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 Quarterly Period Ended September 30, 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 October 30, 1998
             ------                                      -------------------
Common Stock, $0.01 par value                                 2,842,069



<PAGE>


                         Peekskill Financial Corporation

                                    Form 10-Q

                    Quarterly Period Ended September 30, 1998


                         Part I - Financial Information

ITEM 1 - FINANCIAL STATEMENTS  (Unaudited)                                  Page

     Condensed Consolidated Balance Sheets at September 30, 1998
         and June 30, 1998                                                     3

     Condensed Consolidated Statements of Income for the three
         months ended September 30, 1998 and 1997                              4

     Condensed Consolidated Statement of Changes in Stockholders'
         Equity for the three months ended September 30, 1998                  5

     Condensed Consolidated Statements of Cash Flows for the three
         months ended September 30, 1998 and 1997                              6

     Notes to Condensed Consolidated Interim Financial Statements              7

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF                     
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS                         8

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
         ABOUT MARKET RISK                                                    14

                           Part II - Other Information

Other Information                                                             15

Signatures                                                                    16



                                       2
<PAGE>


Part I. FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                             September 30, 1998    June 30, 1998
                                                             ------------------    -------------
<S>                                                               <C>               <C>      
Assets:
Cash and cash equivalents ................................        $   1,248         $   4,626
Securities:
  Held-to-maturity, at amortized cost (fair value of
     $128,772 at September 30, 1998 and $136,883
     at June 30, 1998) ...................................          126,997           135,446
  Available-for-sale, at fair value (amortized cost of
     $15,500 at September 30, 1998 and $8,500 at
     June 30, 1998) ......................................           15,606             8,498
                                                                  ---------         ---------
    Total securities .....................................          142,603           143,944
                                                                  ---------         ---------

Loans, net of allowance for loan losses of $697 at
     September 30, 1998 and $682 at June 30, 1998 ........           51,913            47,631
Federal Home Loan Bank stock .............................            1,463             1,463
Accrued interest receivable ..............................              995             1,050
Real estate owned ........................................               94                94
Deferred income taxes, net ...............................              349               362
Other assets .............................................            1,233             1,171
                                                                  ---------         ---------
  Total assets ...........................................        $ 199,898         $ 200,341
                                                                  =========         =========

Liabilities and Stockholders' Equity:
Liabilities:
  Depositor accounts .....................................        $ 140,466         $ 139,858
  Securities repurchase agreements .......................           13,000            13,000
  FHLB advance ...........................................            1,000                --
  Mortgage escrow deposits ...............................            1,102             1,759
  Other liabilities ......................................            1,333             2,518
                                                                  ---------         ---------
    Total liabilities ....................................          156,901           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 ...............................           40,221            40,181
Unallocated common stock held by employee stock
  ownership plan ("ESOP") ................................           (2,829)           (2,870)
Unamortized awards of common stock under recognition
  and retention plan ("RRP") .............................             (918)             (922)
Treasury stock, at cost (1,239,681 shares at September 30,
  1998 and 1,204,181 shares at June 30, 1998) ............          (18,312)          (17,730)
Retained earnings ........................................           24,731            24,508
Net unrealized gain (loss) on available-for-sale
securities, net of taxes .................................               63                (2)
                                                                  ---------         ---------

 Total stockholders' equity ..............................           42,997            43,206
                                                                  ---------         ---------

   Total liabilities and stockholders' equity ............        $ 199,898         $ 200,341
                                                                  =========         =========
</TABLE>

See accompanying  notes to unaudited  condensed  consolidated  interim financial
statements.


                                       3
<PAGE>


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

                                                          For the Three Months
                                                           Ended September 30,
                                                          1998             1997
                                                         ------           ------
Interest and dividend income:
 Loans .......................................           $  990           $  918
 Securities ..................................            2,289            2,087
 Interest-bearing deposits and other .........               76               90
                                                         ------           ------
  Total interest and dividend income .........            3,355            3,095
                                                         ------           ------

Interest expense:
 Depositor accounts ..........................            1,513            1,446
 Securities repurchase agreements ............              178               --
 FHLB advance ................................                4               --
                                                         ------           ------
  Total interest expense .....................            1,695            1,446
                                                         ------           ------

  Net interest income ........................            1,660            1,649

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

  Net interest income after provision
   for loan losses ...........................            1,645            1,634
                                                         ------           ------

Non-interest income ..........................               63               57
                                                         ------           ------

Non-interest expense:
  Compensation and benefits ..................              455              450
  Occupancy costs ............................              112               92
  Professional fees ..........................               38               33
  Computer service fees ......................               52               43
  Federal deposit insurance costs ............               36               36
  Safekeeping and custodial expenses .........               29               24
  Other ......................................              163              148
                                                         ------           ------
    Total non-interest expense ...............              885              826
                                                         ------           ------

   Income before income tax expense ..........              823              865
Income tax expense ...........................              367              370
                                                         ------           ------

  Net income .................................           $  456           $  495
                                                         ======           ======

Earnings per share (Note 3):
  Basic ......................................           $ 0.18           $ 0.18
  Diluted ....................................             0.18             0.17




See accompanying  notes to unaudited  condensed  consolidated  interim financial
statements.


                                       4
<PAGE>



                 Peekskill Financial Corporation and Subsidiary
       Condensed Consolidated Statement of Changes in Stockholders' Equity
                                   (Unaudited)
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                          Unallocated   Unamortized
                                                                                                              Net
                                                              Common    Awards of                          Unrealized
                                                 Additional   Stock      Common                            Gain (Loss)    Total
                                        Common    Paid-in      Held       Stock     Treasury    Retained       On      Stockholders'
                                        Stock     Capital     By ESOP   Under RRP     Stock     Earnings   Securities     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 .......................        --         --         --          --          --         456          --         456
   Dividends paid ($0.09 per share) .        --         --         --          --          --        (233)         --        (233)
   Amortization of RRP awards .......        --         --         --          48          --          --          --          48
   RRP award (2,500 treasury shares)         --         14         --         (44)         30          --          --          --
   Purchase of 38,000 treasury
      shares ........................        --         --         --          --        (612)         --          --        (612)
   ESOP shares committed to be
      released (4,100 shares) .......        --         26         41          --          --          --          --          67
   Change in net unrealized gain
        (loss) on available-for-sale
        securities, net of taxes ....        --         --         --          --          --          --          65          65
                                       --------   --------   --------    --------    --------    --------    --------    --------

Balance at September 30, 1998 .......  $     41   $ 40,221   $ (2,829)   $   (918)   $(18,312)   $ 24,731    $     63    $ 42,997
                                       ========   ========   ========    ========    ========    ========    ========    ========
</TABLE>











See accompanying  notes to unaudited  condensed  consolidated  interim financial
statements.



                                       5
<PAGE>


                 Peekskill Financial Corporation and Subsidiary
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)
                                 (In thousands)
<TABLE>
<CAPTION>
                                                             For the Three Months Ended
                                                                    September 31,
                                                                  1998        1997 
                                                                --------    --------
<S>                                                             <C>         <C>     
Cash flows from operating activities:
  Net income ................................................   $    456    $    495
  Adjustments to reconcile net income to net cash provided
    by operating activities:
    Provision for loan losses ...............................         15          15
    Depreciation and amortization expense ...................         24          22
    ESOP and RRP expense ....................................        115         118
    Net amortization and accretion of deferred fees,
       discounts and premiums ...............................        (59)        (45)
    Net decrease in accrued interest receivable .............         55         134
    Net (increase) decrease in other assets .................        (66)         14
    Deferred tax expense ....................................         13           2
    Net increase in other liabilities .......................        166         177
                                                                --------    --------
      Net cash provided by operating activities .............        719         932
                                                                --------    --------

Cash flows from investing activities:
  Purchases of securities:
    Held-to-maturity ........................................     (7,436)     (5,014)
    Available-for-sale ......................................     (9,992)     (2,000)
  Proceeds from principal payments, maturities and calls of
   securities:
    Held-to-maturity ........................................     15,893       8,999
    Available-for-sale ......................................      3,000       1,000
  Originations of loans, net of principal collections .......     (4,297)     (1,052)
  Purchases of office properties and equipment ..............        (20)       (391)
                                                                --------    --------
     Net cash (used in) provided by investing activities ....     (2,852)      1,542
                                                                --------    --------

Cash flows from financing activities:
  Net increase (decrease) in depositor accounts .............        608        (556)
  Net decrease in mortgage escrow deposits ..................       (658)       (771)
  Proceeds from Federal Home Loan Bank advance ..............      1,000          --
  Treasury stock purchases ..................................     (1,962)         --
  Dividends paid ............................................       (233)       (287)
                                                                --------    --------
     Net cash used in financing activities ..................     (1,245)     (1,614)
                                                                --------    --------

Net (decrease) increase in cash and cash equivalents ........     (3,378)        860
Cash and cash equivalents at beginning of period ............      4,626       4,158
                                                                --------    --------
Cash and cash equivalents at end of period ..................   $  1,248    $  5,018
                                                                ========    ========

Supplemental information:
  Interest paid .............................................   $  1,697    $  1,442
  Income taxes paid .........................................        318         263
  Decrease in liability for securities purchased,              
     not yet settled ........................................         --         499
  Decrease in liability for treasury stock purchased, not yet
     settled ................................................      1,350          -- 
                                                                ========    ========
</TABLE>


See accompanying  notes to unaudited  condensed  consolidated  interim financial
statements.


                                       6
<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
three months ended September 30, 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 September 30, 1998, the Holding Company purchased
38,000 shares for treasury at a cost of $612,000,  or $16.10 per share. From the
date of Conversion  through September 30, 1998, the Holding Company purchased an
aggregate of 1,239,681 shares for treasury.  The Holding Company purchased these
shares, in open market transactions,  at a total cost of $18.3 million or $14.77
per share.

     On June 11, 1998,  the Holding  Company  received  approval from the OTS to
repurchase up to 5% of its outstanding  common stock,  or 148,528 shares.  As of
October 31, 1998, the Holding  Company had repurchased  131,000 shares,  leaving
17,528 shares available to be purchased through December 29, 1998.



                                       7
<PAGE>

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.

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

                                                          For the Three Months
                                                          Ended September 30,
                                                            1998      1997
                                                            -----     -----
                                                             (In thousands)

     Weighted average common shares outstanding
        for computation of basic EPS (1)                    2,516     2,791

     Common-equivalent shares due to the dilutive
        effect of stock options and RRP awards (2)             86        95
                                                            -----     -----

     Weighted average common shares for
        computation of diluted EPS                          2,602     2,886
                                                            =====     =====

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

(2)  Computed using the treasury stock method.


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 September  30,  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.



                                       8
<PAGE>

     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 March 31, 1998 and June 30, 1997

     Total assets at September 30, 1998 were $199.9  million  compared to $200.3
million  at June 30,  1998,  a  decrease  of  $443,000.  This  decrease  was due
primarily to a $3.4 million  decrease in cash and cash  equivalents,  and a $1.3
million  decrease  in  total  securities,  partially  offset  by a $4.3  million
increase in total loans.  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 $86,000, or 5.4%, from $1.6 million
at June 30, 1998 to $1.5 million at September  30, 1998.  At September 30, 1998,
the Company  held an  $868,000  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 $12,000  received in the current
quarter were recognized as income on a cash basis. However, the dispute over the
suspended  payments  has not been  resolved,  and the TASCO Loans of $868,000 at
September  30, 1998 and $876,000 at June 30, 1998 are included in the  Company's
total non-performing loans.

     The Bank had two loans,  with  principal  balances  totaling  $245,000,  on
non-accrual  status at September 30, 1998 and June 30, 1998.  One-to-four family
mortgage  loans past due more than 90 days but still accruing  interest  totaled
$292,000 at September 30, 1998  compared to $370,000 at June 30, 1998.  The Bank
had one  property  classified  as real  estate  owned with a  carrying  value of
$94,000 at September 30, 1998 and June 30, 1998. The Bank has subsequently  sold
the property for $94,000,  the same amount as the carrying value.  The allowance
for loan losses was $697,000 or 49.6% of  non-performing  loans at September 30,



                                       9
<PAGE>

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 three months ended September
30, 1998.

     Stockholders' equity decreased $209,000 from $43.2 million at June 30, 1998
to $43.0 million at September 30, 1998. The decrease primarily reflects treasury
stock purchases of $612,000 and dividends paid of $233,000,  partially offset by
net income of $456,000 and a $65,000 increase attributable to the net unrealized
gain on securities.  Book value per share  increased from $14.92 at June 30,1998
to $15.03 at September 30, 1998.

Comparison  of Operating  Results for the Three Months Ended  September 30, 1998
and 1997

     Net income  decreased  $39,000  to  $456,000,  or $0.18 per share,  for the
quarter ended September 30, 1998,  compared to net income of $495,000,  or $0.18
per share,  for the same period last year.  Diluted  earnings per share  amounts
were  $0.18  and $0.17  for the  quarters  ended  September  30,  1998 and 1997,
respectively.  The decrease is primarily  attributable to a $249,000 increase in
interest  expense and a $59,000  increase  in  non-interest  expense,  partially
offset by a $260,000 increase in interest and dividend income.

     Net interest income  increased  $11,000 in the current quarter  compared to
the quarter ended  September 30, 1997.  Interest and dividend  income  increased
$260,000 to $3.4 million for the quarter  ended  September  30, 1998 compared to
the quarter  ended  September 30, 1997.  The increase was caused  primarily by a
$17.9 million increase in average interest-earning assets, partially offset by a
10  basis  point  decrease  in the  average  yield on  interest-earning  assets.
Interest  expense  increased  $249,000 to $1.7  million  for the  quarter  ended
September 30, 1998 compared to the same quarter last year. This increase was due
primarily to a $21.6 million increase in average interest-bearing liabilities.

     The provision for loan losses was $15,000 for the quarters ended  September
30,  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 $59,000 for the quarter ended September 30,
1998 compared to the prior year quarter.  The increase was caused primarily by a
$20,000  increase in occupancy  costs due to the  construction of a new building
for the Bank's Mohegan Lake branch,  a $9,000 increase in computer  service fees
and a $15,000 increase in other operating expenses.

     Income tax expense  for the  quarter  ended  September  30, 1998  decreased
$3,000  compared to the same period  last year,  primarily  due to a decrease in
pre-tax  income.  The  effective tax rates were 44.6% and 42.8% for the quarters
ended September 30, 1998 and 1997, respectively.



                                       10
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                      Three Months Ended
                                                      ------------------------------------------------------------------------------
                                                                 September 30,  1998                   September 30, 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) .....................................     $ 49,722      $    990       7.97%        $ 45,810     $    918         8.02%
   Mortgage-backed securities(3) .................      127,202         2,035       6.40          115,978        1,882         6.49
   Other debt securities(3) ......................       16,854           254       6.02           12,218          205         6.71
   Other interest-earning assets .................        4,347            76       7.00            6,218           90         5.79
                                                       --------      --------                    --------     --------         
     Total interest-earning assets ...............      198,125      $  3,355       6.77%         180,224     $  3,095         6.87%
                                                                     ========                                 ========
Non interest-earning assets ......................        2,678                                     1,895
                                                       --------                                  --------
     Total assets ................................     $200,803                                  $182,119
                                                       ========                                  ========
Interest-bearing liabilities:                                                                 
   Regular savings and club accounts .............     $ 50,933      $    354       2.78%        $ 54,382     $    412         3.03%
   Money market and NOW accounts .................       14,178            94       2.64           11,219           80         2.85
   Savings certificates and other ................       77,370         1,065       5.51           68,733          954         5.55
   Securities repurchase agreements ..............       13,000           178       5.49               --           --           --
   FHLB advance ..................................          500             4       3.20               --           --           --
                                                       --------      --------                    --------     --------         
     Total interest-bearing liabilities ..........      155,981      $  1,695       4.35%         134,334     $  1,446         4.31%
                                                                     ========                                 ========
Non interest-bearing liabilities .................        1,665                                       657
                                                       --------                                  --------
     Total liabilities ...........................      157,646                                   134,991
Stockholders' equity .............................       43,157                                    47,128
                                                       --------                                  --------
     Total liabilities and stockholders' equity ..     $200,803                                  $182,119
                                                       ========                                  ========
Net earning assets ...............................     $ 42,144                                  $ 45,890
                                                       ========                                  ========
Net interest income ..............................                   $  1,660                                 $  1,649
                                                                     ========                                 ========
Net interest rate spread .........................                                  2.42%                                      2.56%
                                                                                    ====                                       ==== 
Net yield on average interest-earning assets(4) ..                                  3.35%                                      3.66%
                                                                                    ====                                       ==== 
Average interest-earning assets to average                                                    
 interest-bearing liabilities ....................         1.27x                                     1.34x
                                                           ====                                      ==== 
</TABLE>       


(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.


                                       11
<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 $49.8 million at September 30, 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  $1.0  million  of such
borrowings outstanding at September 30, 1998 and none at 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.
The Company has  borrowed a total of $13.0  million and invested the proceeds in
securities. 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 September 1998,
the Bank's  average  daily  total  liquidity  ratio was 31.2%,  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  decreased $3.4
million,  from $4.6 million at June 30, 1998 to $1.2  million at  September  30,
1998.

     The Bank  anticipates  that it will have sufficient funds available to meet
its current commitments and other funding needs. At September 30, 1998, the Bank
had commitments to originate loans of $4.5 million.  Savings  certificates which
are  scheduled to mature in one year or less at September 30, 1998 totaled $58.6
million.  Management  believes  that a  significant  portion  of such  depositor
accounts will remain with the Bank.

     At September 30, 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


                                       12
<PAGE>

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 September 30, 1998, the
Bank had both  tangible  and core  capital  of  $42.4  million  (21.3%  of total
adjusted  assets);  Tier I risk-based  capital of $42.4 million  (83.2% of total
risk-weighted  assets);  and total risk-based capital of $43.1 million (84.5% of
total risk-weighted assets).

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 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


                                       13
<PAGE>

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.

     The Company  plans to complete  the Year 2000  project not later than March
31,  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.


                                       14
<PAGE>

                           PART II. OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

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

          None


Item 5.  OTHER INFORMATION

         None

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

          a.   Exhibits:

               3.   Amended and Restated Bylaws

               27.  Financial Data Schedule

          b.   Reports on Form 8-K

               None


                                       15
<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:  November 13, 1998            BY:      /s/ Eldorus Maynard
                                             ---------------------------
                                             Eldorus Maynard
                                             Chairman of the Board and
                                             Chief Executive Officer


DATE:  November 13, 1998            BY:      /s/ William J. LaCalamito
                                             ---------------------------
                                             William J. LaCalamito
                                             President
                                             (principal financial officer)



                                       16