                              Page

Condensed Consolidated Balance Sheets at December 31, 1998
         and June 30, 1998                                                 3

     Condensed Consolidated Statements of Income for the three and six
         months ended December 31, 1998 and 1997                           4

     Condensed Consolidated Statement of Changes in Stockholders'
         Equity for the six months ended December 31, 1998                 5

     Condensed Consolidated Statements of Cash Flows for the six
         months ended December 31, 1998 and 1997                           6

     Notes to Condensed Consolidated Interim Financial Statements          7

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF                          10
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
         ABOUT MARKET RISK                                                16

                           Part II - Other Information

Other Information                                                         17

Signatures                                                                18




<PAGE>


Part I.           FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                                   Peekskill Financial Corporation and Subsidiary
                                        Condensed Consolidated Balance Sheets
                                                     (Unaudited)
                                          (In thousands, except share data)

                                                       December 31, 1998   June 30, 1998
                                                       -----------------   -------------
<S>                                                        <C>           <C>

Assets:
Cash and cash equivalents................................     $ 16,421       $ 4,626
Securities:
  Held-to-maturity, at amortized cost (fair value of
     $120,227 at December 31, 1998 and $136,883
     at June 30, 1998)...................................      118,837       135,446
  Available-for-sale, at fair value (amortized cost of
     $21,500 at December 31, 1998 and $8,500 at
     June 30, 1998)......................................       21,289         8,498
                                                               -------       -------
    Total securities.....................................      140,126       143,944
                                                               -------       -------

Loans, net of allowance for loan losses of $712 at
     December 31, 1998 and $682 at June 30, 1998.........       52,638        47,631
Federal Home Loan Bank stock.............................        1,463         1,463
Accrued interest receivable..............................        1,166         1,050
Real estate owned........................................          ---            94
Deferred income taxes, net...............................          510           362
Other assets.............................................        1,171         1,171
                                                                 -----         -----
  Total assets...........................................     $213,495      $200,341
                                                              ========      ========

Liabilities and Stockholders' Equity:
Liabilities:
  Depositor accounts.....................................     $144,366      $139,858
  Securities repurchase agreements.......................       23,000        13,000
  Mortgage escrow deposits...............................        1,823         1,759
  Other liabilities......................................        1,389         2,518
                                                                 -----         -----
    Total liabilities....................................      170,578       157,135
                                                               -------       -------

Stockholders' equity (Note 2):
Preferred stock (par value $0.01 per share; 100,000
  shares authorized; none issued or outstanding).........          ---           ---
Common stock (par value $0.01 per share; 4,900,000
  shares authorized; 4,099,750 shares issued)............           41            41
Additional paid-in capital...............................       40,272        40,181
Unallocated common stock held by employee stock
  ownership plan ("ESOP")................................      (2,788)       (2,870)
Unamortized awards of common stock under recognition
  and retention plan ("RRP").............................        (869)         (922)
Treasury stock, at cost (1,257,681 shares at December 31,
  1998 and 1,204,181 shares at June 30, 1998)............     (18,557)      (17,730)
Retained earnings........................................       24,944        24,508
Accumulated other comprehensive income
  (net unrealized loss on available-for-sale
  securities, net of taxes).............................        (126)           (2)
                                                                 ----            --
   Total stockholders' equity............................       42,917        43,206
                                                                ------        ------

   Total liabilities and stockholders' equity............     $213,495      $200,341
                                                              ========      ========
</TABLE>

See accompanying  notes to unaudited  condensed  consolidated  interim financial
statements.


<PAGE>
<TABLE>
<CAPTION>

                                   Peekskill Financial Corporation and Subsidiary
                                    Condensed Consolidated Statements of Income
                                                     (Unaudited)
                                        (In thousands, except per share data)

                                              For the Three Months          For the Six Months
                                               Ended December 31,            Ended December 31,
                                            -------------------------     ----------------------
                                                1998         1997           1998          1997
                                               -----        -----          -----         -----
<S>                                        <C>          <C>           <C>           <C>

Interest and dividend income:
 Loans..................................     $ 1,032        $ 929        $ 2,022       $ 1,847
 Securities.............................       2,196        2,043          4,485         4,130
 Interest-bearing deposits and other....         142           87            218           177
                                                 ---           --            ---           ---
  Total interest and dividend income....       3,370        3,059          6,725         6,154
                                               -----        -----          -----         -----

Interest expense:
 Depositor accounts.....................       1,508        1,430          3,021         2,876
 Securities repurchase agreements.......         220          ---            398           ---
 FHLB advances..........................           2          ---              6           ---   
                                               -----        -----          -----         -----
  Total interest expense................       1,730        1,430          3,425         2,876   
                                               -----        -----          -----         -----

  Net interest income...................       1,640        1,629          3,300         3,278

Provision for loan losses ..............          15           15             30            30
                                               -----        -----          -----         -----

  Net interest income after
provision                                      1,625        1,614          3,270         3,248
                                               -----        -----          -----         -----
   for loan losses......................

Non-interest income.....................          69           55            132           112
                                               -----        -----          -----         -----

Non-interest expense:
  Compensation and benefits.............         451          451            906           901
  Occupancy costs.......................         101          109            213           201
  Professional fees.....................          41           50             79            83
  Computer service fees.................          55           45            107            88
  Federal deposit insurance costs.......          36           36             72            72
  Safekeeping and custodial expenses....          27           25             56            49
  Other.................................         189          136            352           284
                                               -----        -----          -----         -----
    Total non-interest expense..........         900          852          1,785         1,678   
                                               -----        -----          -----         -----

Income before income tax expense........         794          817          1,617         1,682
                                                 
Income tax expense......................         350          356            717           726
                                               -----        -----          -----         -----

  Net income............................        $444         $461           $900          $956
                                                ====         ====           ====          ====

Earnings per share (Note 3):
  Basic.................................       $0.18        $0.17          $0.36         $0.34
  Diluted...............................        0.18         0.16           0.35          0.33
</TABLE>

See accompanying  notes to unaudited  condensed  consolidated  interim financial
statements.


<PAGE>
<TABLE>
<CAPTION>

                                            Peekskill Financial Corporation and Subsidiary
                                Condensed Consolidated Statement of Changes in Stockholders' Equity
                                                            (Unaudited)
                                                 (In thousands, except share data)
     
                                                      Unallocated Unamortized
                                                        Common    Awards of                          Accumulated
                                            Additional  Stock       Common                              Other         Total
                                  Common    Paid-in      Held       Stock      Treasury   Retained  Comprehensive  Stockholders'
                                   Stock    Capital    By ESOP    Under RRP     Stock     Earnings     Income         Equity
                                  --------  --------- ----------- -----------  ---------  --------- -------------- -------------
<S>                               <C>     <C>        <C>         <C>         <C>         <C>        <C>           <C>

 Balance at June 30, 1998........  $  41    $ 40,181   $ (2,870)    $ (922)    $(17,730)   $24,508     $    (2)       $ 43,206

    Net income...................    ---         ---        ---        ---          ---        900         ---             900
                                  
    Dividends paid ($0.18 per                                                                                       
    share).......................    ---         ---        ---        ---          ---       (464)        ---            (464)
    Amortization of RRP awards...    ---         ---        ---         97          ---        ---         ---              97
                                     
    RRP award (2,500 treasury                                                                                       
    shares)......................    ---          14        ---        (44)          30        ---         ---             ---
    Tax benefit from vesting of
       RRP awards................    ---          36        ---        ---          ---        ---         ---              36
                                  
    Purchase of 56,000 treasury
       shares....................    ---         ---        ---        ---         (857)       ---         ---            (857)
                                 
    ESOP shares committed to be
       released (8,200 shares)...    ---          41         82        ---          ---        ---         ---             123
                                  
    Change in net unrealized loss
         on available-for-sale
         securities, net of taxes    ---         ---        ---        ---          ---        ---        (124)           (124)
                                  
                                   -----     -------     ------    -------       ------      -----       -----           -----

 Balance at December 31, 1998....  $  41    $ 40,272   $ (2,788)    $ (869)    $(18,557)   $24,944     $  (126)       $ 42,917 
                                   =====    ========   ========    =======     ========    =======     =======        ========

</TABLE>

See accompanying  notes to unaudited  condensed  consolidated  interim financial
statements.


<PAGE>
<TABLE>
<CAPTION>

                                   Peekskill Financial Corporation and Subsidiary
                                   Condensed Consolidated Statements of Cash Flows
                                                    (Unaudited)
                                                   (In thousands)

                                                                      For the Six Months Ended
                                                                            December 31,
                                                                    ----------------------------
                                                                        1998             1997
                                                                      -------           ------
<S>                                                              <C>              <C>

Cash flows from operating activities:
  Net income.................................................           $900             $956
  Adjustments to reconcile net income to net cash provided
    by operating activities:
    Provision for loan losses................................             30               30
    Depreciation and amortization expense....................             50               48
    ESOP and RRP expense.....................................            220              241
    Net amortization and accretion of deferred fees,
        discounts and premiums...............................            (4)              (71)
    Net (increase) decrease in accrued interest receivable...          (116)               60
    Net (increase) decrease in other assets..................            (8)               26
    Deferred tax benefit.....................................           (66)              ---
    Net increase in other liabilities........................            222              212
                                                                         ---              ---
      Net cash provided by operating activities..............          1,228            1,502
                                                                       -----            -----

Cash flows from investing activities:
  Purchases of securities:
    Held-to-maturity.........................................        (20,358)         (15,587)
    Available-for-sale.......................................        (17,500)          (4,600)
  Proceeds from principal payments, maturities 
  and calls of securities:
    Held-to-maturity.........................................         37,008           19,203
    Available-for-sale.......................................          4,500            1,500
  Originations of loans, net of principal collections........         (5,037)          (2,509)
  Proceeds from sale of real estate owned....................             94              220
  Purchases of office properties and equipment...............            (41)            (776)
                                                                      ------            -----
     Net cash used in investing activities...................         (1,334)          (2,549)
                                                                      ------            ------

Cash flows from financing activities:
  Net increase in depositor accounts.........................          4,508            2,426
  Net increase (decrease) in mortgage escrow deposits........             64               (6)
  Proceeds from securities repurchase agreements.............         10,000              ---
  Treasury stock purchases...................................         (2,207)          (1,164)
                                                                                      
  Dividends paid.............................................           (464)            (520)
                                                                       -----            -----
     Net cash provided by financing activities...............         11,901              736
                                                                      ------              ---

Net increase (decrease) in cash and cash equivalents.........         11,795             (311)
Cash and cash equivalents at beginning of period.............          4,626            4,158
                                                                       -----            -----
Cash and cash equivalents at end of period...................        $16,421           $3,847
                                                                     =======           ======

Supplemental information:
  Interest paid..............................................        $ 3,385          $ 2,871
  Income taxes paid..........................................            702              647
  Decrease in liability for treasury stock purchased, not
     yet settled.............................................         (1,350)             ---
  Increase in liability for securities purchased, not yet        
settled......................................................            ---              499
</TABLE>


See accompanying  notes to unaudited  condensed  consolidated  interim financial
statements.


<PAGE>


                 PEEKSKILL FINANCIAL CORPORATION AND SUBSIDIARY
          NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 1:  Basis of Presentation

         Peekskill   Financial   Corporation   (the   "Holding   Company")   was
incorporated  in  September  1995 and on  December  29,  1995 became the holding
company for First Federal  Savings Bank (the "Bank") upon the  completion of the
Conversion  of the Bank from a mutual  savings bank to a stock savings bank (the
"Conversion").  The Holding Company and the Bank  (collectively,  the "Company")
are located in Peekskill, New York and the Holding Company's principal business,
subsequent to the Conversion,  is the ownership of its wholly-owned  subsidiary,
the Bank. The accompanying  unaudited condensed  consolidated  interim financial
statements include the accounts of the Holding Company and the Bank.

         The accompanying  unaudited  condensed  consolidated  interim financial
statements have been prepared in accordance with generally  accepted  accounting
principles for interim  financial  information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X.  Accordingly,  they do not include all of
the  information  and  footnotes  required  by  generally  accepted   accounting
principles  for  complete  financial  statements.   The  accompanying  unaudited
condensed   consolidated   interim  financial   statements  should  be  read  in
conjunction with the financial  statements and related  management's  discussion
and analysis of financial  condition and results of operations of the Company as
of and for the year ended June 30, 1998 included in the Form 10-K filed with the
Securities  and  Exchange  Commission.   In  the  opinion  of  management,   all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation  have been included herein.  The results of operations for the
six months ended  December 31, 1998 are not  necessarily  indicative  of results
that may be expected for the entire year ending June 30, 1999.


NOTE 2.  Stockholders' Equity

         From July 1, 1998  through  December  31,  1998,  the  Holding  Company
purchased 56,000 shares for treasury at a cost of $857,000, or $15.30 per share.
From the date of  Conversion  through  December  31, 1998,  the Holding  Company
purchased an aggregate of 1,257,681  shares for  treasury.  The Holding  Company
purchased these shares,  in open market  transactions,  at a total cost of $18.6
million or $14.75 per share.

         On December 23, 1998,  the Company  commenced a Modified  Dutch Auction
Tender  Offer for the  repurchase  of up to 800,000  shares of its common  stock
(representing 28% of its outstanding shares) at a price not less than $14.75 per
share and not more than $16.75 per share.  The repurchase of shares was designed
to enhance the long term value of the  Company's  shares  without  reducing  its
capital base below the level needed to support its business operations.

         On January 5, 1999,  the Company  received an  unsolicited  conditional
expression  of interest in acquiring  the Company for a cash  purchase  price of
$17.25 per share, from BRT Realty Trust ("BRT"). After review of the unsolicited
conditional  expression of interest,  the Board of Directors  determined  not to
pursue the  unsolicited  conditional  expression of interest and  reaffirmed its
position that the Company is not for sale.

         In  response  to the Board of  Directors'  decision  not to pursue  the
unsolicited  conditional expression of interest from BRT, a lawsuit,  purporting
to be on behalf of shareholders, was filed in the Chancery Court of the State of
Delaware.  The case, Michael Demetriou v. Eldorus Maynard,  William  LaCalamito,
Dominick  Bertoline,  Edward Dwyer,  Robert  Flower,  John McGurty and Peekskill
Financial Corporation, filed on January 8, 1999, alleged among other things that
the directors  violated  their  fiduciary  obligations  in  connection  with the
rejection of the unsolicited conditional expression of interest in acquiring the
Company.  The Board of Directors  has reviewed  the  complaint  with counsel and
believes that it has no merit and intends to contest it vigorously.

         On January 13, 1999, the Company received a letter from BRT indicating,
among other things, that it was amenable to raising the price in its unsolicited
conditional  expression  of  interest.  In addition,  on January 19,  1999,  the
Company received a letter from Gould Investors, L.P., which is believed to be an
affiliate of BRT, demanding that the Company (1) halt the Modified Dutch Auction
Tender  Offer,  (2) hire a  financial  adviser to analyze  the fair value of the
Company,  (3) solicit  offers for the sale of the Company and, (4) if offers are
at or near price  indicated by the  financial  advisers,  sell the Company.  The
Board considered these letters at length and, after review, continued to believe
that it was in the best interest of the  shareholders  for the Company to remain
independent and execute its business plan.

         On February 2, 1999,  the Company  completed the Modified  Dutch Tender
Offer through the purchase of 800,040 shares at a price of $16.75 per share.

Note 3.  Earnings Per Share

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


<PAGE>


         The  table  below  summarizes  the  number of  shares  utilized  in the
Company's EPS  calculations  for the three and six month periods ended  December
31, 1998 and 1997. For purposes of computing basic EPS, net income applicable to
common stock equaled net income for each period presented.
<TABLE>
<CAPTION>

                                                   For the Three Months            For the Six Months
                                                    Ended December 31,             Ended December 31,
                                                  --------------------------    --------------------------
                                                      1998           1997            1998           1997
                                                  ------------  ------------    --------------  ----------
                                                                      (In thousands)
<S>                                               <C>            <C>             <C>           <C>

Weighted average common shares outstanding
   for computation of basic EPS (1)                   2,482          2,763           2,499          2,777

Common-equivalent shares due to the dilutive
   effect of stock options and RRP awards (2)            44            112              67            103
                                                      -----          -----           -----          -----

Weighted average common shares for
   computation of diluted EPS                         2,526          2,875           2,566          2,880
                                                      =====          =====           =====          =====

<FN>

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

(2) Computed using the treasury stock method.
</FN>
</TABLE>

Note 4.  Comprehensive Income

         The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,"
which  establishes  standards  for the  reporting  and display of  comprehensive
income (and its  components)  in financial  statements.  The standard  does not,
however,  specify  when  to  recognize  or how to  measure  items  that  make up
comprehensive  income.  Comprehensive  income  represents net income and certain
amounts reported  directly in stockholders'  equity,  such as the net unrealized
gain or loss on  securities  available-for-sale.  While  SFAS  No.  130 does not
require a specific  reporting format, it does require that an enterprise display
an amount representing total comprehensive income for the period.

         The Company's comprehensive income for the three- and six-month periods
ended December 31, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>


                                                   For the Three Months            For the Six Months
                                                    Ended December 31,             Ended December 31,
                                                  --------------------------    --------------------------
                                                      1998           1997            1998           1997
                                                  ------------  ------------    --------------  ----------
                                                                      (In thousands)
<S>                                               <C>             <C>            <C>           <C>

Net income                                            $ 444          $ 461           $ 900          $ 956

Net change in the after-tax unrealized gain or
  loss on available-for-sale securities               (189)              4           (124)              9
                                                     -----           -----          -----           -----

Weighted average common shares for
   Computation of diluted EPS                      $    255        $   465        $    776        $   965
                                                     ======          =====          ======          =====

</TABLE>


<PAGE>


Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

         The Company has made, and may continue to make, various forward-looking
statements  with respect to earnings,  credit  quality and other  financial  and
business  matters  for periods  subsequent  to December  31,  1998.  The Company
cautions  that  these   forward-looking   statements  are  subject  to  numerous
assumptions, risks and uncertainties, and that statements for subsequent periods
are  subject to greater  uncertainty  because  of the  likelihood  of changes in
underlying factors and assumptions.  Actual results could differ materially from
forward-looking statements.

         In addition to those  factors  previously  disclosed by the Company and
those factors  identified  elsewhere  herein,  the following factors could cause
actual  results  to  differ  materially  from such  forward-looking  statements:
pricing pressures on loan and deposit products; actions of competitors;  changes
in local and national economic conditions;  customer deposit  disintermediation;
changes in customers'  acceptance of the  Company's  products and services;  the
extent and timing of legislative  and regulatory  actions and reforms;  and Year
2000  related  costs  and  issues   substantially   different   from  those  now
anticipated.

         The Company's  forward-looking  statements speak only as of the date on
which such statements are made. By making any  forward-looking  statements,  the
Company assumes no duty to update them to reflect new, changing or unanticipated
events or circumstances.

Comparison of Financial Condition at December 31, 1998 and June 30, 1998

         Total  assets at  December  31, 1998 were  $213.5  million  compared to
$200.3 million at June 30, 1998, an increase of $13.2 million. This increase was
due primarily to an $11.8 million  increase in cash and cash  equivalents  and a
$5.0 million increase in net loans,  partially offset by a $3.8 million decrease
in total securities. The funding of the asset growth was accomplished by a $10.0
million increase in securities repurchase agreements and a $4.5 million increase
in depositor  accounts.  Management  intends to continue its current strategy of
increasing the loan portfolio  (primarily through the origination of residential
mortgage loans),  as market  conditions  permit, by introducing new products and
stimulating loan demand through advertising.

         Total  non-performing  assets  decreased  $147,000,  or 9.3%, from $1.6
million at June 30, 1998 to $1.4 million at December  31, 1998.  At December 31,
1998, the Company held an $856,000 participation interest in certain residential
mortgage loans purchased from Thrift Association Service Corporation (the "TASCO
Loans").  These loans were placed on non-accrual status during the quarter ended
September  30,  1996.  As a servicer of these loans,  the FDIC is disputing  its
obligation to remit certain principal and interest payments on the loans whether
or not such  amounts  are  collected  from  the  borrowers.  The FDIC  suspended
payments  beginning in 1996, but resumed  making certain  principal and interest
payments in the quarter  ended June 30, 1997,  and has continued to make current
payments.  As a result,  interest  payments of $23,000 received in the six-month
period  ended  December  31,  1998 were  recognized  as income on a cash  basis.
However, the dispute over the suspended payments has not been resolved,  and the
TASCO Loans of $856,000 at December  31, 1998 and  $876,000 at June 30, 1998 are
included in the Company's total non-performing loans.
<PAGE>

         The Bank had two loans, with principal balances totaling  $245,000,  on
non-accrual  status at December 31, 1998 and June 30, 1998.  One-to-four  family
mortgage  loans past due more than 90 days but still accruing  interest  totaled
$337,000 at December 31, 1998  compared to $370,000 at June 30,  1998.  The Bank
had no real estate  owned at December 31, 1998 and one  property  classified  as
real  estate  owned with a  carrying  value of  $94,000  at June 30,  1998.  The
allowance  for loan  losses was  $712,000  or 49.5% of  non-performing  loans at
December 31, 1998, compared to $682,000 or 45.7% of non-performing loans at June
30, 1998.  There were no loan  charge-offs or recoveries in the six months ended
December 31, 1998.

         Stockholders'  equity decreased $289,000 from $43.2 million at June 30,
1998 to $42.9  million at December 31, 1998.  The  decrease  primarily  reflects
treasury stock  purchases of $857,000 and dividends paid of $464,000,  partially
offset by net income of $900,000.  Book value per share increased from $14.92 at
June 30,1998 to $15.10 at December 31, 1998.


Comparison of Operating Results for the Three Months Ended December 31, 1998 and
1997

         Net income decreased  $17,000 to $444,000,  or $0.18 per share, for the
quarter ended  December 31, 1998,  compared to net income of $461,000,  or $0.17
per share,  for the same period last year.  Diluted  earnings per share  amounts
were  $0.18  and  $0.16  for the  quarters  ended  December  31,  1998 and 1997,
respectively.  The decrease is primarily  attributable to a $300,000 increase in
interest  expense and a $48,000  increase  in  non-interest  expense,  partially
offset by a $311,000 increase in interest and dividend income.

         Net interest income  increased  $11,000 in the current quarter compared
to the quarter ended December 31, 1997.  Interest and dividend income  increased
$311,000 to $3.4 million for the quarter ended December 31, 1998 compared to the
quarter ended  December 31, 1997.  The increase was caused  primarily by a $23.8
million increase in average  interest-earning  assets,  partially offset by a 41
basis point decrease in the average yield on interest-earning  assets.  Interest
expense  increased  $300,000 to $1.7 million for the quarter ended  December 31,
1998 compared to the same quarter last year.  This increase was due primarily to
a $27.8 million increase in average interest-bearing liabilities.

         The  provision  for loan  losses was  $15,000  for the  quarters  ended
December 31, 1998 and 1997. Management continues to evaluate the adequacy of the
allowance  for loan  losses  based  on local  economic  and real  estate  market
conditions, loan portfolio growth and the level of non-performing loans.

         Non-interest  expense  increased $48,000 for the quarter ended December
31, 1998 compared to the prior year quarter.  The increase was caused  primarily
by a $10,000  increase in computer  service fees and a $53,000 increase in other
operating  expenses,  partially offset by a $9,000 decrease in professional fees
and an $8,000 decrease in occupancy costs.

         Income tax expense for the quarter  ended  December 31, 1998  decreased
$6,000  compared to the same period  last year,  primarily  due to a decrease in
pre-tax  income.  The  effective tax rates were 44.1% and 43.6% for the quarters
ended December 31, 1998 and 1997, respectively.

<PAGE>

Comparison of Operating  Results for the Six Months Ended  December 31, 1998 and
1997

         Net income decreased  $56,000 to $900,000,  or $0.36 per share, for the
six months ended December 31, 1998, compared to net income of $956,000, or $0.34
per share,  for the same period last year.  Diluted  earnings per share  amounts
were  $0.35 and $0.33  for the six  months  ended  December  31,  1998 and 1997,
respectively.  The decrease is primarily  attributable to a $549,000 increase in
interest  expense and a $107,000  increase in  non-interest  expense,  partially
offset by a $571,000 increase in interest and dividend income.

         Net interest income increased  $22,000 in the current  six-month period
compared to the six months ended December 31, 1997. Interest and dividend income
increased  $571,000 to $6.7 million for the six months  ended  December 31, 1998
compared to the same period last year.  The increase  was caused  primarily by a
$21.3 million increase in average interest-earning assets, partially offset by a
36  basis  point  decrease  in the  average  yield on  interest-earning  assets.
Interest  expense  increased  $549,000 to $3.4  million for the six months ended
December 31, 1998  compared to the same period last year.  This increase was due
primarily to a $25.2 million increase in average interest-bearing liabilities.

         The  provision  for loan losses was $30,000 for the  six-month  periods
ended December 31, 1998 and 1997.  Management continues to evaluate the adequacy
of the allowance for loan losses based on local  economic and real estate market
conditions, loan portfolio growth and the level of non-performing loans.

         Non-interest  expense  increased  $107,000  for  the six  months  ended
December  31, 1998  compared to the prior year  period.  The increase was caused
primarily  by increases of $19,000 in computer  service  fees,  $68,000 in other
operating expenses and $12,000 in occupancy costs.

         Income tax expense for the six months ended December 31, 1998 decreased
$9,000  compared to the same period  last year,  primarily  due to a decrease in
pre-tax income.  The effective tax rates were 44.3% and 43.2% for the six months
ended December 31, 1998 and 1997, respectively.



<PAGE>


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

                                                                                         Six Months
                                                                                           Ended
                                                     -----------------------------------------------------------------------------
                                                                   December 31,                          December 31,
                                                     ----------------------------------------  -----------------------------------
                                                                      1998                                   1997
                                                     ----------------------------------------  -----------------------------------
                                                        Average                   Average      Average                 Average
                                                       Balance (1)  Interest     Yield/Rate   Balance(1)   Interest  Yield/Rate
                                                     -------------  ----------  ------------  ----------  ---------- -------------
                                                                             (Dollars in thousands)
<S>                                                 <C>           <C>           <C>          <C>         <C>           <C>

Interest-earning assets:
   Loans (2)....................................       $ 50,810      $ 2,023           7.96%    $ 46,196    $ 1,847        8.00%
   Mortgage-backed securities(3)................        123,219        3,913           6.35      116,277      3,740        6.43
   Other debt securities(3).....................         18,551          571           6.16       12,059        390        6.47
   Other interest-earning assets................          8,794          218           4.96        5,581        177        6.32
                                                       --------      --------                   --------    -------      
     Total interest-earning assets..............        201,374      $ 6,725           6.68%     180,113    $ 6,154        6.83%
                                                                     =======                                =======
Non interest-earning assets.....................          2,688                                    2,230
                                                       --------                                 --------
     Total assets...............................       $204,062                                 $182,343
                                                       ========                                 ========

Interest-bearing liabilities:
   Regular savings and club accounts............        $50,383        $ 699           2.77%     $53,441      $ 809        3.03%
   Money market and NOW accounts................         14,705          194           2.64       11,449        163        2.84
   Savings certificates and other...............         78,205        2,128           5.44       69,380      1,904        5.48
   Securities repurchase agreements.............         15,768          398           5.05          ---        ---         ---
   FHLB advance.................................            375            6           3.20          ---        ---         ---
                                                       --------      --------                   --------    -------      

     Total interest-bearing liabilities.........        159,436      $ 3,425           4.30%     134,270    $ 2,876        4.28%
                                                                     =======                                =======
Non interest-bearing liabilities................          1,577                                    1,051
                                                       --------                                 --------
     Total liabilities..........................        161,013                                  135,321
Stockholders' equity............................         43,049                                   47,022
                                                       --------                                 --------
     Total liabilities and stockholders' equity.       $204,062                                 $182,343
                                                       ========                                 ========
Net earning assets..............................        $41,938                                  $45,843
                                                        =======                                  =======
Net interest income.............................                     $ 3,300                                $ 3,278
                                                                     =======                                =======
Net interest rate spread........................                                       2.38%                               2.55%
                                                                                       ====                                ====
Net yield on average interest-earning assets(4).                                       3.28%                               3.64%
                                                                                       ====                                ====
Average interest-earning assets to average
 interest-bearing liabilities...................          1.26x                                    1.34x
                                                          ====                                     ====

</TABLE>
<PAGE>

<TABLE>
<CAPTION>

                                                                                        Three Months
                                                                                           Ended
                                                     -----------------------------------------------------------------------------
                                                                   December 31,                          December 31,
                                                     ----------------------------------------  -----------------------------------
                                                                      1998                                   1997
                                                     ----------------------------------------  -----------------------------------
                                                        Average                   Average      Average                 Average
                                                       Balance (1)  Interest     Yield/Rate   Balance(1)   Interest  Yield/Rate
                                                     -------------  ----------  ------------  ----------  ---------- -------------
                                                                             (Dollars in thousands)
<S>                                                 <C>           <C>           <C>          <C>         <C>           <C>
Interest-earning assets:
   Loans (2)....................................       $ 52,044      $ 1,032           7.93%    $ 46,549      $ 929        7.98%
   Mortgage-backed securities(3)................        119,061        1,879           6.31      116,139      1,858        6.40
   Other debt securities(3).....................         20,605          317           6.15       11,752        185        6.29
   Other interest-earning assets................         11,849          142           4.79        5,289         87        6.55
                                                       --------      -------                     -------    -------      
     Total interest-earning assets..............        203,559      $ 3,370           6.62%     179,729    $ 3,059        6.81%
                                                                     =======                                =======
Non interest-earning assets.....................         2,704                                     2,532
                                                       --------                                 --------
     Total assets...............................       $206,263                                 $182,261
                                                       ========                                 ========

Interest-bearing liabilities:
   Regular savings and club accounts............        $49,691        $ 345           2.78%     $52,808      $ 397        3.01%
   Money market and NOW accounts................         15,192          100           2.63       11,647         83        2.84
   Savings certificates and other...............         78,792        1,062           5.39       69,708        950        5.45
   Securities repurchase agreements.............         18,000          220           4.89          ---        ---         ---
   FHLB advance.................................            250            2           3.20          ---        ---         ---
                                                       --------      -------                     -------    -------      

     Total interest-bearing liabilities.........        161,925      $ 1,730           4.27%     134,163    $ 1,430        4.26%
                                                                     =======                                =======
Non interest-bearing liabilities................          1,426                                    1,113
                                                       --------                                 --------
     Total liabilities..........................        163,351                                  135,276
Stockholders' equity............................         42,912                                   46,985
                                                       --------                                 --------
     Total liabilities and stockholders' equity.       $206,263                                 $182,261
                                                       ========                                 ========
Net earning assets..............................        $41,634                                  $45,566
                                                       ========                                  =======
Net interest income.............................                     $ 1,640                                $ 1,629
                                                                     =======                                =======
Net interest rate spread........................                                       2.35%                               2.55%
                                                                                       ====                                ====
Net yield on average interest-earning assets(4).                                       3.22%                               3.63%
                                                                                       ====                                ====
Average interest-earning assets to average
 interest-bearing liabilities...................          1.26x                                    1.34x
                                                          ====                                     ====
<FN>

(1)  Average  balances are calculated  using  end-of-month  balances,  producing
     results which are not materially different from average daily balances.
(2)  Balances  are net of deferred  loan fees and loans in process.  Non-accrual
     loans are included in the balances.
(3)  Balances   represent   amortized   cost.   Yields   are  not  stated  on  a
     tax-equivalent  basis,  as  the  Company  does  not  invest  in  tax-exempt
     securities.
(4)  Represents net interest  income  divided by average total  interest-earning
     assets.
</FN>
</TABLE>


<PAGE>

Liquidity and Capital Resources

         The Bank's  primary  sources of funds are  depositor  accounts from its
market  area;   proceeds  from   principal  and  interest   payments  on  loans,
mortgage-backed  securities and other debt  securities;  and borrowings from the
Federal Home Loan Bank of New York ("FHLB") and other sources.  While maturities
and  scheduled  payments on loans and  securities  are a  predictable  source of
funds, deposit flows and loan and securities  prepayments are greatly influenced
by general interest rates, economic conditions and competition.

         The primary  investing  activities of the Bank are the  origination  of
mortgage  loans  and the  purchase  of  securities,  and its  primary  financing
activity is the attraction of depositor accounts.

         The Bank may  borrow  from the FHLB of New York  subject  to an overall
limitation of 25% of total assets or $52.9  million at December 31, 1998.  Funds
may be borrowed through a combination of FHLB advances and overnight  borrowings
under  a  $15.5  million  line  of  credit.  The  Bank  had no  such  borrowings
outstanding at December 31, 1998 and June 30, 1998.

         In January  1998,  the Company began to utilize  securities  repurchase
agreements as a funding source, in order to supplement retail deposit growth. At
December  31,  1998,  the  Company  had  borrowed a total of $23.0  million  and
invested the proceeds in  securities  and  overnight  deposits.  The Company may
engage in other repurchase agreements, from time to time, as conditions warrant.

         The Bank is required to  maintain a minimum  level of liquid  assets as
defined  by OTS  regulations,  based  upon a  percentage  of  liquid  assets  to
depositor  accounts and short-term  borrowings.  For the month of December 1998,
the Bank's  average  daily  total  liquidity  ratio was 30.0%,  compared  to the
minimum OTS requirement of 4.0%.

         The Bank's  most  liquid  assets are cash and cash  equivalents,  which
consist  of  interest-bearing  deposits  in  other  financial  institutions  and
short-term highly liquid investments with original maturities of less than three
months that are readily convertible to known amounts of cash. The level of these
assets is  dependent  on cash  flows from the Bank's  operating,  financing  and
investing  activities  during  any  given  period.  Cash  and  cash  equivalents
increased $11.8 million,  from $4.6 million at June 30, 1998 to $16.4 million at
December 31, 1998, in anticipation  of the completion of the Company's  Modified
Dutch Auction Tender Offer, which was funded on February 2, 1999.

         The Bank  anticipates  that it will have sufficient  funds available to
meet its current  commitments and other funding needs. At December 31, 1998, the
Bank had  commitments to originate loans of $4.9 million.  Savings  certificates
which are  scheduled  to mature in one year or less at December 31, 1998 totaled
$60.9 million.  Management believes that a significant portion of such depositor
accounts will remain with the Bank.

         At December  31,  1998,  the Bank's  capital  exceeded  each of the OTS
minimum  capital  requirements  and the  requirements  for  classification  as a
"well-capitalized"  institution.  The current minimum  regulatory  capital ratio
requirements are 1.5% for tangible  capital,  3.0% for Tier I (core) capital and
8.0% for total risk-based capital.  In order to be considered  well-capitalized,
an  institution  must  maintain a core capital  ratio of at least 5.0%; a Tier I
risk-based  capital ratio of at least 6.0%; and a total risk-based capital ratio
of at least 10.0%.  At December 31,  1998,  the Bank had both  tangible and core
capital of $41.4 million  (19.5% of total  adjusted  assets);  Tier I risk-based
capital  of $41.4  million  (73.3%  of total  risk-weighted  assets);  and total
risk-based capital of $42.1 million (74.6% of total risk-weighted assets).
<PAGE>

Impact of Year 2000 Issue

         Like other financial institutions,  the Company relies on computers for
the daily  conduct  of its  business,  all its  transaction  processing  and for
general  data  processing.  The "Year 2000 Issue" arose  because  many  existing
computer  programs  use only the last two digits to refer to a year.  Therefore,
these computer programs may not properly  recognize a year that begins with "20"
instead of the familiar "19",  causing the programs to fail or create  erroneous
results.

         The  Company  has  initiated   formal   communications   with  all  its
significant suppliers to determine the extent to which the Company is vulnerable
to those third  parties'  failure to  remediate  their own Year 2000 Issue.  The
Company's data processing is performed  almost entirely by a third party vendor.
At this time,  the vendor has asserted  that it is Year 2000  compliant  and the
Company,  in conjunction with other customers of this vendor,  has begun testing
the updated  system.  The testing of the  Company's  data  processing  vendor is
anticipated to be completed by early April 1999. The Company currently  believes
that, with  modifications to existing  software and conversions to new software,
the Year 2000 Issue will be mitigated  without causing a material adverse impact
on its operations.  However, if such modifications and conversions are not made,
or are not completed  timely,  the Year 2000 Issue could have a material adverse
impact on the operations of the Company.

         The Company  will  utilize  both  internal  and  external  resources to
reprogram,  or  replace,  and test all  software  for Year  2000  modifications.
Related  costs are  expensed  as  incurred,  except  for costs  incurred  in the
purchase of new  software or hardware,  which are  capitalized.  To date,  costs
incurred and expensed relate to the dedication of internal resources employed in
the  assessment  of  and  development  of the  Company's  Year  2000  compliance
remediation  plan, as well as the testing of the hardware and software  owned or
licensed for its personal  computers.  Costs  incurred to date are not material,
and  management  does  not  expect  that  additional  costs  to be  incurred  in
connection with the Year 2000 Issue will have a material impact on the Company's
financial  condition or results of operations.  Since  substantially  all of the
Company's  loans  are  residential  mortgages,  the  ability  of  the  Company's
borrowers to become Year 2000 compliant is not a significant concern.

         The estimated costs and timetable for the Year 2000  modifications  are
based on management's  best  estimates,  which were derived  utilizing  numerous
assumptions  of future events  including the continued  availability  of certain
resources,  third party modification plans and other factors. However, there can
be no guarantee  that these  estimates will be achieved and actual results could
differ  materially  from those  plans.  Specific  factors in respect of both the
Company and its suppliers  that might cause such material  differences  include,
but are not limited to, the availability  and cost of personnel  trained in this
field,  the ability to locate and correct all relevant  computer codes,  testing
complications and similar uncertainties.  In addition, there can be no guarantee
that the systems of other companies on which the Company's  systems rely will be
timely  converted,  or that a  failure  to  convert  by  another  company,  or a
conversion that is  incompatible  with the Company's  systems,  would not have a
material adverse effect on the Company.
<PAGE>

         The Company plans to complete the Year 2000 project not later than June
30,  1999.  Given the  near-term  timing of the test plan,  the  Company has not
developed  a  contingency  plan,  but  will  do so if  testing  results  are not
satisfactory.   Such  a  contingency  plan  could  entail  converting  all  data
processing  applications  to a third  party  vendor  who is  already  Year  2000
compliant.


Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         There have been no material changes in the Company's interest rate risk
position  since  June 30,  1998.  Other  types of market  risk,  such as foreign
currency exchange rate risk and commodity price risk, do not arise in the normal
course of the Company's business activities.


<PAGE>

                           PART II. OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

                  The Company is the defendant in a lawsuit  resulting  from the
         rejection of an  unsolicited  conditional  expression of interest.  For
         more information,  see Note 2 to the unaudited financial  statements in
         Part 1. From time to time,  the  Company is involved  as  plaintiff  or
         defendant in other legal  proceedings  arising in the normal  course of
         its  business.  While  the  ultimate  outcome  of these  various  legal
         proceedings  cannot be predicted with  certainty,  it is the opinion of
         management that the resolution of these legal actions should not have a
         material  effect on the  Company's  financial  condition  or results of
         operations.

Item 2.  CHANGES IN SECURITIES

         None

Item 3.  DEFAULTS UPON SENIOR SECURITIES

         None

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

a.       The annual meeting of stockholders was held on October 21, 1998

b.       The matters approved by stockholders at the annual meeting and
         the number of votes cast for,  against or withheld (as well as
         the number of  abstentions  and broker  non-votes)  as to each
         matter are set forth below:

         Election  of the  following  persons  to  serve  a three  year  term as
directors of the Company:

                                          FOR                    WITHHELD
   Eldorus Maynard                     2,639,206                  75,612
   Robert E. Flower                    2,639,203                  75,615

   Broker Non-Vote                       None

         Approval  of  the  adoption  of  the  Amended  and  Restated  Peekskill
Financial Corporation 1996 Stock Option and Incentive Plan:

                  For                                 2,443,502
                  Against                               114,305
                  Abstain                                15,165
                  Broker Non-Vote                       141,846

         Approval  of  the  adoption  of  the  Amended  and  Restated  Peekskill
Financial Corporation 1996 Recognition and Retention Plan:

                  For                                 2,428,822
                  Against                               131,835
                  Abstain                                12,315
                  Broker Non-Vote                       141,846

         Ratification  of the  appointment  of KPMG Peat Marwick LLP as auditors
for the Company for the fiscal year ending June 30, 1999:

                  For                                 2,683,800
                  Against                                27,475
                  Abstain                                 3,543

Item 5.  OTHER INFORMATION

         None

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

         a.       Exhibits:

                  27.  Financial Data Schedule

         b.       Reports on Form 8-K

                  None




<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.


                                            PEEKSKILL FINANCIAL CORPORATION
                                            (Registrant)


DATE:  February 15, 1999                    BY:    /s/ Eldorus Maynard
                                                   -------------------
                                                   Eldorus Maynard
                                                   Chairman of the Board and
                                                   Chief Executive Officer


DATE:  February 15, 1999                    BY:    /s/ William J. LaCalamito
                                                   -------------------------
                                                   William J. LaCalamito
                                                   President
                                                   (principal financial officer)