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 March 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 April 30, 1998
                 ------                       -----------------
       Common Stock, $.01 par value                3,016,790

<PAGE>

                         Peekskill Financial Corporation

                                   Form 10-Q

                     Quarterly Period Ended March 31, 1998

                         Part I - Financial Information

                                                                            Page
                                                                            ----
ITEM 1 - FINANCIAL STATEMENTS (Unaudited)

Condensed Consolidated Balance Sheets at March 31, 1998
    and June 30, 1997 .....................................................    3

Condensed Consolidated Statements of Income for the three and nine
    months ended March 31, 1998 and 1997 ..................................    4

Condensed Consolidated Statement of Changes in Stockholders'
    Equity for the nine months ended March 31, 1998 .......................    5

Condensed Consolidated Statements of Cash Flows for the nine
    months ended March 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 ................................................   15

                           Part II - Other Information

Other Information .........................................................   16

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


Explanatory   Note:  This  Quarterly   Report  on  Form  10-Q  contains  certain
forward-looking statements consisting of estimates with respect to the financial
condition, results of operations and business of the Company that are subject to
various factors which could cause actual results to differ materially from these
estimates.  These factors include changes in general,  economic and market,  and
legislative and regulatory  conditions,  and the development of an interest rate
environment  that  adversely  affects the  interest  rate spread or other income
anticipated from the Company's operations and investments.

                                       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)


                                               March 31,    June 30,
                                                1998          1997
                                                ----          ----
Assets:
Cash and cash equivalents .................   $   2,980    $   4,158
Securities:
  Held-to-maturity, at amortized cost
    (fair value of $133,764 at March 31,
    1998 and $127,348 at June 30, 1997) ...     132,199      126,450
  Available-for-sale, at fair value
    (amortized cost of $9,500 at March 31,
    1998 and $2,999 at June 30, 1997) .....       9,475        2,983
                                                -------      -------
    Total securities ......................     141,674      129,433
                                                -------      -------

Loans, net of allowance for loan losses
     of $667 at March 31, 1998 and $622
     at June 30, 1997 .....................      47,171       45,507
Federal Home Loan Bank stock ..............       1,463        1,463
Accrued interest receivable ...............         954        1,064
Real estate owned .........................         153          220
Deferred income taxes, net ................         343          304
Other assets ..............................       1,109          411
                                                -------      -------
  Total assets ............................   $ 195,847    $ 182,560
                                                =======      =======

Liabilities and Stockholders' Equity:
Liabilities:
  Depositor accounts ......................   $ 137,538    $ 132,418
  Securities repurchase agreement .........      10,000           --
  Mortgage escrow deposits ................       1,993        1,943
  Other liabilities .......................       1,317        1,233
                                                -------      -------
    Total liabilities .....................     150,848      135,594
                                                -------      -------

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 ................      40,151       40,032
Unallocated common stock held by employee
  stock ownership plan ("ESOP") ...........      (2,911)      (3,034)
Unamortized awards of common stock under
  recognition and retention plan ("RRP") ..        (970)      (1,188)
Treasury stock, at cost (1,082,960 shares
  at March 31, 1998 and 906,629 shares at
  June 30, 1997) ..........................     (15,587)     (12,543)
Retained earnings, substantially restricted      24,290       23,668
Net unrealized loss on available-for-sale
  securities, net of taxes ................         (15)         (10)
                                                -------       ------
   Total stockholders' equity .............      44,999       46,966
                                                -------       ------

   Total liabilities and stockholders'
     equity ...............................   $ 195,847    $ 182,560
                                                =======      =======


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)
<TABLE>
<CAPTION>

                                                  For the Three Months                  For the Nine Months
                                                     Ended March 31,                       Ended March 31,
                                                ------------------------            -------------------------
                                                  1998             1997               1998              1997
                                                  ----             ----               ----              ----
Interest and dividend income:
<S>                                              <C>               <C>               <C>               <C>   
 Loans ......................................    $  938            $  869            $2,785            $2,513
 Securities .................................     2,188             2,066             6,318             6,175
 Interest-bearing deposits and other ........        94               110               271               534
                                                 ------            ------            ------            ------
  Total interest and dividend income ........     3,220             3,045             9,374             9,222
                                                 ------            ------            ------            ------
Interest expense:
 Depositor accounts .........................     1,438             1,361             4,314             4,022
 Securities repurchase agreement ............       102                --               102                --
                                                 ------            ------            ------            ------
  Total interest expense ....................     1,540             1,361             4,416             4,022
                                                 ------            ------            ------            ------

  Net interest income .......................     1,680             1,684             4,958             5,200

Provision for loan losses ...................        15                15                45               128
                                                 ------            ------            ------            ------

  Net interest income after
provision for loan losses ...................     1,665             1,669             4,913             5,072
                                                 ------            ------            ------            ------

Non-interest income .........................        54                52               166               176
                                                 ------            ------            ------            ------

Non-interest expense:
  Compensation and benefits .................       527               430             1,428             1,289
  Federal deposit insurance:
    Regular premiums ........................        36                36               108               201
    Special assessment ......................        --                --                --               884
  Occupancy costs ...........................       115                91               316               257
  Professional fees .........................        39                50               122               162
  Computer service fees .....................        46                45               134               137
  Safekeeping and custodial expenses ........        19                25                68                72
  Other .....................................       154               135               438               376
                                                 ------            ------            ------            ------
    Total non-interest expense ..............       936               812             2,614             3,378
                                                 ------            ------            ------            ------

Income before income tax expense ............       783               909             2,465             1,870

Income tax expense ..........................       346               385             1,072               571
                                                 ------            ------            ------            ------

  Net income ................................    $  437            $  524            $1,393            $1,299
                                                 ======            ======            ======            ======

Earnings per share (Note 3):
  Basic .....................................    $ 0.16            $ 0.18            $ 0.51            $ 0.40
  Diluted ...................................      0.16              0.18              0.49              0.40
</TABLE>

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
                                                          Common       Awards of                             Net
                                             Additional    Stock        Common                            Unrealized     Total
                                     Common    Paid-in      Held         Stock      Treasury    Retained    Loss 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, 1997 .........  $     41   $ 40,032   $ (3,034)   $ (1,188)   $(12,543)   $ 23,668    $    (10)   $ 46,966
   Net income ....................        --         --         --          --          --       1,393          --       1,393
   Dividends paid ($0.27 per
   share) ........................        --         --         --          --          --        (771)         --        (771)
   Amortization of RRP awards ....        --         --         --         218          --          --          --         218
   Tax benefit from vesting of
   RRP shares ....................        --         36         --          --          --          --          --          36
   Purchase of 176,331 treasury
      shares .....................        --         --         --          --      (3,044)         --          --      (3,044)
   ESOP shares committed to be
      released (12,300 shares) ...        --         83        123          --          --          --          --         206
   Increase in net unrealized
      loss on available-for-sale
      securities, net of taxes ...        --         --         --          --          --          --          (5)         (5)
                                    --------   --------   --------    --------    --------    --------    --------    --------
Balance at March 31, 1998 ........  $     41   $ 40,151   $ (2,911)   $   (970)   $(15,587)   $ 24,290    $    (15)   $ 44,999
                                    ========   ========   ========    ========    ========    ========    ========    ========
</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)

                                                       For the Nine Months Ended
                                                                 March 31,
                                                       -------------------------
                                                            1998          1997
                                                            ----          ----
Cash flows from operating activities:
  Net income .........................................    $  1,393     $  1,299
  Adjustments to reconcile net income
    to net cash provided by operating activities:
    Provision for loan losses ........................          45          128
    Depreciation and amortization expense ............          72           54
    ESOP and RRP expense .............................         424          335
    Net amortization and accretion of
     deferred fees, discounts and premiums ...........         (52)        (117)
    Net decrease in accrued interest receivable ......         110          125
    Net decrease in other assets .....................          41            5
    Deferred tax benefit .............................         (39)        (367)
    Net increase in other liabilities ................         583          376
                                                          --------     --------
      Net cash provided by operating activities ......       2,577        1,838
                                                          --------     --------

Cash flows from investing activities:
  Purchases of securities:
    Held-to-maturity .................................     (35,483)     (14,900)
    Available-for-sale ...............................     (11,600)        (500)
  Proceeds from principal payments,
   maturities and calls of securities:
    Held-to-maturity .................................      29,826       14,649
    Available-for-sale ...............................       4,600           --
  Originations of loans, net of principal
    collections ......................................      (1,862)      (4,805)
  Purchase of Federal Home Loan Bank stock ...........          --         (144)
  Proceeds from sale of real estate owned ............         220           --
  Purchases of office properties and
    equipment ........................................        (811)         (35)
                                                          --------     --------
     Net cash used in investing activities ...........     (15,110)      (5,735)
                                                          --------     --------

Cash flows from financing activities:
  Net increase in depositor accounts .................       5,120        4,414
  Proceeds from securities repurchase
    agreement ........................................      10,000           --
  Net increase in mortgage escrow deposits ...........          50          119
  Repayment of Federal Home Loan Bank
    advance ..........................................          --         (500)
  Treasury stock purchases ...........................      (3,044)     (12,377)
  Purchase of shares to fund current-year
    RRP awards .......................................          --
                                                                         (1,430)
  Dividends paid .....................................        (771)        (897)
                                                          --------     --------
     Net cash provided by (used in)
    financing activities .............................      11,355      (10,671)
                                                          --------     --------

Net decrease in cash and cash equivalents ............      (1,178)     (14,568)
Cash and cash equivalents at beginning
   of period .........................................       4,158       17,320
                                                          --------     --------
Cash and cash equivalents at end of period ...........    $  2,980     $  2,752
                                                          ========     ========

Supplemental information:
  Interest paid ......................................    $  4,310     $  4,054
  Income taxes paid ..................................         740          338
  Decrease in liability for securities
    purchased, not yet settled .......................         499           --
  Loans transferred to real estate owned .............         153          220
  Reclassification of RRP shares to
    treasury stock ...................................          --           30


     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, 1997 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
nine months ended March 31, 1998 are not necessarily  indicative of results that
may be expected for the entire year ending June 30, 1998.


NOTE 2. Stockholders' Equity

         Concurrent  with the  Conversion,  on  December  29,  1995 the  Holding
Company  sold  4,099,750  shares  of its  common  stock  in a  subscription  and
community  offering  at a price of $10 per share,  for gross  proceeds  of $41.0
million.  The Holding  Company used $20.5 million of the proceeds to acquire all
of the common stock issued by the Bank in the Conversion. The remaining proceeds
were retained by the Holding Company. In accordance with the Plan of Conversion,
the  Holding  Company  and the Bank  shared  the costs of the  Conversion  which
totaled $1.0 million.  On a consolidated  basis, the net offering  proceeds were
$40.0 million  which  resulted in an increase in  stockholders'  equity of $36.7
million after  deducting  shares  purchased by the employee stock ownership plan
("ESOP").

         From the date of  Conversion  through  December 31,  1997,  the Company
received approvals from the Office of Thrift Supervision  ("OTS") to purchase an
aggregate of 926,135 shares for

                                       7
<PAGE>


treasury.   The  Holding  Company   purchased  these  shares,   in  open  market
transactions, at a total cost of $13.1 million or $14.21 per share.

         On January 12,  1998,  the Company  received  approval  from the OTS to
repurchase up to 5% of its outstanding  common stock,  or 156,346 shares.  As of
March 31, 1998,  the Company had  repurchased  110,125  shares at a cost of $1.9
million.

         On July 16,  1996,  the Company  purchased  4% (163,990  shares) of its
outstanding  common  stock  for the  purpose  of  funding  its  recognition  and
retention  plan ("RRP") for $2.0 million.  Of the 163,990  shares,  117,290 have
been awarded to employees and directors, and accordingly,  unearned compensation
of $1.4  million  was  initially  recorded  (as a deduction  from  stockholders'
equity) with respect to the shares awarded.  In the future, the remaining 46,700
shares (which are presently  included in treasury  stock) can be used for awards
of additional RRP shares to employees or directors.


Note 3. Earnings Per Share

         During the  quarter  ended  December  31,  1997,  the  Company  adopted
Statement of Financial  Accounting  Standards  ("SFAS") No. 128,  "Earnings  per
Share,"  which  requires  presentation  of both basic EPS and diluted EPS by all
entities with complex  capital  structures.  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  which  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.
SFAS No. 128 requires the restatement of all prior period EPS data to conform to
the new requirements.




                                       8

<PAGE>


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


<TABLE>
<CAPTION>

                                                   For the Three Months           For the Nine Months
                                                      Ended March 31,                Ended March 31,
                                                  ----------------------          ---------------------
                                                     1998           1997           1998            1997
                                                     ----           ----           ----            ----
                                                                       (In thousands)
<S>                                                <C>             <C>            <C>             <C>
Weighted average common shares outstanding
   for computation of basic EPS (1) ..............   2,667          2,840          2,745           3,210

Common-equivalent shares due to the dilutive
   effect of stock options and RRP awards (2) ....     103             79            110              45
                                                     ----            ----           ----            ----

Weighted average common shares for
   computation of diluted EPS ....................   2,770          2,919          2,855           3,255
                                                     =====          =====          =====           =====
</TABLE>

 ---------------

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

(2)  Computed using the treasury stock method.

                                       9

<PAGE>


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

Comparison of Financial Condition at March 31, 1998 and June 30, 1997

         Total assets at March 31, 1998 were $195.8  million  compared to $182.6
million at June 30, 1997,  an increase of $13.2  million.  This increase was due
primarily to the Company  borrowing $10.0 million under a securities  repurchase
agreement and a $5.1 million increase in depositor accounts, partially offset by
a $2.0  million  decrease in  stockholders'  equity.  Net loans  increased  $1.7
million,  or 3.7%,  during  the nine  months  ended  March 31,  1998,  primarily
reflecting originations of one-to-four family mortgage 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  $480,000,  or 21.6%, from $2.2
million at June 30, 1997 to $1.7 million at March 31,  1998.  At March 31, 1998,
the  Company  held a $932,000  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.  Although the FDIC resumed
making  certain  principal  and interest  payments in the quarter ended June 30,
1997,  the matter has not been  resolved  and the TASCO  Loans have  remained on
non-accrual  status.  Interest payments on the TASCO Loans totaling $64,000 have
been deferred through March 31, 1998. The Bank had three additional  loans, with
principal balances totaling  $338,000,  on non- accrual status at March 31, 1998
(none at June 30, 1997). One-to-four family mortgage loans past due more than 90
days but still accruing  interest totaled $321,000 at March 31, 1998 compared to
$930,000 at June 30, 1997.  The  allowance for loan losses was $667,000 or 41.9%
of  non-performing  loans at March 31,  1998,  compared  to $622,000 or 31.0% of
non-performing  loans  at June  30,  1997.  There  were no loan  charge-offs  or
recoveries in the nine months ended March 31, 1998.

         Stockholders'  equity decreased $2.0 million from $47.0 million at June
30, 1997 to $45.0  million at March 31, 1998.  The decrease  primarily  reflects
treasury  stock  purchases  of $3.0  million  and  dividends  paid of  $771,000,
partially  offset  by net  income  of $1.4  million.  Stockholders'  equity as a
percent of total assets  decreased to 23.0% at March 31, 1998 from 25.7% at June
30, 1997.  Book value per share  increased from $14.71 at June 30,1997 to $14.92
at March 31, 1998.

                                       10

<PAGE>


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

         Net income for the quarter ended March 31, 1998 was $437,000,  or $0.16
per share,  compared  to net  income of  $524,000,  or $0.18 per share,  for the
comparable  period  last  year.  Diluted  earnings  per share  were $0.16 in the
current  quarter  compared to $0.18 in the quarter  ended  March 31,  1997.  Net
income for the three  months  ended  March 31,  1998 was  affected by a $124,000
increase  in  non-interest  expenses,  including a charge to earnings of $64,000
($37,000  net of  taxes)  for the full  vesting  of  certain  shares,  under the
Company's RRP, due to the death of a Director.

         Net interest  income for the quarters ended March 31, 1998 and 1997 was
$1.7 million. Interest income increased $175,000 to $3.2 million for the quarter
ended March 31, 1998 compared to the quarter ended March 31, 1997.  The increase
was caused  primarily  by a $9.2  million  increase in average  interest-earning
assets.  Interest  expense  increased  $179,000 to $1.5  million for the quarter
ended  March 31,  1998 versus the  comparable  quarter in the prior  year.  This
increase   was  due   primarily   to  a  $13.6   million   increase  in  average
interest-bearing  liabilities and an 11 basis point increase in the average rate
paid on interest-bearing liabilities.

         The provision for loan losses was $15,000 for the quarters  ended March
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  $124,000 to $936,000  for the quarter
ended March 31, 1998  compared to $812,000  for the same period a year ago.  The
increase was caused  primarily by the $64,000  charge to earnings for vested RRP
shares,  as explained  above; a $24,000  increase in occupancy  costs due to the
construction of a new building for the Bank's Mohegan Lake branch; and a $29,000
increase in other non-interest expense.

         Income tax expense decreased  $39,000,  or 10.1%, for the quarter ended
March 31, 1998 as compared to the quarter ended March 31, 1997.  The decrease is
due primarily to a decrease of $126,000, or 13.9%, in pre-tax income.

Comparison  of  Operating  Results for the Nine Months  Ended March 31, 1998 and
1997

         Net income for the nine months  ended March 31, 1998 was $1.4  million,
or $0.51 per share,  compared to $1.3 million,  or $0.40 per share, for the same
period  in the  prior  year.  Diluted  earnings  per  share  were  $0.49  in the
current-year  period compared to $0.40 for the nine months ended March 31, 1997.
Excluding the $64,000  charge  explained  above,  net income for the nine months
ended March 31, 1998 would have been $1.4 million,  or $0.52 basic  earnings per
share.  Net income for the nine months  ended  March 31, 1997 was  affected by a
one-time charge to earnings for a Federal deposit insurance  special  assessment
of $884,000  ($520,000 after taxes) and a credit to earnings for the recognition
of a $238,000 reduction to New York State tax expense, net of Federal taxes, due
to a change  in the New


                                       11
<PAGE>


York State tax law.  Excluding these one-time  events  recognized in the quarter
ended  September  30, 1996,  net income for the nine months ended March 31, 1997
would have been $1.6 million, or $0.49 basic earnings per share.

         Net interest  income for the nine months ended March 31, 1998 decreased
$242,000  compared to the nine months  ended March 31,  1997.  The  decrease was
caused  primarily  by an $8.9  million  decrease in average net earning  assets,
principally  due to purchases of the Company's  stock.  The average rate paid on
interest-bearing  liabilities increased 13 basis points to 4.25% from 4.12%. The
increase was primarily caused by shifts in the mix of interest-bearing  deposits
from  generally  lower rate regular  savings  accounts to generally  higher rate
savings  certificates,  and the Company  entering  into a securities  repurchase
agreement for $10.0 million.  Foregone interest income and other adjustments due
to the  non-accrual  status of the Bank's loans amounted to $64,000 for the nine
months  ended March 31,  1998,  compared to $119,000  for the nine months  ended
March 31, 1997.

         The provision  for loan losses was $45,000 and $128,000,  respectively,
for the nine months ended March 31, 1998 and 1997. The higher  provision for the
nine months ended March 31, 1997 was caused by the  establishment  of an $83,000
allowance for loan losses on the TASCO Loans.

         Non-interest  expense  decreased  $764,000 to $2.6 million for the nine
months ended March 31, 1998  compared to $3.4 million for the same period a year
ago.  The decrease was  primarily  the result of a $977,000  decrease in Federal
deposit  insurance  premiums,  principally  due to the  one-time  assessment  of
$884,000  in the  year-ago  period,  partially  offset by a $59,000  increase in
occupancy  expense  and  a  $36,000  increase  in  other  non-interest   expense
categories.  These  increases  were primarily due to the  construction  of a new
building for the Bank's Mohegan Lake branch.

         Income tax expense was $1.1 million and $571,000, respectively, for the
nine months ended March 31, 1998 and 1997. The $501,000  increase in tax expense
reflects the  recognition of an income tax benefit of $238,000 in the prior year
relating to an amendment in the New York State tax law which eliminated the need
for a deferred tax liability  associated with certain tax bad debt reserves,  as
well as taxes  attributable  to the $595,000  increase in pre-tax  income in the
current year.

                                       12


<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>

                                                                                       Nine Months Ended
                                                       -----------------------------------------------------------------------------
                                                                      March 31, 1998                          March 31, 1997
                                                       -------------------------------------    ------------------------------------
                                                        Average                     Average      Average                   Average
                                                       Balance(1)    Interest      Yield/Rate   Balance(1)   Interest     Yield/Rate
                                                       ----------    --------      ----------   ----------   --------     ----------
                                                                                    (Dollars in thousands)
Interest-earning assets:
<S>                                                   <C>           <C>               <C>      <C>          <C>            <C>  
   Loans (2)....................................       $ 46,418      $ 2,785           8.00%    $ 42,429     $ 2,513        7.90%
   Mortgage-backed securities(3)................        119,300        5,707           6.38      116,675       5,529        6.32
   Other debt securities(3).....................         12,555          611           6.49       13,192         646        6.54
   Other interest-earning assets................          5,458          271           6.60       11,987         534        5.93
                                                       --------      -------                    --------       -----
     Total interest-earning assets..............        183,731      $ 9,374           6.80%     184,283     $ 9,222        6.67%
                                                                     =======                                   =====
Non interest-earning assets.....................          2,304                                    1,380
                                                       --------                                 --------
     Total assets...............................       $186,035                                 $185,663
                                                       ========                                 ========
Interest-bearing liabilities:
   Regular savings and club accounts............        $53,280      $ 1,180          2.95%     $ 56,785     $ 1,286        3.02%
   Money market and NOW accounts................         11,628          246          2.82        11,229         206        2.45
   Savings certificates and other...............         70,592        2,888          5.45        62,183       2,530        5.42
   Securities repurchase agreements.............          3,000          102          4.53           --          --          ---
                                                       --------      -------                     -------     -------
     Total interest-bearing liabilities.........        138,500      $ 4,416          4.25%      130,197     $ 4,022        4.12%
                                                                     =======                                 =======
Non interest-bearing liabilities................            977                                    3,492
                                                        -------                                  -------
     Total liabilities..........................        139,477                                  133,689
Stockholders' equity............................         46,558                                   51,974
                                                       --------                                 --------
     Total liabilities and stockholders' equity.       $186,035                                 $185,663
                                                       ========                                 ========
Net earning assets..............................       $ 45,231                                 $ 54,086
                                                       ========                                 ========
Net interest income.............................                     $ 4,958                                 $ 5,200
                                                                     =======                                 =======
Net interest rate spread........................                                      2.55%                                2.55%
                                                                                      ====                                 ==== 
Net yield on average interest-earning assets(4).                                      3.60%                                3.76%
                                                                                      ====                                 ==== 
Average interest-earning assets to average
 interest-bearing liabilities...................           1.33x                                    1.42x
                                                           ====                                     ==== 
</TABLE>

<PAGE>


<TABLE>
<CAPTION>

                                                                                       Three Months Ended
                                                       -----------------------------------------------------------------------------
                                                                      March 31, 1998                          March 31, 1997
                                                       -------------------------------------    ------------------------------------
                                                        Average                     Average      Average                   Average
                                                       Balance(1)    Interest      Yield/Rate   Balance(1)   Interest     Yield/Rate
                                                       ----------    --------      ----------   ----------   --------     ----------
                                                                                    (Dollars in thousands)
Interest-earning assets:
<S>                                                   <C>           <C>               <C>      <C>          <C>            <C>  
   Loans (2)....................................       $ 47,064      $   938           7.97%    $ 43,173     $  869        8.05%
   Mortgage-backed securities(3)................        123,744        1,967           6.36      117,773      1,852        6.29
   Other debt securities(3).....................         13,429          221           6.58       12,967        214        6.60
   Other interest-earning assets................          5,340           94           7.01        6,473        110        6.80
                                                       --------      -------                    --------     ------
     Total interest-earning assets..............        189,577      $ 3,220           6.79%     180,386     $3,045        6.75%
                                                                     =======                                 ======
Non interest-earning assets.....................          2,462                                    2,086
     Total assets...............................       $192,039                                 $182,472
                                                       ========                                 ========
Interest-bearing liabilities:
   Regular savings and club accounts............        $52,592      $   370           2.82%    $ 55,893     $  421        3.01%
   Money market and NOW accounts................         12,035           83           2.76       11,037         68        2.46
   Savings certificates and other...............         73,084          985           5.39       64,727        872        5.39
   Securities repurchase agreements.............          7,500          102           5.44           --         --          --
                                                       --------      -------                    --------     ------
     Total interest-bearing liabilities.........        145,211      $ 1,540           4.24%     131,657     $1,361        4.13%
                                                                     =======                                 ======
Non interest-bearing liabilities................          1,101                                    3,468
                                                       --------                                 --------
     Total liabilities..........................        146,312                                  135,125
Stockholders' equity............................         45,727                                   47,347
                                                       --------                                 --------
     Total liabilities and stockholders' equity.       $192,039                                 $182,472
                                                       ========                                 ========
Net earning assets..............................       $ 44,366                                 $ 48,729
                                                       ========                                 ========
Net interest income.............................                     $ 1,680                                 $1,684
                                                                     =======                                 ======
Net interest rate spread........................                                       2.55%                               2.62%
                                                                                       ====                                ==== 
Net yield on average interest-earning assets(4).                                       3.54%                               3.73%
                                                                                       ====                                ==== 
Average interest-earning assets to average
 interest-bearing liabilities...................           1.31x                                    1.37x
                                                           ====                                     ==== 
</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.

                                       13

<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 $48.7 million at March 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 at March
31, 1998 and June 30, 1997.

         In January  1998,  the Company began to utilize  securities  repurchase
agreements as a funding source, in order to supplement retail deposit growth, by
borrowing  $10.0 million and investing 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 March 1998, the
Bank's average daily total  liquidity  ratio was 35.7%,  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  $1.2  million,  from $4.2 million at June 30, 1997 to $3.0 million at
March 31, 1998.

         The Bank  anticipates  that it will have sufficient  funds available to
meet its current  commitments  and other funding  needs.  At March 31, 1998, the
Bank had  commitments to originate loans of $1.5 million.  Savings  certificates
which are  scheduled  to mature  in one year or less at March 31,  1998  totaled
$56.4 million.  Management believes that a significant portion of such depositor
accounts will remain with the Bank.

         At March 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

                                       14
<PAGE>


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 March  31,  1998,  the Bank had both  tangible  and core
capital of $44.0 million  (22.6% of total  adjusted  assets);  Tier I risk-based
capital  of $44.0  million  (88.4%  of total  risk-weighted  assets);  and total
risk-based capital of $44.7 million (89.7% of total risk-weighted assets).

Year 2000 Compliance

         Many existing  computer programs use only two digits to identify a year
in  the  date  field.   These  programs  were  designed  and  developed  without
considering the impact of the upcoming change in the century.  If not corrected,
many computer  applications  could fail or create erroneous results by or at the
Year  2000.   The  Year  2000  issue   affects   virtually   all  companies  and
organizations.

         The Company,  working with its outside service providers, has initiated
a project to ensure  that its  computer  systems  are year 2000  compliant.  The
Company  believes that the costs  associated  with ensuring year 2000 compliance
will not materially  affect the Company's future operating  results or financial
condition.

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,  1997.  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.

                                       15

<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:

               27. Financial Data Schedule

         b. Reports on Form 8-K

               None


                                       16

<PAGE>


                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.


                                            PEEKSKILL FINANCIAL CORPORATION
                                                     (Registrant)


DATE:  May 13, 1998                         BY: /s/ Eldorus Maynard
                                                --------------------------------
                                                Eldorus Maynard
                                                Chairman of the Board and
                                                Chief Executive Officer


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

                                       17