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

Form 10-Q

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

For the Quarter Ended March 31, 2000

[ ] 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 May 5, 2000
- --------------------------------------------------------------------------------
Common Stock, $0.01 par value 1,762,228

Peekskill Financial Corporation

Form 10-Q

Three and Nine Months Ended March 31, 2000

Part I - Financial Information

ITEM 1 - FINANCIAL STATEMENTS (Unaudited) Page

Consolidated Balance Sheets at March 31, 2000
and June 30, 1999 3

Consolidated Statements of Income for the three and nine
months ended March 31, 2000 and 1999 4

Consolidated Statements of Changes in Stockholders'
Equity for the nine months ended March 31, 2000 and 1999 5

Consolidated Statements of Cash Flows for the nine
months ended March 31, 2000 and 1999 6

Notes to Consolidated Financial Statements 7

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

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 14

Part II - Other Information

Other Information 15

Signatures 16

Part I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

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

March 31, June 30,
2000 1999
--------- ---------
Assets:
Cash and due from banks.................................. $ 1,105 $ 957
Interest-bearing deposits................................ 4,200 3,200
Securities:
Held-to-maturity, at amortized cost (fair value of
$111,050 at March 31,2000 and $118,675
at June 30, 1999)................................... 113,669 119,122
Available-for-sale, at fair value (amortized cost of
$16,500 at March 31, 2000 and June 30, 1999)........ 15,114 15,673
-------- --------
Total securities..................................... 128,783 134,795
-------- --------

Loans, net of allowance for loan losses of $787 at
March 31, 2000 and $742 at June 30, 1999............ 67,161 63,436
Federal Home Loan Bank stock............................. 1,550 1,463
Accrued interest receivable.............................. 981 1,094
Office properties and equipment, net..................... 1,044 1,114
Deferred income taxes, net............................... 986 814
Other assets............................................. 64 59
-------- --------
Total assets........................................... $205,874 $206,932
======== ========

Liabilities and Stockholders' Equity:
Liabilities:
Depositor accounts..................................... $151,633 $148,693
Securities repurchase agreements and other borrowings.. 25,000 28,000
Mortgage escrow deposits............................... 1,862 1,692
Other liabilities...................................... 1,288 1,196
-------- --------
Total liabilities.................................... 179,783 179,581
-------- --------

Stockholders' equity (Note 3):
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............................... 40,351 40,305
Unallocated common stock held by employee stock
ownership plan ("ESOP")................................ (2,583) (2,706)
Unamortized awards of common stock under recognition
and retention plan ("RRP")............................. (668) (771)
Treasury stock, at cost (2,337,522 shares at March 31,
2000 and 2,211,922 shares at June 30, 1999)............ (35,846) (34,204)
Retained earnings........................................ 25,666 25,183
Accumulated other comprehensive loss, net of tax benefit. (870) (497)
-------- --------
Total stockholders' equity............................ 26,091 27,351
-------- --------

Total liabilities and stockholders' equity............ $205,874 $206,932
======== ========

See accompanying notes to unaudited consolidated financial statements.

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

For the Three Months For the Nine Months
Ended March 31, Ended March 31,
-------------------- -------------------
2000 1999 2000 1999
--------- ---------- --------- ---------
Interest and dividend income:
Loans.................................. $1,249 $1,032 $ 3,738 $ 3,054
Securities............................. 2,040 2,163 6,152 6,648
Interest-bearing deposits and other.... 127 131 309 349
------ ------ ------- -------
Total interest and dividend income.... 3,416 3,326 10,199 10,051
------ ------ ------- -------

Interest expense:
Depositor accounts..................... 1,550 1,468 4,607 4,489
Securities repurchase agreements and
other borrowings................... 384 292 1,117 696
------ ------ ------- -------
Total interest expense................ 1,934 1,760 5,724 5,185
------ ------ ------- -------

Net interest income................... 1,482 1,566 4,475 4,866

Provision for loan losses .............. 15 15 45 45
------ ------ ------- -------
Net interest income after provision
for loan losses...................... 1,467 1,551 4,430 4,821
------ ------ ------- -------
Non-interest income..................... 70 61 213 193
------ ------ ------- -------

Non-interest expense:
Compensation and benefits............. 489 445 1,443 1,351
Occupancy costs....................... 120 122 343 335
Professional fees..................... 337 77 434 156
Computer service fees................. 70 58 192 165
Federal deposit insurance costs....... 24 37 96 109
Safekeeping and custodial expenses.... 29 23 82 79
Other................................. 132 154 421 506
------ ------ ------- -------
Total non-interest expense.......... 1,201 916 3,011 2,701
------ ------ ------- -------

Income before income tax expense........
336 696 1,632 2,313
Income tax expense...................... 232 301 732 1,018
------ ------ ------- -------

Net income............................ $ 104 $ 395 $ 900 $ 1,295
====== ====== ======= =======

Earnings per share (Note 4):
Basic................................. $0.07 $0.20 $0.61 $0.56
Diluted............................... 0.07 0.19 0.59 0.54

See accompanying notes to unaudited consolidated financial statements.

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

Unallocated Unamortized
Common Awards of Accumulated
Additional Stock Common Other Total
Common Paid-in Held Stock Treasury Retained Comprehensive Stockholders'
Stock Capital By ESOP Under RRP Stock Earnings Loss Equity
-------- --------- ----------- ----------- --------- --------- -------------- -------------

Balance at June 30, 1999........ $ 41 $40,305 $ (2,706) $ (771) $(34,204) $25,183 $ (497) $ 27,351

Net income................... --- --- --- --- --- 900 --- 900
Other comprehensive loss..... --- --- --- --- --- --- (373) (373)
--------
Total comprehensive
income....................... 527
Dividends paid ($0.27 per
share)....................... --- --- --- --- --- (417) --- (417)
Amortization of RRP awards... --- --- --- 155 --- --- --- 155
RRP award (4,000 treasury
shares)...................... --- (10) --- (52) 62 --- --- ---
Tax benefit from vesting of
RRP awards................ --- 6 --- --- --- --- --- 6
Purchase of 129,600 treasury
shares.................... --- --- --- --- (1,704) --- --- (1,704)
ESOP shares committed to be
released (12,300 shares).. --- 50 123 --- --- --- --- 173
------ ------- -------- ------- -------- ------- -------- --------
Balance at March 31, 2000....... $ 41 $40,351 (2,583) $ (668) $(35,846) $25,666 $ (870) $ 26,091
====== ======= ======== ======= ======== ======= ======== ========

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

Net income................... --- --- --- --- --- 1,295 --- 1,295
Other comprehensive loss..... --- --- --- --- --- --- (208) (208)
--------
Total comprehensive
income....................... 1,087
Dividends paid ($0.27 per
share)....................... --- --- --- --- --- (622) --- (622)
Amortization of RRP awards... --- --- --- 146 --- --- --- 146
RRP award (2,500 treasury
shares)...................... --- 14 --- (44) 30 --- --- ---
Exercise of stock options
(20,499 treasury shares)..... --- --- --- --- 318 (75) --- 243
Tax benefit from vesting of
RRP awards................ --- 36 --- --- --- --- --- 36
Purchase of 956,040 treasury
shares.................... --- --- --- --- (15,801) --- --- (15,801)
ESOP shares committed to be
released (12,300 shares).. --- 59 123 --- --- --- --- 182
------ ------- -------- ------- -------- ------- -------- --------
Balance at March 31, 1999....... $ 41 $40,290 $ (2,747) $ (820) $(33,183) $25,106 $ (210) $ 28,477
====== ======= ======== ======= ======== ======= ======== ========

See accompanying notes to unaudited consolidated financial statements.

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

For the Nine
Months Ended
March 31,
-------------------
2000 1999
--------- ---------
Cash flows from operating activities:
Net income................................................. $ 900 $ 1,295
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses................................. 45 45
Depreciation and amortization expense..................... 78 76
ESOP and RRP expense...................................... 328 328
Net amortization and accretion of deferred fees, discounts
and premiums............................................ (80) (12)
Net decrease (increase) in accrued interest receivable.... 113 (22)
Net increase in other assets.............................. (5) (55)
Deferred tax expense (benefit)............................ 31 (91)
Net increase in other liabilities......................... 92 524
--------- ---------
Net cash provided by operating activities................. 1,502 2,088
--------- ---------
Cash flows from investing activities:
Purchases of securities:
Held-to-maturity......................................... (13,868) (36,866)
Available-for-sale....................................... --- (17,500)
Proceeds from principal payments,
maturities and calls of securities:
Held-to-maturity......................................... 19,389 51,042
Available-for-sale....................................... --- 9,500
Originations of loans, net of principal collections........ (3,769) (7,964)
Proceeds from sale of real estate owned.................... --- 94
Purchase of FHLB stock..................................... (87) ---
Purchases of office properties and equipment............... (8) (102)
--------- ---------
Net cash provided by (used in) investing activities...... 1,657 (1,796)
--------- ---------
Cash flows from financing activities:
Net increase in depositor accounts....................... 2,940 5,357
Net increase in mortgage escrow deposits................. 170 95
Proceeds from issuance of common stock................... --- 243
Proceeds from securities repurchase agreements and
other borrowings....................................... 6,000 10,000
Repayments of securities repurchase agreements and
other borrowings....................................... (9,000) ---
Treasury stock purchases................................. (1,704) (16,197)
Dividends paid........................................... (417) (622)
--------- ---------
Net cash used in financing activities.................. (2,011) (1,124)
--------- ---------
Net increase in cash and cash equivalents.................. 1,148 (832)
Cash and cash equivalents at beginning of period........... 4,157 4,626
--------- ---------
Cash and cash equivalents at end of period................. $ 5,305 $ 3,794
========= =========

Supplemental information:
Interest paid............................................ $ 5,703 $ 5,165
Income taxes paid........................................ 639 749
Net decrease in liability for treasury stock purchased,
not yet settled....................................... --- (396)
========= =========

See accompanying notes to unaudited consolidated financial statements.

PEEKSKILL FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED 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 financial statements
include the accounts of the Holding Company and the Bank.

The accompanying unaudited condensed consolidated 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 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, 1999 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, 2000 are not necessarily indicative of results that may be expected for the
entire fiscal year ending June 30, 2000.

NOTE 2. Merger Agreement

On February 16, 2000, the Company signed a definitive agreement to
merge with Sound Federal Bancorp, the holding company for Sound Federal Savings
and Loan Association. As part of the transaction, the Company's stockholders
will receive $22 per share in cash. The transaction, which is expected to close
in the third calendar quarter, is subject to shareholder and regulatory
approval.

NOTE 3. Stock Repurchases

From July 1, 1999 through March 31, 2000, the Holding Company purchased
129,600 shares for treasury at a cost of $1.7 million, or $13.15 per share. At
March 31, 2000, the Holding Company has a total of 2,337,522 shares held for
treasury, at a total cost of $35.8 million or $15.33

per share. In connection with the merger agreement described in Note 2, the
Company has agreed that it will not make additional stock purchases pending
consummation of the merger.

NOTE 4. 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 and nine month periods ended March 31,
2000 and 1999. For purposes of computing basic EPS, net income applicable to
common stock equaled net income for each period presented.

For the Three Months For the Nine Months
Ended March 31, Ended March 31,
--------------------- ---------------------
2000 1999 2000 1999
------ ------ ------ ------
(In thousands)
Weighted average common
shares outstanding
for computation of
basic EPS (1) 1,433 1,981 1,475 2,329

Common-equivalent shares
due to the dilutive
effect of stock options
and RRP awards (2) 83 53 51 59
------ ------ ------ ------
Weighted average common
shares for computation
of diluted EPS 1,516 2,034 1,526 2,388
====== ====== ====== ======

(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 March 31, 2000. The Company cautions
that these forward-looking statements are subject to numerous assumptions, risks
and uncertainties, and that statements for subsequent periods are subject to
greater uncertainty because of the likelihood of changes in underlying factors
and assumptions. Actual results could differ materially from forward-looking
statements.

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

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.

Merger Agreement

Comparison of Financial Condition at March 31, 2000 and June 30, 1999

Total assets at March 31, 2000 were $205.9 million compared to $206.9
million at June 30, 1999, a decrease of $1.0 million. This decrease primarily
consists of a $6.0 million decrease in total securities, partially offset by a
$1.1 million increase in cash and cash equivalents and a $3.7 million increase
in net loans. The decrease in total assets was primarily caused by a $3.0
million decrease in securities repurchase agreements and other borrowings and a
$1.3 million decrease in stockholders' equity, partially offset by a $2.9
million increase in depositor accounts.

Total non-performing loans decreased $237,000, or 20.9%, to $893,000 at
March 31, 2000 from $1.1 million at June 30, 1999. At March 31, 2000, the
Company classified $237,000 of participation interests in certain residential
mortgage loans purchased from Thrift Association Service Corporation as
non-accrual, as compared to $316,000 at June 30, 1999. Additional non-accrual
mortgage loans totaled $550,000 at March 31, 2000 and $382,000 at June 30, 1999.
One-to-four family mortgage loans past due more than 90 days but still accruing
interest totaled $106,000 at March 31, 2000 compared to $432,000 at June 30,
1999. The allowance for loan losses was $787,000 or 88.1% of non-performing
loans at March 31, 2000, compared to $742,000 or 65.7% of non-performing loans
at June 30, 1999. There were no loan charge-offs or recoveries in the nine
months ended March 31, 2000.
The Bank had no real estate owned at March 31, 2000 and June 30, 1999.

Stockholders' equity decreased $1.3 million from $27.4 million at June 30,
1999 to $26.1 million at March 31, 2000. The decrease primarily reflects
treasury stock purchases of $1.7 million and dividends paid of $417,000,
partially offset by net income of $900,000. Book value per share increased from
$14.49 at June 30,1999 to $14.79 at March 31, 2000.

Comparison of Operating Results for the Three Months Ended March 31, 2000 and
1999

Net income decreased $291,000 to $104,000, or $0.07 per diluted share,
for the quarter ended March 31, 2000, compared to net income of $395,000, or
$0.19 per diluted share, for the same period last year. Basic EPS amounts were
$0.07 and $0.20 for the quarters ended March 31, 2000 and 1999, respectively.
The decrease in net income is primarily attributable to $271,000 of non-tax
deductible merger-related expenses in the current year quarter.

Net interest income decreased $84,000 in the current quarter compared
to the quarter ended March 31, 1999, reflecting a 20 basis point decline in the
net yield on average interest-earning assets to 2.87% in the current quarter.
The decreases in the net yield and in net interest income reflect the $10.9
million decline in average net earning assets from $35.0 million for the three
months ended March 31, 1999 to $24.1 million for the current quarter, mostly
attributable to the utilization of $17.7 million to purchase common stock for
treasury. Interest and dividend income increased to $3.4 million for the quarter
ended March 31, 2000 from $3.3 million for the year ago period. Average
interest-earning assets increased $2.3 million and the average yield increased
10 basis points. Interest expense increased $174,000 to $1.9 million for the
quarter ended March 31, 2000 compared to the same quarter last year. This
increase was due primarily to a $13.1 million increase in average
interest-bearing liabilities and an 8 basis point decrease in the average cost.

The provision for loan losses was $15,000 for the quarters ended March
31, 2000 and 1999. 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 $285,000 for the quarter ended March 31,
2000 compared to the prior year quarter. The increase was caused primarily by
increases of $260,000 in professional fees, $44,000 in compensation and benefits
and $12,000 in computer service fees, partially offset by a $22,000 decrease in
other non-interest expenses and a $13,000 decrease in Federal deposit insurance
costs. The increase in professional fees is primarily due to $271,000 in
merger-related expenses and the increase in compensation and benefits is
primarily due to normal salary increases.

Income tax expense for the quarter ended March 31, 2000 decreased
$69,000 compared to the same period last year. The decrease is primarily due to
a $360,000 decrease in pre-tax income and the effect of the real estate
investment trust ("REIT") in the fourth quarter of fiscal 1999, partially offset
by the effect of non-tax deductible merger-related costs in the current quarter.
The Company's effective tax rate was 69.0% in the current quarter compared to
43.2% in the quarter ended March 31, 1999.

Comparison of Operating Results for the Nine Months Ended March 31, 2000 and
1999

Net income decreased $395,000 to $900,000, or $0.59 per diluted share,
for the nine months ended March 31, 2000, compared to $1.3 million, or $0.54 per
diluted share, for the nine months ended March 31, 1999. Basic EPS amounts were
$0.61 and $0.56 for the nine months ended March 31, 2000 and 1999, respectively.
The decrease in net income is primarily attributable to a $391,000 decrease in
net interest income and a $310,000 increase in non-interest expense, partially
offset by a $286,000 decrease in income tax expense. The higher basic and
diluted EPS amounts in the current nine-month period reflect the substantially
lower number of shares outstanding, due to treasury stock purchases made over
the past year.

Net interest income decreased $391,000 for the nine months ended March
31, 2000 compared to the nine months ended March 31, 1999, reflecting a 32 basis
point decline in the net yield on average interest-earning assets to 2.90% in
the nine months ended March 31, 2000. The decreases in the net yield and in net
interest income reflect the $14.4 million decline in average net earning assets
from $39.2 million for the nine months ended March 31, 1999 to $24.8 million for
the current nine months, mostly attributable to the utilization of $17.7 million
to purchase common stock for treasury. Interest and dividend income increased
$148,000 to $10.2 million for the nine months ended March 31, 2000 compared to
the nine months ended March 31, 1999. Average interest-earning assets increased
$3.9 million, partially offset by a 3 basis point decrease in the average yield.
Interest expense increased $539,000 to $5.7 million for the nine months ended
March 31, 2000 compared to the same period last year. The increase was caused
primarily by an $18.2 million increase in interest-bearing liabilities,
partially offset by a 3 basis point decrease in the average rate.

The provision for loan losses was $45,000 for the nine-month periods
ended March 31, 2000 and 1999. 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.

For the nine months ended March 31, 2000 non-interest expense increased
$310,000 compared to the same period in 1999. The increase was caused primarily
by increases of $278,000 in professional fees, $92,000 in compensation and
benefits and $27,000 in computer service fees, partially offset by an $85,000
decrease in other non-interest expenses. The increase in professional fees is
primarily due to $271,000 in merger-related expenses and the increase in
compensation and benefits is primarily due to normal salary increases. The
$85,000 decrease in other non-interest expenses reflects expenses of
approximately $25,000, relating to the Company's Modified Dutch Auction, that
were incurred in the nine months ended March 31, 1999.

Income tax expense decreased $286,000 for the nine months ended March
31, 2000 compared to the same period a year ago. The decrease is due to a
$681,000 decrease in pre-tax income and the effect of the REIT, partially offset
by the effect of non-tax deductible merger-related costs in the current quarter.
The Company's effective tax rate was 44.9% for the nine months ended March 31,
2000 compared to 44.0% for the same period in 1999.

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

Nine Months Ended
---------------------------------------------------------
March 31, March 31,
2000 1999
----------------------------- ---------------------------
Average Average
Average Yield/ Average Yield/
Balance (1) Interest Rate Balance(1) Interest Rate
----------- --------- ------- -------- -------- ---------
(Dollars in thousands)

Interest-earning assets:
Loans (2).................................... $ 66,308 $ 3,738 7.52% $ 51,765 $ 3,054 7.87%
Mortgage-backed securities(3)................ 108,512 4,980 6.12 120,486 5,676 6.28
Other debt securities(3)..................... 23,189 1,172 6.74 20,302 972 6.38
Other interest-earning assets................ 7,400 309 5.57 8,992 349 5.17
-------- ------- -------- -------
Total interest-earning assets.............. 205,409 10,199 6.62 201,545 10,051 6.65
------- -------
Non interest-earning assets..................... 3,116 2,745
-------- --------
Total assets............................... $208,525 $204,290
======== ========

Interest-bearing liabilities:
Regular savings and club accounts............ $ 50,331 $ 1,049 2.78% $ 50,426 $ 1,050 2.78%
Money market and NOW accounts (5)............ 18,632 358 2.56 15,135 301 2.65
Savings certificates and other............... 83,218 3,200 5.13 78,580 3,138 5.32
Securities repurchase agreements and other 28,400 1,117 5.24 18,200 696 5.10
borrowings...................................... -------- ------- -------- -------
Total interest-bearing liabilities......... 180,581 5,724 4.23 162,341 5,185 4.26
------- -------
Non interest-bearing liabilities................ 1,347 1,663
-------- --------
Total liabilities.......................... 181,928 164,004
Stockholders' equity............................ 26,597 40,286
-------- --------
Total liabilities and stockholders' equity. $208,525 $204,290
======== ========
Net earning assets.............................. $ 24,828 $ 39,204
======== ========
Net interest income............................. $ 4,475 $ 4,866
======== =======
Net interest rate spread........................ 2.39% 2.39%
==== ====
Net yield on average interest-earning assets(4). 2.90% 3.22%
==== ====
Average interest-earning assets to average
interest-bearing liabilities................... 1.14x 1.24x
==== ====

Three Months Ended
---------------------------------------------------------
March 31, March 31,
2000 1999
----------------------------- ---------------------------
Average Average
Average Yield/ Average Yield/
Balance (1) Interest Rate Balance(1) Interest Rate
----------- --------- ------- -------- -------- ---------
(Dollars in thousands)

Interest-earning assets:
Loans (2).................................... $ 66,883 $ 1,249 7.47% $ 53,529 $ 1,032 7.71%
Mortgage-backed securities(3)................ 106,120 1,639 6.18 114,920 1,763 6.14
Other debt securities(3)..................... 23,529 401 6.82 23,982 400 6.67
Other interest-earning assets................ 9,870 127 5.15 11,690 131 4.48
-------- ------- -------- -------
Total interest-earning assets.............. 206,402 3,416 6.62 204,121 3,326 6.52
------- -------
Non interest-earning assets..................... 3,146 2,871
-------- --------
Total assets............................... $209,548 $206,992
======== ========

Interest-bearing liabilities:
Regular savings and club accounts............ $ 49,749 $ 346 2.78% $ 50,454 $ 351 2.78%
Money market and NOW accounts (5)............ 19,452 122 2.51 15,998 107 2.68
Savings certificates and other............... 84,312 1,082 5.15 79,684 1,010 5.07
Securities repurchase agreements and other
borrowings...................................... 28,750 384 5.13 23,000 292 5.08
-------- ------- -------- -------
Total interest-bearing liabilities......... 182,263 1,934 4.24 169,136 1,760 4.16
------- -------
Non interest-bearing liabilities................ 1,225 1,747
-------- --------
Total liabilities.......................... 183,488 170,883
Stockholders' equity............................ 26,060 36,109
-------- --------
Total liabilities and stockholders' equity. $209,548 $206,992
======== ========
Net earning assets.............................. $ 24,139 $ 34,985
======== ========
Net interest income............................. $ 1,482 $ 1,566
======= =======
Net interest rate spread........................ 2.38% 2.36%
==== ====
Net yield on average interest-earning assets(4). 2.87% 3.07%
==== ====
Average interest-earning assets to average
interest-bearing liabilities................... 1.13x 1.21x
==== ====
<FN>

(1) Average balances are calculated using end-of-month balances, producing
results which are not materially different from average daily balances.
(2) Balances are net of deferred loan fees and loans in process. Non-accrual
loans are included in the balances.
(3) Balances represent amortized cost. Yields are not stated on a
tax-equivalent basis, as the Company does not invest in tax-exempt
securities.
(4) Represents net interest income divided by average total interest-earning
assets.
(5) Average balances for the nine months and three months ended March 31, 2000
include non-interest bearing checking deposits of $1.5 million and $2.0
million, respectively. Excluding these deposits, the average rate would be
2.79% for the nine months ended March 31, 2000 and 2.81% for the three
months ended March 31, 2000.
</FN>

Liquidity and Capital Resources

The Company'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 $51.7 million at March 31, 2000. Funds may
be borrowed through a combination of FHLB advances and overnight borrowings
under a $15.5 million line of credit. The Bank had no such borrowings
outstanding at March 31, 2000 and June 30, 1999. The Company had $25.0 million
of borrowings under securities repurchase agreements at March 31, 2000, compared
to $28.0 million at June 30, 1999. The Company has utilized borrowings as a
funding source in order to supplement retail deposit growth and may engage in
additional borrowings, 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 2000, the
Bank's average daily total liquidity ratio was 12.9%, compared to the minimum
OTS requirement of 4.0%.

The Company'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 Company's operating, financing and
investing activities during any given period. Cash and cash equivalents
increased $1.1 million, from $4.2 million at June 30, 1999 to $5.3 million at
March 31, 2000.

The Company anticipates that it will have sufficient funds available to
meet its current commitments and other funding needs. At March 31, 2000, the
Company had commitments to originate loans of $1.7 million. Savings certificates
scheduled to mature in one year or less at March 31, 2000 totaled $62.4 million.
Management believes that a significant portion of such depositor accounts will
remain with the Company.

At March 31, 2000, 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, 4.0% 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 March 31, 2000, the Bank had both tangible and core
capital of $26.8 million (13.0% of total adjusted assets); Tier I risk-based
capital of $26.8 million (43.8% of total risk-weighted assets); and total
risk-based capital of $27.6 million (45.1% of total risk-weighted assets).

Year 2000

The Company's Year 2000 preparations allowed it to transition into the
new year without system failures or interruptions in customer service. The
Company is not currently aware of any Year 2000 issues that have adversely
affected its customers or key business relationships. However, the nature of the
Year 2000 issue is such that unanticipated developments affecting the Company's
information technology systems, and/or those of third parties, upon which it
depends, may come to light in the future. The Company will continue to monitor
its systems for Year 2000 issues that may not have been immediately apparent, as
well as possible adverse effects on its customers and key business
relationships. The Company's cumulative Year 2000 costs of $160,000 through
March 31, 2000 were primarily for computer hardware purchases. Management does
not expect that any additional significant costs will be incurred in connection
with the Year 2000 issue.

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, 1999. 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.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

None

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

Special Meeting

A Special Meeting will be held on May 15, 2000 at the main
office of the Company to approve and adopt the merger agreement, per
the Company's proxy statement dated April 7, 2000.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibits:

27. Financial Data Schedule

b. Reports on Form 8-K

On January 31, 2000, the Company issued a press
release announcing its second quarter results.

On February 17, 2000, the Company issued a press
release announcing its merger with Sound Federal Bancorp.

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 12, 2000 BY: /s/ Eldorus Maynard
-------------------
Eldorus Maynard
Chairman of the Board and
Chief Executive Officer

DATE: May 12, 2000 BY: /s/ William J. LaCalamito
-------------------------
William J. LaCalamito
President
(principal financial officer)