<PAGE>

   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 2002
                                                   REGISTRATION NO. 333-________

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM S-1
                          REGISTRATION STATEMENT UNDER
                           THE SECURITIES ACT OF 1933

                              SOUND FEDERAL BANCORP
             (Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<CAPTION>
<S>                                          <C>                                   <C>
              DELAWARE                                  6712                          (APPLIED FOR)
   (State or Other Jurisdiction of          (Primary Standard Industrial            (I.R.S. Employer
   Incorporation or Organization)            Classification Code Number)           Identification No.)
</TABLE>

                              300 MAMARONECK AVENUE
                           MAMARONECK, NEW YORK 10543
                                 (914) 698-6400
    (Address, including zip code, and telephone number, including area code,
                  of Registrant's principal executive offices)

                              RICHARD P. MCSTRAVICK
                      PRESIDENT AND CHIEF EXECUTIVE OFFICER
                              300 MAMARONECK AVENUE
                           MAMARONECK, NEW YORK 10543
                                 (914) 698-6400
  (Name, address, including zip code, and telephone number, including area code
                              of Agent for Service)

                                   COPIES TO:
                                ALAN SCHICK, ESQ.
                                 ERIC LUSE, ESQ.
                              EDWARD A. QUINT, ESQ.
                       LUSE GORMAN POMERENK & SCHICK, P.C.
                     5335 WISCONSIN AVENUE, N.W., SUITE 400
                             WASHINGTON, D.C. 20015

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this registration statement becomes effective.

If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
check the following box: :  [X]

If this Form is filed to register additional shares for an offering pursuant to
Rule 462(b) under the Securities Act please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]

If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]

<PAGE>

<TABLE>
<CAPTION>

                         CALCULATION OF REGISTRATION FEE
========================================= ================== ==================== ==================== =====================

                                                              PROPOSED MAXIMUM     PROPOSED MAXIMUM         AMOUNT OF
         TITLE OF EACH CLASS OF             AMOUNT TO BE       OFFERING PRICE          AGGREGATE         REGISTRATION FEE
      SECURITIES TO BE REGISTERED            REGISTERED           PER SHARE        OFFERING PRICE(1)
----------------------------------------- ------------------ -------------------- -------------------- ---------------------

<S>                                       <C>                      <C>            <C>                        <C>
Common Stock, $0.01 par value per share   13,225,000 shares        $ 10.00        $ 132,250,000              $ 12,167
----------------------------------------- ------------------ -------------------- -------------------- ---------------------

Participation Interests                   230,281 interests          --                   --                   --
========================================= ================== ==================== ==================== =====================
</TABLE>

(1)   Estimated solely for the purpose of calculating the registration fee.
(2)   The securities of Sound Federal Bancorp to be purchased by the Sound
      Federal Savings and Loan Association 401(k) Savings Plan in RSI Retirement
      Trust or as adopted by Sound Federal Savings and Loan Association are
      included in the amount shown for Common Stock. However, pursuant to Rule
      457(h) of the Securities Act of 1933, as amended, no separate fee is
      required for the participation interests. Pursuant to such rule, the
      amount being registered has been calculated on the basis of the number of
      shares of Common Stock that may be purchased with the current assets of
      such Plan.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.

<PAGE>

PROSPECTUS
                              SOUND FEDERAL BANCORP
        (HOLDING COMPANY FOR SOUND FEDERAL SAVINGS AND LOAN ASSOCIATION)
                     UP TO 6,765,910 SHARES OF COMMON STOCK

      Sound Federal Bancorp is offering common stock for sale in connection with
the conversion of Sound Federal, MHC from the mutual to the stock form of
organization. The shares we are offering represent the ownership interest in
Sound Federal Bancorp now owned by Sound Federal, MHC. The existing publicly
held shares of Sound Federal Bancorp will be exchanged for new shares of common
stock of Sound Federal Bancorp. All shares offered for sale are offered at a
price of $10.00 per share. Our common stock will continue to trade on the Nasdaq
National Market under the symbol "SFFS."

      IF YOU ARE OR WERE A DEPOSITOR OF SOUND FEDERAL SAVINGS AND LOAN
ASSOCIATION:
      o     You may have priority rights to purchase shares of common stock.
      IF YOU ARE CURRENTLY A STOCKHOLDER OF SOUND FEDERAL BANCORP:
      o     Each of your shares of common stock will automatically be exchanged
            for between 1.7782 and 2.7667 new shares of Sound Federal Bancorp.
      o     Your percentage ownership will remain essentially equivalent to your
            current percentage ownership interest in Sound Federal Bancorp.
      o     You may also purchase additional shares in the offering after
            priority orders are filled.
      IF YOU ARE A PARTICIPANT IN THE SOUND FEDERAL SAVINGS AND LOAN ASSOCIATION
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST:
      o     You may direct that all or part of your current account balances in
            this plan be invested in shares of common stock.
      o     You will be receiving separately a supplement to this prospectus
            that describes your rights under the plan.
      IF YOU FIT NONE OF THE CATEGORIES ABOVE, BUT ARE INTERESTED IN PURCHASING
SHARES OF OUR COMMON STOCK:
      o     You may purchase shares of common stock after priority orders are
            filled.

      We are offering up to 6,765,910 shares of the common stock for sale on a
best efforts basis. We must sell a minimum of 5,000,890 shares to complete the
offering and the exchange of existing shares. We may sell up to 7,780,737 shares
because of regulatory considerations, demand for the shares or changes in market
conditions without resoliciting subscribers. The offering is expected to
terminate at 12:00 noon, New York Time, on December ____, 2002. We may extend
this termination date without notice to you until February ____, 2003, unless
the Office of Thrift Supervision approves a later date, which may not be beyond
December ______, 2004.

      Keefe, Bruyette & Woods, Inc. will assist us in our selling efforts, but
is not required to purchase any of the common stock that is being offered for
sale. Purchasers will not pay a commission to purchase common stock in the
offering.

      The minimum purchase is 25 shares. Once submitted, orders are irrevocable
unless the offering is terminated or extended beyond February ____, 2003. If the
offering is extended beyond February ____, 2003, subscribers will have the right
to modify or rescind their purchase orders. Funds received prior to completion
of the offering will be held in an escrow account at Sound Federal Savings and
Loan Association and will earn interest at our passbook rate.

      Following the conversion, our directors and executive officers, together
with their associates, are expected to own __________ shares of common stock, or
_____% of our outstanding common stock if the shares are sold at the midpoint of
the offering range.

                                OFFERING SUMMARY
                             PRICE: $10.00 PER SHARE

                                               MINIMUM            MAXIMUM
                                               -------            -------
          Number of shares:                     5,000,890          6,765,910
          Gross offering proceeds:           $ 50,008,900       $ 67,659,100
          Estimated offering expenses:       $  1,463,000       $  1,682,000
          Estimated net proceeds:            $ 48,545,900       $ 65,977,100
          Estimated net proceeds per share:  $       9.71       $       9.75

      THIS INVESTMENT INVOLVES A DEGREE OF RISK, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.

                PLEASE READ "RISK FACTORS" BEGINNING ON PAGE __.

      THESE SECURITIES ARE NOT DEPOSITS OR SAVINGS ACCOUNTS AND ARE NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.

      NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED OF
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

                          KEEFE, BRUYETTE & WOODS, INC.

                THE DATE OF THIS PROSPECTUS IS NOVEMBER __, 2002

<PAGE>





             [INSERT MAP SHOWING SOUND FEDERAL SAVINGS' MARKET AREA]

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

<S>                                                                                          <C>
                                                                                             PAGE

SUMMARY........................................................................................1
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF SOUND FEDERAL BANCORP AND SUBSIDIARY........11
RISK FACTORS..................................................................................13
FORWARD-LOOKING STATEMENTS....................................................................17
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING...........................................17
OUR DIVIDEND POLICY...........................................................................19
MARKET FOR THE COMMON STOCK...................................................................19
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE........................................21
CAPITALIZATION................................................................................22
PRO FORMA DATA................................................................................23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........29
BUSINESS OF SOUND FEDERAL BANCORP AND SOUND FEDERAL SAVINGS AND LOAN ASSOCIATION..............43
SUPERVISION AND REGULATION....................................................................66
TAXATION......................................................................................72
MANAGEMENT OF SOUND FEDERAL BANCORP...........................................................73
BENEFICIAL OWNERSHIP OF COMMON STOCK..........................................................82
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS.............................................82
THE CONVERSION................................................................................83
COMPARISON OF STOCKHOLDERS' RIGHTS...........................................................101
RESTRICTIONS ON ACQUISITION OF SOUND FEDERAL BANCORP.........................................106
DESCRIPTION OF CAPITAL STOCK OF SOUND FEDERAL BANCORP FOLLOWING THE CONVERSION...............108
TRANSFER AGENT...............................................................................109
EXPERTS......................................................................................109
LEGAL MATTERS................................................................................109
ADDITIONAL INFORMATION.......................................................................109
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS...................................................F-1
</TABLE>

<PAGE>

                                     SUMMARY

      THE FOLLOWING SUMMARY EXPLAINS THE SIGNIFICANT ASPECTS OF THE CONVERSION,
THE OFFERING AND THE EXCHANGE OF EXISTING SHARES OF SOUND FEDERAL BANCORP COMMON
STOCK FOR NEW SHARES OF SOUND FEDERAL BANCORP COMMON STOCK. IT MAY NOT CONTAIN
ALL THE INFORMATION THAT IS IMPORTANT TO YOU. FOR ADDITIONAL INFORMATION, YOU
SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

THE COMPANIES

      SOUND FEDERAL, MHC

      Sound Federal, MHC is the federally chartered mutual holding company of
Sound Federal Bancorp. Sound Federal, MHC's principal business activity is the
ownership of 2,810,510 shares of common stock of Sound Federal Bancorp. Upon the
conclusion of the conversion, Sound Federal, MHC will cease to exist.

      SOUND FEDERAL BANCORP

      Sound Federal Bancorp is a federally chartered stock holding company that
owns all of the outstanding common stock of Sound Federal Savings. As of June
30, 2002, Sound Federal Bancorp had 4,778,292 issued and outstanding shares of
common stock. Sound Federal, MHC owned 2,810,510 shares of Sound Federal
Bancorp's outstanding common stock. The remaining 1,967,782 shares are held by
the public. At June 30, 2002, Sound Federal Bancorp had consolidated assets of
$651.5 million, deposits of $544.6 million and stockholders' equity of $63.8
million. Following the conversion, Sound Federal Bancorp will cease to exist,
but will be succeeded by a new Delaware corporation with the same name.

      SOUND FEDERAL SAVINGS AND LOAN ASSOCIATION

      Sound Federal Savings and Loan Association is a federally chartered
savings association headquartered in Mamaroneck, New York. Sound Federal
Savings' deposits are insured by the Federal Deposit Insurance Corporation.
Sound Federal Savings was organized as a New York chartered savings bank in 1891
and became a federally chartered savings association in 1934. In July 2000,
Sound Federal Bancorp and Sound Federal Savings completed the acquisition of
Peekskill Financial Corporation and its wholly owned subsidiary, First Federal
Savings Bank. At the completion of the conversion, we will change our name to
"Sound Federal Savings." At June 30, 2002, Sound Federal Savings operated from
nine locations in New York and Connecticut. In July 2002, we opened our tenth
location in Somers, New York. A full description of our products and services
begins on page _______ of this prospectus.

      The executive office of each of Sound Federal, MHC, Sound Federal Bancorp
and Sound Federal Savings is located at 300 Mamaroneck Avenue, Mamaroneck, New
York 10543. The telephone number at this address is (914) 698-6400.

OUR ORGANIZATIONAL STRUCTURE

      In 1998, Sound Federal Savings' mutual predecessor reorganized into the
mutual holding company form of organization. As a part of the mutual holding
company reorganization, we sold a minority of our common stock to our customers
in a subscription offering. The majority of our outstanding shares were retained
by Sound Federal, MHC. Sound Federal, MHC is a mutual holding company that has
no stockholders. Sound Federal Bancorp owns 100% of the outstanding shares of
Sound Federal Savings.

      Pursuant to the terms of our plan of conversion, we will convert from the
mutual holding company form of ownership to the fully public form of corporate
structure. As part of the conversion, we are offering for sale in a subscription
offering and a community offering shares of common stock that represent the
majority ownership interest of Sound Federal Bancorp that is currently held by
Sound Federal, MHC. Upon the completion of the conversion and offering, Sound
Federal, MHC will cease to exist, public stockholders of Sound Federal Bancorp

<PAGE>

will receive new shares of common stock in exchange for their existing shares of
Sound Federal Bancorp and we will have completed the transition from partial to
full public ownership.

      The following chart shows our current ownership structure, which is
commonly referred to as the "two-tier" mutual holding company structure:


   -----------------------------                -----------------------------
        SOUND FEDERAL, MHC                           PUBLIC STOCKHOLDERS
   -----------------------------                -----------------------------
    58.8% of Sound                                             41.2% of Sound
    Federal Bancorp                                            Federal Bancorp
    common stock                                               common stock

                      ------------------------------------
                              SOUND FEDERAL BANCORP
                             (A FEDERAL CORPORATION)
                      ------------------------------------

                                           100% of common stock

                      ------------------------------------
                              SOUND FEDERAL SAVINGS
                      ------------------------------------

      After the conversion and offering are completed, our ownership structure
will be as follows:

                      ------------------------------------
                              PUBLIC STOCKHOLDERS
                      ------------------------------------

                                           100% of common stock

                      ------------------------------------
                              SOUND FEDERAL BANCORP
                            (A DELAWARE CORPORATION)
                      ------------------------------------

                                           100% of common stock

                      ------------------------------------
                              SOUND FEDERAL SAVINGS
                      ------------------------------------

BUSINESS STRATEGY

      Our business strategy is to grow and enhance our profitability by:

      o     operating a community-oriented financial institution that provides
            quality service by monitoring the needs of its customers and
            offering customers personalized services;

      o     emphasizing one-to-four family residential real estate lending;

                                       2

<PAGE>

      o     maintaining appropriate levels of liquid investments and
            adjustable-rate mortgage-backed securities;

      o     maintaining asset quality; and

      o     expanding our market presence.

REASONS FOR THE CONVERSION

      The primary reasons for the conversion are to (i) obtain additional
capital to support internal growth by increasing our lending in the communities
we serve, (ii) continue our expansion within our market area and the contiguous
counties, (iii) enhance stockholder returns through higher earnings and capital
management strategies and (iv) facilitate acquisitions of other financial
institutions as opportunities arise.

      As a fully converted stock holding company, we will have greater
flexibility in structuring mergers and acquisitions, including the form of
consideration paid in a transaction. Our current mutual holding company
structure, by its nature, limits our ability to offer our common stock as
consideration in a merger or acquisition. Potential sellers often want stock for
at least part of the purchase price. Our new stock holding company structure
will enhance our ability to compete with other bidders when acquisition
opportunities arise by enabling us to offer stock or cash consideration, or a
combination thereof. We do not now have any specific acquisition or expansion
plans.

TERMS OF THE CONVERSION AND OFFERING

      Pursuant to our plan of conversion, our organization will convert from a
partially public to a fully public form of holding company structure. In
connection with the conversion, we are selling in the offering common stock
representing the ownership interest in Sound Federal Bancorp now owned by Sound
Federal, MHC. We are selling between 5,000,890 and 6,765,910 shares of common
stock to qualifying depositors and to the public, to the extent shares remain
available. The number of shares to be sold may be increased up to 7,780,737 as a
result of strong demand for the shares in the offering or positive changes in
the market for financial institution stocks. Unless the number of shares to be
sold is increased to more than 7,780,737 or decreased to less than 5,000,890,
you will not have the opportunity to change or cancel your stock order. The
offering price is $10.00 per share. Keefe, Bruyette & Woods, Inc., our marketing
advisor in the offering, will use its best efforts to assist us in selling our
stock. Keefe, Bruyette & Woods, Inc. is not obligated to purchase any shares in
the offering.

PERSONS WHO MAY ORDER STOCK IN THE OFFERING

      Under the plan of conversion, we are offering the shares of common stock
of Sound Federal Bancorp in a "subscription offering" in the following
descending order of priority:

      (1)   First, depositors with accounts at Sound Federal Savings with
            aggregate balances of at least $50 on May 31, 2001.

      (2)   Second, Sound Federal Bancorp's tax-qualified plans, including the
            employee stock ownership plan.

      (3)   Third, depositors with accounts at Sound Federal Savings with
            aggregate balances of at least $50 on September 30, 2002.

      (4)   Fourth, depositors of Sound Federal Savings as of October _________,
            2002 and borrowers of Sound Federal Savings as of October 8, 1998
            whose borrowings remained outstanding as of _________, 2002.

      The shares of common stock not purchased in the subscription offering will
be offered in a "direct community offering," with a preference given first to
public stockholders of Sound Federal Bancorp as of October _________, 2002, and
then to natural persons residing in the New York counties of Westchester,
Rockland and Putnam and the Connecticut county of Fairfield. The direct
community offering, if it occurs at all, may begin

                                       3
<PAGE>

concurrently with, during or promptly after the subscription offering. We also
may offer shares of common stock not purchased in the subscription offering or
community offering through a "syndicated community offering" managed by Keefe,
Bruyette & Woods, Inc. We have the right to accept or reject, in our sole
discretion, orders received in the direct community offering or syndicated
community offering.

HOW WE DETERMINED THE OFFERING RANGE AND THE $10.00 PER SHARE STOCK PRICE

      The amount of common stock we are offering is based on an independent
appraisal of the estimated market value of Sound Federal Bancorp, assuming the
conversion and offering are completed. FinPro, Inc., the independent appraiser,
has estimated that, as of September 10, 2002, this market value ranged from
$85.0 million to $115.0 million, with a midpoint of $100.0 million. Based on
this valuation, the ownership interest of Sound Federal, MHC being sold in the
offering and the $10.00 per share price, the number of shares of common stock
being offered for sale by Sound Federal Bancorp will range from 5,000,890 shares
to 6,765,910 shares. The $10.00 per share price was selected primarily because
it is the price most commonly used in mutual-to-stock conversions of financial
institutions. The appraisal was based in part on Sound Federal Bancorp's
financial condition and results of operations, the effect of the additional
capital raised by the sale of common stock in the offering, and an analysis of a
peer group of publicly-traded savings bank and thrift holding companies that
FinPro, Inc. considered comparable to Sound Federal Bancorp.

      The following table presents a summary of selected pricing ratios for the
peer group companies and the resulting pricing ratios for Sound Federal Bancorp.
Compared to the average pricing of the peer group, Sound Federal Bancorp's pro
forma pricing ratios at the maximum of the offering range indicated a premium of
11.1% on a price-to-earnings basis and a discount of 18.6% on a
price-to-tangible book basis. The estimated appraised value and the resulting
premium/ discount took into consideration the potential financial impact of the
conversion.

<TABLE>
<CAPTION>
                                                       PRO FORMA                         PRO FORMA
                                              PRICE-TO-EARNINGS MULTIPLE    PRICE-TO-TANGIBLE BOOK VALUE RATIO
                                             ----------------------------  ------------------------------------
<S>                                                      <C>                               <C>
    SOUND FEDERAL BANCORP
       Minimum of offering range...........              12.66x                            94.52%
       Maximum of offering range...........              16.67                            109.17

    VALUATION OF PEER GROUP COMPANIES AS
    OF SEPTEMBER 10, 2002
       Averages............................              15.00x                           134.13%
       Medians.............................              14.45                            124.14
</TABLE>

      THE INDEPENDENT APPRAISAL DOES NOT INDICATE MARKET VALUE. DO NOT ASSUME OR
EXPECT THAT THE VALUATION OF SOUND FEDERAL BANCORP AS INDICATED ABOVE MEANS THAT
THE COMMON STOCK WILL TRADE AT OR ABOVE THE $10.00 PURCHASE PRICE AFTER THE
CONVERSION.

      The independent appraisal will be updated prior to the completion of the
conversion. If the market value changes to either below $85.0 million or above
$132.3 million, subscribers will be notified and provided with the opportunity
to modify or cancel their orders.

THE EXCHANGE OF EXISTING SHARES OF SOUND FEDERAL BANCORP COMMON STOCK

      If you are now a stockholder of Sound Federal Bancorp, your existing
shares will be cancelled and exchanged for new shares of Sound Federal Bancorp.
The number of shares you receive will be based on an exchange ratio determined
at the completion of the conversion. The following table shows how the exchange
ratio will adjust, based on the number of shares sold in our offering. The table
also shows how many shares a hypothetical owner of Sound Federal Bancorp common
stock would receive in the exchange, based on the number of shares sold in the
offering.

                                       4
<PAGE>

<TABLE>
<CAPTION>

                                             NEW SHARES TO BE EXCHANGED
                    NEW SHARES TO BE SOLD       FOR EXISTING SHARES OF                                    NEW SHARES TO
                       IN THIS OFFERING         SOUND FEDERAL BANCORP     TOTAL SHARES OF                BE RECEIVED FOR
                     --------------------      ----------------------     COMMON STOCK TO     EXCHANGE    100 EXISTING
                       AMOUNT     PERCENT       AMOUNT        PERCENT     BE OUTSTANDING       RATIO         SHARES
                     ---------    -------      ---------      -------     --------------       -----       -----------

<S>                  <C>           <C>         <C>              <C>          <C>               <C>            <C>
Minimum........      5,000,890     58.8%       3,499,110        41.2%        8,500,000         1.7782         177
Midpoint.......      5,883,400     58.8%       4,116,600        41.2%       10,000,000         2.0920         209
Maximum........      6,765,910     58.8%       4,734,090        41.2%       11,500,000         2.4058         240
15% above Maximum    7,780,737     58.8%       5,444,263        41.2%       13,225,000         2.7667         276
</TABLE>

      If you hold shares of Sound Federal Bancorp in "street name," you do not
need to take any action to exchange the shares. If you hold Sound Federal
Bancorp stock certificates after the conversion and offering are completed, you
will receive a transmittal form with instructions to surrender stock
certificates. New certificates of Sound Federal Bancorp common stock will be
mailed within five business days after the exchange agent receives properly
executed transmittal forms and certificates.

      New shares of Sound Federal Bancorp issued in exchange for existing shares
are considered acquired in an initial public offering. Accordingly, such new
shares cannot be owned on margin for 30 days after the offering. If a
shareholder owns our stock on margin, the shares would have to be moved to a
cash account prior to exchanging the old stock certificates for new stock
certificates.

      No fractional shares of Sound Federal Bancorp common stock will be issued
to any public stockholder of Sound Federal Bancorp. For each fractional share
that would otherwise be issued, Sound Federal Bancorp will pay in cash an amount
equal to the product obtained by multiplying the fractional share interest to
which the holder would otherwise be entitled by the $10.00 per share
subscription price. Under federal regulations, current stockholders of Sound
Federal Bancorp do not have dissenters' rights or appraisal rights in connection
with the conversion.

DIFFERENCES IN STOCKHOLDERS' RIGHTS

      As a result of the conversion, existing stockholders of Sound Federal
Bancorp, a federal corporation, will become stockholders of Sound Federal
Bancorp, a Delaware corporation. The changes in stockholder rights result from
differences in the Delaware certificate of incorporation and bylaws, and from
distinctions between Delaware and federal law. In our mutual holding company
form of organization, public stockholders are unable to compel the board of
directors to take corporate actions that the board of directors determine are
not in the best interests of stockholders. As a fully converted institution, the
Board has determined to include in its certificate of incorporation and bylaws
provisions that would make it more difficult for stockholders to compel the
Board to take an action which the Board concludes are not in the best interests
of Sound Federal Bancorp and its stockholders. THE DIFFERENCES IN STOCKHOLDER
RIGHTS UNDER THE DELAWARE CERTIFICATE OF INCORPORATION AND BYLAWS ARE NOT
MANDATED BY DELAWARE LAW BUT HAVE BEEN CHOSEN BY MANAGEMENT AS BEING IN THE BEST
INTERESTS OF THE CORPORATION AND ALL OF ITS STOCKHOLDERS. The differences in
stockholder rights include the following: (i) approval by at least 80% of
outstanding shares required to remove a director for cause; (ii) the inability
of stockholders to call special meetings; (iii) greater lead time required for
stockholders to submit stockholder proposals; (iv) approval by at least 80% of
outstanding shares required to amend the Certificate of Incorporation and
Bylaws; (v) a residency requirement for directors; (vi) approval by at least 80%
of outstanding shares required to approve business combinations involving an
interested stockholder. As a result of including these provisions, stockholders
as a whole will have more limited rights to compel actions. See "Comparison Of
Stockholders' Rights" on page _____ for a discussion of these differences.

LIMITS ON HOW MUCH COMMON STOCK YOU MAY PURCHASE

      The minimum number of shares that may be purchased is 25.

                                       5
<PAGE>

      IF YOU ARE NOT NOW A SOUND FEDERAL BANCORP STOCKHOLDER:

      No individual may purchase more than 50,000 shares. If any of the
following persons purchase stock, their purchases when combined with your
purchases cannot exceed 50,000 shares:

      o     your spouse or relatives of you or your spouse living in your house;

      o     companies, trusts or other entities in which you have an interest or
            hold a position; or

      o     other persons who may be acting in concert with you.

      IF YOU ARE NOW A SOUND FEDERAL BANCORP STOCKHOLDER:

      In addition to the above purchase limitations, there is an ownership
limitation. Shares that you purchase in the offering individually and together
with persons acting in concert with you as described above, PLUS new shares you
and they receive in the exchange for existing Sound Federal Bancorp common
stock, may not exceed 2% of the shares issued in the conversion, or 230,000
shares at the maximum of the offering range. Subject to Office of Thrift
Supervision approval, we may increase or decrease the purchase and ownership
limitations at any time.

HOW YOU MAY PURCHASE COMMON STOCK

      In the subscription offering and direct community offering, you may pay
for your shares only by:

      (1)   personal check, bank check or money order; or

      (2)   authorizing us to withdraw funds from Sound Federal Savings deposit
            accounts, including certificate of deposit accounts, designated on
            the stock order form.

      Sound Federal Savings is not permitted to lend funds to anyone for the
purpose of purchasing our common stock in the offering. Additionally, you may
not use a Sound Federal Savings line of credit to pay for common stock.

      You can subscribe for shares of common stock in the offering by delivering
a signed and completed original stock order form, together with full payment,
provided that we receive the stock order form before the end of the offering. We
will pay interest at Sound Federal Savings' passbook savings rate, from the date
funds are received until completion or termination of the conversion.
Withdrawals from certificates of deposit may be made without incurring an early
withdrawal penalty. All funds authorized for withdrawal from deposit accounts
with Sound Federal Savings must be in the deposit accounts at the time the stock
order is received. However, funds will not be withdrawn from the deposit
accounts until the completion of the offering and will earn interest at the
applicable deposit account rate until the completion of the offering. A hold
will be placed on those funds when your stock order is received, making the
designated funds unavailable to you. After we receive an order, the order cannot
be withdrawn or changed, except with our consent.

      You may subscribe for shares using funds in your individual retirement
account at Sound Federal Savings or elsewhere. However, common stock must be
held in a self-directed retirement account. By regulation, Sound Federal
Savings' individual retirement accounts are not self-directed, so they cannot be
invested in stock. If you wish to use some or all of the funds in your Sound
Federal Savings individual retirement account, the applicable funds must be
transferred to a self-directed account maintained by an independent trustee,
such as a brokerage firm. If you do not have such an account, you will need to
establish one before placing your stock order. An annual administrative fee may
be payable to the independent trustee. Because individual circumstances differ
and processing of retirement fund orders takes additional time, we recommend
that you contact the stock information center promptly, preferably at least two
weeks before the end of the offering period, for assistance with purchases using
your individual retirement account or other retirement account that you may
have. Whether you may use such funds for the purchase of shares in the stock
offering may depend on timing constraints and, possibly, limitations imposed by
the institution where the funds are held.

                                       6
<PAGE>

HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

      We estimate net proceeds will be between $48.5 million and $66.0 million,
or $76.0 million if the offering range is increased by 15%. Sound Federal
Bancorp intends to retain approximately 50% of the net proceeds (between $24.3
million and $33.0 million, or $38.0 million if the offering range is increased
by 15%). Approximately $24.3 million to $33.0 million of the net proceeds (or
$38.0 million if the offering range is increased by 15%) will be invested in
Sound Federal Savings.

      The net proceeds will be used for general corporate purposes. Sound
Federal Bancorp may use the funds to pay cash dividends and repurchase shares of
common stock. Funds invested in Sound Federal Savings will be used to obtain
additional capital to support lending and to offer new products and banking
services. The net proceeds also may be used for future business expansion
through acquisitions or establishing new branches. We do not now have any
specific acquisition or expansion plans. Initially, the net proceeds will be
invested in short-term investments and investment-grade debt obligations, and
mortgage-backed securities.

      A portion of the net proceeds also may be used to provide a loan to the
employee stock ownership plan to fund the purchase of common stock in the
offering.

YOU MAY NOT SELL OR TRANSFER YOUR SUBSCRIPTION RIGHTS

      If you order stock in the subscription offering, you will be required to
state that you are purchasing the stock for yourself and that you have no
agreement or understanding to sell or transfer your subscription rights. We
intend to take legal action, including reporting persons to federal or state
regulatory agencies, against anyone who we believe sells or gives away their
subscription rights. We will not accept your order if we have reason to believe
that you sold or transferred your subscription rights. In addition, you may not
add the names of others for joint stock registration unless they were eligible
to purchase common stock in the subscription offering on the applicable date of
eligibility.

DEADLINES FOR ORDERS OF COMMON STOCK

      If you wish to purchase shares, a properly completed stock order form,
together with payment for the shares, must be received by Sound Federal Bancorp
no later than 12:00 noon, New York Time, on December ____, 2002, unless we
extend this deadline. You may submit your order form by mail using the return
envelope provided, by overnight courier to the indicated address on the order
form, or by delivery to the stock information center. Stock order forms may be
delivered in person to our branch offices.

YOU MAY NOT REVOKE YOUR PURCHASE ORDER UNLESS THE OFFERING IS TERMINATED OR
EXTENDED BEYOND FEBRUARY ____, 2003.

      Funds submitted in connection with the purchase of common stock in the
offering will be held by Sound Federal Bancorp until the termination or
completion of the offering, including any extension of the expiration date.
Because completion of the offering will be subject to an update of the
independent appraisal and other factors, there may be one or more delays in
completing the offering. Orders submitted in the offering are irrevocable, and
subscribers will have no access to subscription funds and/or shares of common
stock unless the stock offering is terminated, or extended beyond February ____,
2003.

TERMINATION OF THE OFFERING

      The subscription offering will terminate at 12:00 noon, New York Time, on
December ____, 2002. We expect that the community offering will terminate at the
same time. We may extend this expiration date without notice to you, until
February ____, 2003, unless regulators approve a later date. If the subscription
offering and/or community offering extend beyond February ____, 2003, we will be
required to resolicit subscriptions before proceeding with the offering.

                                       7
<PAGE>

STEPS WE MAY TAKE IF WE DO NOT RECEIVE ORDERS FOR THE MINIMUM NUMBER OF SHARES

      If we do not receive orders for at least 5,000,890 shares of common stock,
we may take several steps in order to sell the minimum number of shares in the
offering range. Specifically, we may increase the purchase limitations and we
may seek regulatory approval to extend the offering beyond the December ____,
2002 expiration date, provided that any such extension will require us to
resolicit subscriptions received in the offering.

PURCHASES BY OFFICERS AND DIRECTORS

      We expect our directors and executive officers, together with their
families, to subscribe for 108,000 shares, which equals approximately 1.8% of
the shares sold at the midpoint of the offering range. The purchase price paid
by them will be the same $10.00 per share price paid by all other persons who
purchase shares in the offering. Following the conversion, our directors and
executive officers, together with their associates, are expected to own
_________ shares of common stock, or ___% of our outstanding common stock if
shares are sold at the midpoint of the offering range.

BENEFITS TO MANAGEMENT AND POTENTIAL DILUTION TO STOCKHOLDERS RESULTING FROM THE
CONVERSION

      Our employee stock ownership plan expects to purchase up to 8% of the
shares we sell in the offering, or 541,273 shares, assuming we sell the maximum
of the shares proposed to be sold. If we sell more shares than the maximum of
the offering range, the employee stock ownership plan will have first priority
to purchase shares over this maximum, up to the total of 8% of the shares sold.
We reserve the right to purchase common stock in the open market following the
offering in order to fund the employee stock ownership plan. This plan is a
tax-qualified retirement plan for all eligible employees. Assuming the plan
purchases 541,273 shares in the offering, we will recognize additional
compensation expense of $5,412,730 over a period of 20 years, or approximately
$271,000 per year, from the consummation of the conversion, assuming the shares
have a fair market value of $10.00 per share for the full 20-year period. If, in
the future, the shares have a fair market value greater or less than $10.00, the
compensation expense will increase or decrease accordingly.

      We also intend to implement two stock-based incentive plans no earlier
than six months after the conversion, and stockholder approval of such plans
would be required. The recognition and retention plan is a restricted stock plan
that would reserve an amount equal to 4% of the shares sold in the offering, or
270,636 shares at the maximum of the offering range, for awards to key employees
and directors, at no cost to the recipients. If the shares awarded under the
recognition and retention plan come from authorized but unissued shares,
stockholders would experience dilution of approximately 2.3% in their ownership
interest in Sound Federal Bancorp. The second plan would be a stock option plan,
and would reserve an amount equal to 10% of the shares sold in the offering, or
up to 676,591 shares at the maximum of the offering range, for key employees and
directors upon their exercise. If the shares issued upon the exercise of options
come from authorized but unissued shares, stockholders would experience dilution
of approximately 5.6% in their ownership interest in Sound Federal Bancorp.
Awards made under these plans would be subject to vesting over a period of
years.

      We also will convert options previously awarded under our current stock
option plan into options to purchase Sound Federal Bancorp common stock, with
the number and exercise price to be adjusted, based on the exchange ratio. The
term and vesting period of the previously awarded options will remain unchanged.

      The following table summarizes the number of shares and aggregate dollar
value of grants that are expected under the new stock recognition and retention
plan and the new stock option plan as a result of the conversion. A portion of
the stock grants shown in the table below may be made to non-management
employees.

                                       8
<PAGE>

<TABLE>
<CAPTION>

                                    NUMBER OF SHARES TO BE AWARDED, GRANTED OR
                                                    PURCHASED
                                    -------------------------------------------    DILUTION
                                                                     AS A          RESULTING           VALUE OF GRANTS (1)
                                                                  PERCENTAGE         FROM         ---------------------------
                                         AT             AT         OF COMMON      ISSUANCE OF         AT               AT
                                      MINIMUM        MAXIMUM      STOCK TO BE     SHARES FOR        MINIMUM         MAXIMUM
                                    OF OFFERING    OF OFFERING    SOLD IN THE    STOCK BENEFIT    OF OFFERING     OF OFFERING
                                       RANGE          RANGE         OFFERING         PLANS           RANGE           RANGE
                                    ------------   -----------   -------------   -------------    ------------    -----------

<S>                                    <C>           <C>                <C>           <C>         <C>            <C>
Employee stock ownership plan...       400,071       541,273            8%            N/A         $4,000,710     $  5,412,730
Recognition and retention plan..       200,036       270,636            4%            2.3%         2,000,360        2,706,360
Stock option plan...............       500,089       676,591           10%            5.6%                --               --
                                    ----------    ----------       ------                         ----------     ------------
   Total........................     1,100,196     1,488,500          22%             7.9%        $6,001,070      $ 8,119,090
                                    ==========    ==========      ======                          ==========      ===========
</TABLE>
------------------------------
(1)   The actual value of restricted stock grants will be determined based on
      their fair value as of the date grants are made. For purposes of this
      table, fair value is assumed to be the same as the offering price of
      $10.00 per share. No value is given for options because their exercise
      price will be equal to the fair market value of the common stock on the
      day the options are granted. As a result, value can be realized under an
      option only if the market price of the common stock increases after the
      option grant.

MARKET FOR COMMON STOCK

      Existing publicly held shares of our common stock trade on the Nasdaq
National Market under the symbol "SFFS." Upon completion of the conversion, the
new shares of common stock of Sound Federal Bancorp will replace existing shares
and will be traded on the Nasdaq National Market. For a period of 20 trading
days following completion of our offering, our symbol will be "SFFSD."
Thereafter it will be "SFFS." Keefe, Bruyette & Woods, Inc. currently intends to
remain a market maker in the common stock and will assist us in obtaining
additional market makers.

OUR DIVIDEND POLICY

      Sound Federal Bancorp currently pays a cash dividend of $0.09 per share
per quarter, or $0.36 per share per year. After the conversion, we intend to
continue to pay cash dividends on a quarterly basis. We expect such dividends to
equal $0.20 per share per year, which represents an annual dividend yield of
2.0% based upon a price of $10.00 per share. The amount of dividends that we
intend to pay after the conversion will approximately preserve or increase the
per share dividend amount, adjusted to reflect the exchange ratio, that Sound
Federal Bancorp stockholders currently receive. The dividend rate and the
continued payment of dividends will depend on a number of factors, including our
capital requirements, our financial condition and results of operations, tax
considerations, statutory and regulatory limitations, and general economic
conditions. No assurance can be given that we will continue to pay dividends or
that they will not be reduced in the future.

TAX CONSEQUENCES

      The conversion will not be a taxable transaction to Sound Federal, MHC,
Sound Federal Bancorp, Sound Federal Savings, existing stockholders of Sound
Federal Bancorp, or persons eligible to subscribe in the offering, with respect
to federal or state income tax.

CONDITIONS TO COMPLETION OF THE CONVERSION

      We cannot complete our conversion and related offering unless:

      o     The plan of conversion is approved by at least A MAJORITY OF VOTES
            ELIGIBLE to be cast by members of Sound Federal, MHC (depositors of
            Sound Federal Savings);

      o     The plan of conversion is approved by the holders of at least
            TWO-THIRDS OF THE OUTSTANDING SHARES of Sound Federal Bancorp common
            stock;

      o     The plan of conversion is approved by at least A MAJORITY OF THE
            VOTES CAST by stockholders of Sound Federal Bancorp common stock,
            not including those shares held by Sound Federal, MHC;

      o     We sell at least the minimum number of shares offered; and

                                       9

<PAGE>

      o     We receive the final approval of the Office of Thrift Supervision to
            complete the conversion and offering.

      Sound Federal, MHC intends to vote its ownership interest in favor of the
conversion. At June 30, 2002, Sound Federal, MHC owned 58.8% of the outstanding
common stock of Sound Federal Bancorp. In addition, as of October __, 2002,
directors and executive officers of Sound Federal Bancorp and their associates
owned _______ shares of Sound Federal Bancorp, or ___% of the outstanding
shares. They intend to vote those shares in favor of the plan of conversion.

ADDITIONAL INFORMATION

      Our branch personnel may not, by law, assist with investment-related
questions about the offering. If you have any questions regarding the
conversion, please call the stock information center at (___) ___-____, between
8:30 a.m. and 3:00 p.m. Monday through Wednesday and Friday, and between 8:30
a.m. and 6:00 p.m. on Thursday, New York Time.

      TO ENSURE THAT EACH PERSON RECEIVES A PROSPECTUS AT LEAST 48 HOURS PRIOR
TO THE EXPIRATION DATE OF DECEMBER ____, 2002 IN ACCORDANCE WITH FEDERAL LAW, NO
PROSPECTUS WILL BE MAILED ANY LATER THAN FIVE DAYS PRIOR TO DECEMBER ____, 2002
OR HAND-DELIVERED ANY LATER THAN TWO DAYS PRIOR TO DECEMBER ____, 2002.








                                       10

<PAGE>

                 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
                     OF SOUND FEDERAL BANCORP AND SUBSIDIARY

      The following tables set forth selected consolidated historical financial
and other data of Sound Federal Bancorp for the periods and at the dates
indicated. On October 8, 1998, Sound Federal Savings was reorganized from a
mutual savings bank into a mutual holding company structure. Prior to that date,
Sound Federal Bancorp had no significant assets, liabilities or operations and,
accordingly, the financial and other data prior to that date represents the
consolidated financial condition and results of operations of Sound Federal
Savings. The information is derived in part from and should be read together
with the audited consolidated financial statements and notes thereto of Sound
Federal Bancorp and subsidiary beginning at page F-2 of this prospectus. The
information at March 31, 2000, 1999, and 1998 and for the years ended March 31,
1999 and 1998 was derived in part from audited consolidated financial statements
which are not included in this prospectus. The information at and for the three
months ended June 30, 2002 and 2001 is unaudited. However, in the opinion of
management of Sound Federal Bancorp, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the results of
operations for the unaudited periods have been made. The selected operating data
presented below for the three months ended June 30, 2002, are not necessarily
indicative of the results that may be expected for future periods.

<TABLE>
<CAPTION>
                                       AT OR FOR THE THREE                       AT OR FOR THE YEARS ENDED
                                       MONTHS ENDED JUNE 30,                              MARCH 31,
                                     -----------------------    ------------------------------------------------------------
                                         2002         2001         2002       2001(1)       2000         1999         1998
                                     ---------     ---------    ---------    ---------   ---------    ---------    ---------
                                                           (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                  <C>           <C>          <C>          <C>         <C>          <C>          <C>
  FINANCIAL CONDITION:
  Total assets.................      $ 651,465     $ 549,040    $ 623,985    $ 552,934   $ 332,344    $ 295,311    $ 254,749
  Loans, net...................        437,419       320,730      418,368      293,807     180,932      143,536      128,558
  Mortgage-backed securities:
     Available for sale........        101,615       137,206      104,134      115,931      24,980       16,531           --
     Held to maturity..........             --            --           --       25,177      32,210       41,739       53,421
  Other securities:
     Available for sale........         42,227        43,047       46,097       41,595      37,385       22,871        2,994
     Held to maturity..........             --            --           --        3,038       3,448        3,851       11,477
  Deposits.....................        544,626       471,167      519,905      473,546     275,772      237,279      219,913
  Equity.......................         63,820        57,424       61,015       56,929      52,689       54,984       31,901

  RESULTS OF OPERATIONS:
   Net interest income.........      $   6,285     $   4,026    $  18,906    $  14,568   $  10,668    $   9,312    $   8,875
   Provision for loan losses...             75            25          175          208         100          272          155
   Non-interest income.........            170           196          731          382         294          171          186
   Contribution of common stock to
     charitable foundation(2)..             --            --           --           --          --        1,022           --
   Other non-interest expense(3)         2,843         2,334       10,316       10,033       7,027        4,898        3,956
                                     ---------     ---------    ---------    ---------   ---------    ---------    ---------
   Income before income tax expense      3,537         1,863        9,146        4,709       3,835        3,291        4,950
   Income tax expense..........          1,376           688        3,376        2,050       1,443        1,350        2,065
                                     ---------     ---------    ---------    ---------   ---------    ---------    ---------
   Net income(3)...............      $   2,161     $   1,175    $   5,770    $   2,659   $   2,392    $   1,941    $   2,885
                                     =========     =========    =========    =========   =========    =========    =========

 PERFORMANCE RATIOS:
   Return on average assets....           1.36%         0.86%        1.01%        0.56%       0.77%        0.70%        1.16%
   Return on average equity....          14.03          8.73         9.85         4.89        4.48         4.53         9.47
   Average interest rate spread(4)        4.02          2.90         3.31         2.96        2.99         3.01         3.29
   Net interest margin(5)......           4.19          3.13         3.51         3.26        3.55         3.51         3.69
   Efficiency ratio(6).........          44.04         59.04        52.72        64.80       62.19        51.65        43.66
   Dividend payout ratio(7)(8).          15.22         28.00        22.58        50.00       58.33          --           --

                                                                                                 (FOOTNOTES ON FOLLOWING PAGE)
</TABLE>

                                       11

<PAGE>

<TABLE>
<CAPTION>
                                       AT OR FOR THE THREE                       AT OR FOR THE YEARS ENDED
                                       MONTHS ENDED JUNE 30,                              MARCH 31,
                                     -----------------------    ------------------------------------------------------------
                                         2002         2001         2002       2001(1)       2000         1999         1998
                                     ---------     ---------    ---------    ---------   ---------    ---------    ---------
                                                           (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                  <C>           <C>          <C>          <C>         <C>          <C>          <C>

 PER COMMON SHARE DATA(8):
  Basic earnings per share(3)(9)     $    0.46     $    0.25    $    1.24    $    0.56   $    0.48    $    0.10    $      --
  Diluted earnings per share...           0.46          0.25         1.23         0.56        0.48         0.10           --
  Diluted earnings per share
    before goodwill amortization          0.46          0.25         1.23         0.72        0.48         0.10           --
  Book value per share(10).....          13.36         12.05        12.78        11.83       10.53        10.55           --
  Tangible book value per share          10.43          9.12         9.85         8.93       10.53        10.55           --
  Dividends per share(11)......           0.07          0.07         0.28         0.28        0.28           --           --

 CAPITAL RATIOS:
  Equity to total assets
    (consolidated).............           9.80%        10.46%        9.78%       10.30%      15.85%       18.62%       12.52%
  Tier 1 leverage capital (bank
    only)......................           6.63%         6.65%        6.54%        6.35%      13.72%       14.76%       12.52%

 ASSET QUALITY DATA:
  Total non-performing loans...      $     952     $   1,126    $     755    $     933   $     969    $   1,091    $  1,958
  Total non-performing assets..      $     952     $   1,245    $     869    $   1,130   $   1,024    $   1,379    $  2,087

 ASSET QUALITY RATIOS:
  Non-performing loans to total
    loans......................           0.22%         0.35%        0.18%        0.31%       0.53%        0.75%        1.50%
  Non-performing assets to total
    assets.....................           0.15          0.23         0.14         0.20        0.31         0.47         0.82
  Allowance for loan losses to
    total loans at end of period          0.52          0.64         0.53         0.69        0.65         0.75         0.75
  Allowance for loan losses to
    non-performing loans.......         241.18        184.01       294.20       219.40      122.60       100.27        50.26
  Ratio of net charge-offs to
    average loans outstanding..             --            --           --         0.05          --         0.12         0.01

 OTHER DATA:
  Number of full service offices             9             8            9            8           5            5            3
</TABLE>

-----------------------
(1)   Information at or for the year ended March 31, 2001 includes the
      acquisition of Peekskill Financial Corporation, which was completed in
      July 2000. At the time of the acquisition, Peekskill Financial Corporation
      had total assets of $201.5 million and total deposits of $152.4 million.
(2)   Represents the expense recognized for the fair value of common shares
      contributed to establish the Sound Federal Savings and Loan Association
      Charitable Foundation.
(3)   Non-interest expense for the year ended March 31, 2001 includes goodwill
      amortization of $765,000 arising from the acquisition of Peekskill
      Financial Corporation. We adopted Statement of Financial Accounting
      Standards No. 142 effective April 1, 2001 and, accordingly, goodwill is no
      longer amortized as an expense. If goodwill had not been amortized during
      the year ended March 31, 2001, net income would have been $3.4 million,
      and basic and diluted earnings per share both would have been $0.72. See
      Note 2 of the Notes to Consolidated Financial Statements.
(4)   Represents the difference between the weighted average yield on
      interest-earning assets and the weighted average cost of interest-bearing
      liabilities.
(5)   Represents the net interest income as a percent of average
      interest-earning assets.
(6)   Computed by dividing non-interest expense (other than the special charge
      described in (2) above) by the sum of net interest income and non-interest
      income.
(7)   Dividend payout ratio is calculated by dividing cash dividends per share
      for the period by net income per share for the period.
(8)   Dividend payout ratio and income per share data are not presented for the
      year ended March 31, 1998, since no stock was outstanding prior to the
      initial public offering of Sound Federal Bancorp in October 1998.
(9)   Amount for fiscal 1999 was computed for the six-month period following the
      stock offering based on net income of $529,000 for that period and
      5,041,690 average common shares. Excluding the after-tax impact of the
      contribution to the charitable foundation, earnings per common share would
      have been $0.22 for the six-month period.
(10)  Computed based on total common shares issued, less treasury shares.
(11)  The following table sets forth historical dividend information for the
      periods indicated:

<TABLE>
<CAPTION>
                                FOR THE THREE MONTHS
                                   ENDED JUNE 30,             FOR THE YEARS ENDED MARCH 31,
                                --------------------   -------------------------------------------
                                  2002        2001       2002        2001        2000       1999
                                --------    --------   --------    --------    --------   --------
                                                          (IN THOUSANDS)
<S>                             <C>         <C>        <C>         <C>         <C>        <C>
     Dividends paid to public
       stockholders...........  $    138    $    140   $    517    $    580    $    611   $     --
     Dividends paid to Sound
       Federal, MHC...........        --          --         --          --         393         --
                                --------    --------   --------    --------    --------   --------
     Total dividends paid.....  $    138    $    140   $    517    $    580    $  1,004   $     --
                                ========    ========   ========    ========    ========   ========
</TABLE>
No dividends were paid during the year ended March 31, 1998, as no stock was
outstanding during that period. Payments listed above exclude cash dividends
waived by Sound Federal, MHC during the same periods of $197,000, $197,000,
$787,000, $787,000 and $394,000, respectively. Sound Federal, MHC, began waiving
dividends in October 1999, and, as of June 30, 2002, had waived dividends
totaling $2.2 million.

                                       12

<PAGE>

                                  RISK FACTORS

--------------------------------------------------------------------------------
You should consider carefully the following risk factors in evaluating an
investment in the common stock.
--------------------------------------------------------------------------------

CHANGES IN INTEREST RATES COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.

      At June 30, 2002, $367.3 million, or 83.7% of our total loans consisted of
fixed-rate loans. If interest rates rise, the amount of interest we pay on
deposits is likely to increase more quickly than the amount of interest we
receive on our loans and investments. This could cause our interest rate spread,
net interest income and profits to decrease, or could result in losses. If
interest rates continue to fall, however, many borrowers may refinance more
quickly, and competitive factors could prohibit our lowering interest rates on
deposit accounts any further. Although we have changed our lending priorities as
part of an effort to shorten the maturities or repricing of our interest earning
assets and, therefore, better match the maturities or repricing of our
interest-bearing liabilities, there can be no assurance that we will do so
successfully in the future.

      Management monitors interest rate sensitivity through the use of a model
that estimates the change in the present value of expected cash receipts and
cash payments from our assets, liabilities, and off-balance sheet items in
response to a range of assumed changes in market interest rates. Based on the
composition of our interest earning assets and interest bearing liabilities as
of June 30, 2002, in the event of an instantaneous and permanent 200 basis point
increase in interest rates we would expect to experience a 27.7% decrease in the
present value of cash flows (cash receipts from interest earnings assets minus
cash payments from interest bearing liabilities).

CHANGES IN THE VALUE OF GOODWILL COULD REDUCE OUR EARNINGS.

      On July 18, 2000, we completed our acquisition of Peekskill Financial
Corporation. We recorded the assets acquired and liabilities assumed from
Peekskill Financial Corporation at their fair values at the closing date. The
excess amount we paid for Peekskill Financial Corporation over the fair value of
the net assets acquired was recorded as goodwill, which is an intangible asset.
At June 30, 2002, the balance of goodwill on our balance sheet was $14.0
million.

      We are required by generally accepted accounting principles to test
goodwill for impairment at least annually. Testing for impairment of goodwill
involves the identification of reporting units and the estimation of fair
values. The estimation of fair values involves a high degree of judgment and
subjectivity in the assumptions utilized. If our goodwill were impaired and we
were required to charge-off the goodwill, the pro forma impact on our
stockholders' equity would be approximately $1.40 per share, assuming we issue
shares based on the midpoint of the valuation range.

IF OUR ALLOWANCE FOR LOAN LOSSES IS NOT SUFFICIENT TO COVER ACTUAL LOAN LOSSES,
OUR EARNINGS COULD DECREASE.

      Our loan customers may not repay their loans according to their terms and
the collateral securing the payment of these loans may be insufficient to pay
any remaining loan balance. We may experience significant loan losses, which
could have a material adverse effect on our operating results. We make various
assumptions and judgments about the collectability of our loan portfolio,
including the creditworthiness of our borrowers and the value of the real estate
and other assets serving as collateral for the repayment of many of our loans.
In determining the amount of the allowance for loan losses, we review our loans
and our loss and delinquency experience, and we evaluate economic conditions. If
our assumptions are incorrect, our allowance for loan losses may not be
sufficient to cover losses that have been incurred in our loan portfolio,
resulting in additions to our allowance. In addition, the federal banking
regulators periodically review our allowance for loan losses and may require us
to increase our provision for loan losses or recognize further loan charge-offs.
Any increase in our allowance for loan losses or loan charge-offs could have a
material adverse effect on our results of operations and financial condition.

                                       13

<PAGE>

OUR RETURN ON STOCKHOLDERS' EQUITY WILL BE REDUCED AS A RESULT OF THE OFFERING.

      Net income divided by average stockholders' equity, known as "return on
equity," is a ratio many investors use to compare the performance of a financial
institution to its peers. We expect our return on equity to decrease as compared
to our performance in recent years until we are able to leverage the additional
capital raised in the offering. Until we can increase our net interest income
and non-interest income, we expect our return on equity to be below the industry
average, which may negatively impact the value of our common stock. For the year
ended March 31, 2002 and the three months ended June 30, 2002, our return on
average equity was 9.85% and 14.03%, respectively. On a pro forma basis,
however, at the maximum of the offering range, our return on average equity
would have been 7.77% for the three months ended June 30, 2002, which is lower
than the industry average of 8.78% and the comparable group average of 10.25%
for this period.

THE IMPLEMENTATION OF STOCK-BASED BENEFIT PLANS MAY DILUTE YOUR OWNERSHIP
INTEREST.

      We intend to adopt a stock option plan and recognition and retention plan
following the offering. These stock benefit plans will be funded either through
open market purchases, if permitted, or from the issuance of authorized but
unissued shares. While our intention is to fund these plans through open market
purchases, stockholders will experience a reduction or dilution in ownership
interest of 7.9% in the event newly issued shares are used to fund stock options
and stock awards made under the recognition and retention plan.

OUR RECOGNITION AND RETENTION PLAN WILL INCREASE OUR COSTS, WHICH WILL REDUCE
OUR PROFITABILITY AND STOCKHOLDERS' EQUITY.

      We intend to implement a recognition and retention plan after the
offering. Under this plan, our officers and directors may be awarded, at no cost
to them, shares of common stock in an aggregate amount equal to 4% of the shares
sold in the offering. We must recognize expense for shares awarded over their
vesting period at the fair market value of the shares on the date they are
awarded. The recognition and retention plan may not be implemented until at
least six months after the offering. If the plan is adopted within twelve months
after the offering, it is subject to Office of Thrift Supervision regulations.
Assuming the shares of common stock to be awarded under the plan are repurchased
in the open market and cost the same as the purchase price in the offering, the
reduction to stockholders' equity from the plan would be between $2.0 million at
the minimum of the offering range and $3.1 million at the adjusted maximum of
the offering range, and the reduction in earnings per share for the three months
ended June 30, 2002 and the year ended March 31, 2002 would be $0.01 and $0.03,
respectively.

STRONG COMPETITION WITHIN OUR MARKET AREA MAY LIMIT OUR GROWTH AND
PROFITABILITY.

      Competition in the banking and financial services industry is intense. We
compete in our market area with commercial banks, savings institutions, mortgage
banks, credit unions, finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms. Many of these competitors have
substantially greater resources and lending limits than we have and may offer
certain services that we do not provide. Our profitability depends upon our
continued ability to successfully compete in our market area.

THE FUTURE PRICE OF THE COMMON STOCK MAY BE LESS THAN THE PURCHASE PRICE IN THE
OFFERING.

      We cannot assure you that if you purchase common stock in the offering you
will be able to sell it later at or above the purchase price in the offering.
The final aggregate purchase price of the common stock in the conversion will be
based on an independent appraisal. The appraisal is not intended, and should not
be construed, as a recommendation of any kind as to the advisability of
purchasing shares of common stock. The valuation is based on estimates and
projections of a number of matters, all of which are subject to change from time
to time.

WE HAVE BROAD DISCRETION IN ALLOCATING THE PROCEEDS OF THE OFFERING. OUR FAILURE
TO EFFECTIVELY UTILIZE SUCH PROCEEDS COULD REDUCE OUR PROFITABILITY.

      Sound Federal Bancorp intends to contribute approximately 50% of the net
proceeds of the offering to Sound Federal Savings. Sound Federal Bancorp may use
the remaining net proceeds to finance the acquisition of

                                       14

<PAGE>

other financial institutions, pay dividends to stockholders, repurchase common
stock, purchase investment securities, or for other general corporate purposes.
Sound Federal Bancorp expects to use a portion of the net proceeds to fund the
employee stock ownership plan purchases of shares in the offering. Sound Federal
Savings may use the proceeds it receives to establish or acquire new branches,
acquire financial institutions, fund new loans, purchase investment securities,
or for general corporate purposes. We have not allocated specific amounts of
proceeds for any of these purposes, and we will have significant flexibility in
determining how much of the net proceeds we apply to different uses and the
timing of such applications. Our failure to utilize these funds effectively
could reduce our profitability.

WE OPERATE IN A HIGHLY REGULATED ENVIRONMENT AND WE MAY BE ADVERSELY AFFECTED BY
CHANGES IN LAWS AND REGULATIONS.

      We are subject to extensive regulation, supervision and examination by the
Office of Thrift Supervision, our chartering authority, and by the Federal
Deposit Insurance Corporation, as insurer of our deposits. As a savings and loan
holding company, Sound Federal Bancorp is subject to regulation and supervision
by the Office of Thrift Supervision. Such regulation and supervision govern the
activities in which an institution and its holding company may engage, and are
intended primarily for the protection of the insurance fund and depositors.
Regulatory authorities have extensive discretion in their supervisory and
enforcement activities, including the imposition of restrictions on the
operation of an institution, the classification of assets by the institution and
determination of the level of an institution's allowance for loan losses. Any
change in such regulation and oversight, whether in the form of regulatory
policy, regulations or legislation, may have a material impact on our
operations.

VARIOUS FACTORS MAY MAKE TAKEOVER ATTEMPTS MORE DIFFICULT TO ACHIEVE.

      Our board of directors has no current intention to sell control of Sound
Federal Bancorp. Provisions of our certificate of incorporation and bylaws,
federal and state regulations and various other factors may make it more
difficult for companies or persons to acquire control of Sound Federal Bancorp
without the consent of our board of directors. It is possible, however, that you
would want a takeover attempt to succeed because, for example, a potential
acquiror could offer a premium over the then prevailing price of our common
stock. The factors that may discourage takeover attempts or make them more
difficult include:

      o     OFFICE OF THRIFT SUPERVISION REGULATIONS. Office of Thrift
            Supervision regulations prohibit, for three years following the
            completion of a mutual-to-stock conversion, the acquisition of more
            than 10% of any class of equity security of a converted institution
            without the prior approval of the Office of Thrift Supervision. The
            charter of Sound Federal Savings also will include a provision for a
            period of five years after the conversion, that prohibits any person
            from acquiring or offering to acquire, directly or indirectly, more
            than 10% of any class of equity security of Sound Federal Savings.

      o     CERTIFICATE OF INCORPORATION AND STATUTORY PROVISIONS. Provisions of
            the certificate of incorporation and bylaws of Sound Federal Bancorp
            and the corporate law of the State of Delaware, may make it more
            difficult and expensive to pursue a takeover attempt that management
            opposes. These provisions also make more difficult the removal of
            our current board of directors or management, or the appointment of
            new directors. These provisions include: limitations on voting
            rights of beneficial owners of more than 10% of our common stock;
            supermajority voting requirements for certain business combinations;
            and the election of directors to staggered terms of three years. Our
            bylaws also contain provisions regarding the timing and content of
            stockholder proposals and nominations and qualification for service
            on the board of directors.

      o     REQUIRED CHANGE IN CONTROL PAYMENTS. We have entered into employment
            agreements with certain executive officers that will require
            payments to be made to them in the event their employment is
            terminated following a change in control of Sound Federal Bancorp or
            Sound Federal Savings. These payments may have the effect of
            increasing the costs of acquiring Sound Federal Bancorp, thereby
            discouraging future attempts.

                                       15

<PAGE>

THE RIGHTS OF STOCKHOLDERS AS A WHOLE UNDER OUR DELAWARE CERTIFICATE OF
INCORPORATION AND BYLAWS ARE MORE LIMITED THAN UNDER OUR FEDERAL CHARTER AND
BYLAWS

      As a result of the conversion, existing stockholders of Sound Federal
Bancorp, a federal corporation in the mutual holding company structure, will
become stockholders of Sound Federal Bancorp, a Delaware corporation with no
mutual holding company parent. The rights of stockholders of the new Delaware
corporation as a whole will be more limited than the rights stockholders
currently have. The differences in stockholder rights under the Delaware
certificate of incorporation and bylaws are not mandated by Delaware law but
have been chosen by management as being in the best interests of the corporation
and all of its stockholders.

      For example, Sound Federal Bancorp's current stockholders must submit
nominations for election of directors at an annual meeting of stockholders and
any new business to be taken up at such a meeting by filing the proposal in
writing with Sound Federal Bancorp at least five days before the date of any
such meeting. Sound Federal Bancorp's Delaware bylaws generally provide,
however, that any stockholder desiring to make a nomination for the election of
directors or a proposal for new business at a meeting of stockholders must
submit written notice to Sound Federal Bancorp at least 90 days prior to the
anniversary date of the mailing of proxy materials in connection with the
immediately preceding annual meeting of stockholders. Similarly, special
meetings of Sound Federal Bancorp's current stockholders may be called by the
holders of not less than one-tenth of the outstanding capital stock entitled to
vote at the meeting. Sound Federal Bancorp's Delaware certificate of
incorporation provides that special meetings of the stockholders of Sound
Federal Bancorp may be called only by a majority vote of the total authorized
directors. See "Comparison Of Stockholders' Rights" for a discussion of these
differences.








                                       16

<PAGE>

                           FORWARD-LOOKING STATEMENTS

      This prospectus contains forward-looking statements, which can be
identified by the use of such words as estimate, project, believe, intend,
anticipate, plan, seek, expect and similar expressions. These forward-looking
statements include:

      o     statements of our goals, intentions and expectations;

      o     statements regarding our business plans, prospects, growth and
            operating strategies;

      o     statements regarding the asset quality of our loan and investment
            portfolios; and

      o     estimates of our risks and future costs and benefits.

      These forward-looking statements are subject to significant risks,
assumptions and uncertainties, including, among(other things, the following
important factors that could affect the actual outcome of future events:

      o     general economic conditions, either nationally or in our market
            areas, that are worse than expected;

      o     significantly increased competition among depository and other
            financial institutions;

      o     inflation and changes in the interest rate environment that reduce
            our margins or reduce the fair value of financial instruments;

      o     adverse changes in the securities markets;

      o     legislative or regulatory changes that adversely affect our
            business;

      o     our ability to enter new markets successfully and capitalize on
            growth opportunities;

      o     changes in consumer spending, borrowing and savings habits;

      o     changes in accounting policies and practices, as may be adopted by
            the bank regulatory agencies and the Financial Accounting Standards
            Board; and

      o     changes in our organization, compensation and benefit plans.

      Because of these and other uncertainties, our actual future results may be
materially different from the results indicated by these forward-looking
statements. We discuss some of these uncertainties and others in "Risk Factors"
beginning on page __.

               HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

      Although we cannot determine what the actual net proceeds from the sale of
the common stock in the offering will be until the offering is completed, we
anticipate that the net proceeds will be between $48.5 million and $66.0
million, or $76.0 million if the offering range is increased by 15%. Sound
Federal Bancorp estimates that it will invest in Sound Federal Savings between
$24.3 million and $33.0 million, or $38.0 million if the offering range is
increased by 15%. Sound Federal Bancorp intends to retain approximately 50% of
the net proceeds. Sound Federal Savings will, in all instances, receive at least
50% of the net proceeds from the offering.

                                       17

<PAGE>

      A summary of the anticipated net proceeds at the minimum, midpoint,
maximum and adjusted maximum of the offering range and anticipated distribution
of the net proceeds is as follows:

<TABLE>
<CAPTION>
                                                                                                ADJUSTED
                                                 MINIMUM        MIDPOINT          MAXIMUM        MAXIMUM
                                               ------------    -----------      -----------    -----------
                                                                     (IN THOUSANDS)

<S>                                            <C>             <C>              <C>            <C>
      Offering proceeds..................      $     50,009    $    58,834      $    67,659    $    77,807
      Less offering expenses.............             1,463          1,573            1,682          1,808
                                               ------------    -----------      -----------    -----------
      Net offering proceeds..............      $     48,546    $    57,261      $    65,977    $    75,999
                                               ============    ===========      ===========    ===========

      Distribution of net proceeds:
      To Sound Federal Savings...........      $     24,273    $    28,631      $    32,989    $    38,000
      Retained by Sound Federal Bancorp..      $     24,273    $    28,630      $    32,988    $    37,999
</TABLE>

      Payments for shares made through withdrawals from existing deposit
accounts will not result in the receipt of new funds for investment but will
result in a reduction of Sound Federal Savings' deposits. The net proceeds may
vary because total expenses relating to the offering may be more or less than
our estimates. For example, our expenses would increase if a syndicated
community offering were used to sell shares not purchased in the subscription
offering and community offering.

SOUND FEDERAL BANCORP MAY USE THE PROCEEDS IT RETAINS FROM THE OFFERING:

      o     to invest in securities;

      o     to pay cash dividends to stockholders;

      o     to repurchase its common stock;

      o     to finance the acquisition of financial institutions or branches or
            other financial service companies, although we do not currently have
            any specific acquisition plans; and

      o     for other general corporate purposes.

      Under current Office of Thrift Supervision regulations, we may not
repurchase shares of our common stock during the first year following the
conversion, except when extraordinary circumstances exist and with prior
regulatory approval.

SOUND FEDERAL SAVINGS MAY USE THE PROCEEDS IT RECEIVES FROM THE OFFERING:

      o     to fund new loans, including single-family mortgage loans,
            multi-family residential and commercial mortgage loans, commercial
            business loans, construction loans and consumer loans;

      o     to expand its retail banking franchise, by establishing or acquiring
            new branches or by acquiring other financial institutions, or other
            financial service companies, although we do not currently have any
            specific acquisition plans;

      o     to support new products and services;

      o     to invest in securities; and

      o     for other general corporate purposes.

                                       18

<PAGE>

                               OUR DIVIDEND POLICY

      Sound Federal Bancorp currently pays a cash dividend of $0.09 per share
per quarter, or $0.36 per share per year. After the conversion, we intend to
continue to pay cash dividends on a quarterly basis. We expect such dividends to
equal $0.20 per share per year, which represents an annual dividend yield of
2.0%, based upon a stock price of $10.00 per share. The amount of dividends that
we intend to pay to our stockholders following the conversion is intended to
approximately preserve or increase the per share dividend amount, adjusted to
reflect the exchange ratio, that our stockholders currently receive on their
Sound Federal Bancorp common stock. The dividend rate and the continued payment
of dividends will depend on a number of factors including our capital
requirements, our financial condition and results of operations, tax
considerations, statutory and regulatory limitations, and general economic
conditions. We cannot assure you that we will not reduce or eliminate dividends
in the future.

      Under the rules of the Office of Thrift Supervision, Sound Federal Savings
will not be permitted to pay dividends on its capital stock to Sound Federal
Bancorp, its sole stockholder, if Sound Federal Savings' stockholder's equity
would be reduced below the amount of the liquidation account. See "The
Conversion--Liquidation Rights." For information concerning federal and state
law and regulations regarding the ability of Sound Federal Savings to make
capital distributions, including the payment of dividends, to Sound Federal
Bancorp, see "Taxation--Federal Taxation" and "Supervision and
Regulation--Federal Banking Regulation."

      Unlike Sound Federal Savings, Sound Federal Bancorp is not restricted by
Office of Thrift Supervision regulations on the payment of dividends to its
stockholders, although the source of dividends will depend on the net proceeds
retained by Sound Federal Bancorp and earnings thereon, and, as necessary, upon
dividends received from Sound Federal Savings. Sound Federal Bancorp, however,
is subject to the requirements of Delaware law, which generally limits dividends
to an amount equal to the excess of its stockholders' equity over its statutory
capital or, if there is no excess, to its net earnings for the current and/or
immediately preceding fiscal year.

      Additionally, we have committed to the Office of Thrift Supervision that
during the one-year period following the completion of the conversion, Sound
Federal Bancorp will not take any action to declare an extraordinary dividend to
our stockholders that would be treated by such stockholders as a tax-free return
of capital for federal income tax purposes, without prior approval of the Office
of Thrift Supervision.

      See "Selected Consolidated Financial and Other Data of Sound Federal
Bancorp and Subsidiary" for information regarding our historical dividend
payments.

                           MARKET FOR THE COMMON STOCK

      Sound Federal Bancorp common stock is currently listed on the Nasdaq
National Market under the symbol "SFFS," and there is an established market for
such common stock. At November __, 2002, we had _____________ market makers,
including Keefe, Bruyette & Woods, Inc. Upon completion of the conversion, the
new shares of common stock of Sound Federal Bancorp will replace existing shares
and be traded on the Nasdaq National Market. Keefe, Bruyette & Woods, Inc.
intends to remain a market maker in Sound Federal Bancorp common stock following
the conversion. Keefe, Bruyette & Woods, Inc. also will assist Sound Federal
Bancorp in obtaining other market makers after the conversion. We cannot assure
you that other market makers will be obtained or that an active and liquid
trading market for the common stock will develop or, if developed, will be
maintained. For a period of 20 trading days following completion of our
offering, our symbol will be "SFFSD," after which it will be "SFFS."

      The development of a public market having the desirable characteristics of
depth, liquidity and orderliness depends on the existence of willing buyers and
sellers, the presence of which is not within our control or that of any market
maker. The number of active buyers and sellers of our common stock at any
particular time may be limited, which may have an adverse effect on the price at
which our common stock can be sold. There can be no assurance that persons
purchasing the common stock will be able to sell their shares at or above the
$10.00 price per share in the offering. Purchasers of our common stock should
have a long-term investment intent and should recognize that there may be a
limited trading market in the common stock.

                                       19

<PAGE>

      The following table sets forth the high and low trading prices for Sound
Federal Bancorp common stock and cash dividends paid per share for the periods
indicated. As of June 30, 2002, there were 1,967,782 publicly held shares of
Sound Federal Bancorp common stock issued and outstanding. In connection with
the conversion, each existing share of common stock of Sound Federal Bancorp
will be converted into a number of new shares of common stock, based upon the
exchange ratio that is described in other parts of this prospectus.

      FISCAL YEAR ENDING                                         DIVIDEND PAID
      MARCH 31, 2003              HIGH               LOW           PER SHARE
      --------------           ---------          --------      --------------

      Third quarter (through   $                  $              $
        November ___, 2002)
      Second quarter                                                 0.09
      First quarter                23.849           15.020           0.07

      FISCAL YEAR ENDED                                          DIVIDEND PAID
      MARCH 31, 2002              HIGH               LOW           PER SHARE
      --------------           ---------          --------      --------------

      Fourth quarter           $   15.450         $ 13.050        $  0.07
      Third quarter                13.430           11.670           0.07
      Second quarter               15.100           11.100           0.07
      First quarter                11.500           10.000           0.07

      FISCAL YEAR ENDED                                          DIVIDEND PAID
      MARCH 31, 2001              HIGH               LOW           PER SHARE
      --------------           ---------          --------      --------------

      Fourth quarter           $   10.560         $  8.625        $  0.07
      Third quarter                 9.188            8.688           0.07
      Second quarter                9.250            8.250           0.07
      First quarter                 9.000            8.250           0.07

      On June 13, 2002, the business day immediately preceding the public
announcement of the conversion, and on November __, 2002, the closing prices of
Sound Federal Bancorp common stock as reported on the Nasdaq National Market
were $19.10 per share and $_____ per share, respectively. At November __, 2002,
Sound Federal Bancorp had approximately _____ stockholders of record. On the
effective date of the conversion, all publicly held shares of Sound Federal
Bancorp common stock, including shares held by our officers and directors, will
be converted automatically into and become the right to receive a number of
shares of Sound Federal Bancorp common stock determined pursuant to the exchange
ratio. See "The Conversion-Share Exchange Ratio." Options to purchase shares of
Sound Federal Bancorp common stock will be converted into options to purchase a
number of shares of Sound Federal Bancorp common stock determined pursuant to
the exchange ratio, for the same aggregate exercise price. See "Beneficial
Ownership of Common Stock."





                                       20

<PAGE>

             HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE

      At June 30, 2002, Sound Federal Savings exceeded all of the applicable
regulatory capital requirements. The table below sets forth the historical
equity capital and regulatory capital of Sound Federal Savings at June 30, 2002
and the pro forma regulatory capital of Sound Federal Savings, assuming the
indicated number of shares were sold as of such date at $10.00 per share and
Sound Federal Savings received 50% of the net conversion proceeds.

<TABLE>
<CAPTION>
                                     SOUND FEDERAL                              PRO FORMA AT JUNE 30, 2002
                                   SAVINGS HISTORICAL ------------------------------------------------------------------------------
                                           AT                                                                    MAXIMUM AS ADJUSTED
                                     JUNE 30, 2002         MINIMUM             MIDPOINT           MAXIMUM              (1)
                                   -----------------  ------------------   -----------------  -----------------  -------------------
                                              PERCENT             PERCENT            PERCENT            PERCENT             PERCENT
                                                OF                  OF                  OF                OF                  OF
                                              ASSETS              ASSETS             ASSETS             ASSETS              ASSETS
                                   AMOUNT      (2)     AMOUNT      (2)      AMOUNT     (2)     AMOUNT     (2)     AMOUNT      (2)
                                  --------   -------  --------   -------   --------  -------  --------  -------  --------   -------
                                                                       (DOLLARS IN THOUSANDS)

<S>                               <C>          <C>    <C>          <C>     <C>        <C>     <C>        <C>     <C>         <C>
Equity capital..................  $ 57,811     8.88%  $ 79,084     11.77%  $ 82,912   12.27%  $ 86,740   12.76%  $ 91,142    13.32%

Tangible capital (3)............  $ 42,113     6.63%  $ 63,386      9.66%  $ 67,214   10.18%  $ 71,042   10.70%  $ 75,444    11.29%
Tangible requirement............     9,528     1.50      9,846      1.50      9,904    1.50      9,961    1.50     10,027     1.50
                                  --------   ------   --------   -------   --------  ------   --------  ------   --------   ------
Excess..........................  $ 32,585     5.13%  $ 53,540     8.16%   $ 57,310    8.68%  $ 61,081    9.20%  $ 65,417     9.79%
                                  ========   ======   ========   ======    ========  ======   ========  ======   ========   ======

Core (leverage) capital (3).....  $ 42,113     6.63%  $ 63,386     9.66%   $ 67,214   10.18%  $ 71,042   10.70%  $ 75,444    11.29%
Core (leverage) requirement (4).    25,405     4.00     26,256     4.00      26,410    4.00     26,563    4.00     26,739     4.00
                                  --------   ------   --------   ------    --------  ------   --------  ------   --------   ------
Excess..........................  $ 16,708     2.63%  $ 37,130     5.66%   $ 40,804    6.18%  $ 44,479    6.70%  $ 48,705     7.29%
                                  ========   ======   ========   ======    ========  ======   ========  ======   ========   ======

Total risk-based capital (3)(5).  $ 44,410    13.78%  $ 65,683    19.73%   $ 69,511   20.76%  $ 73,339   21.77%  $ 77,741    22.93%
Risk-based requirement..........    25,788     8.00     26,639     8.00      26,792    8.00     26,946    8.00     27,122     8.00
                                  --------   ------   --------   ------    --------  ------   --------  ------   --------   ------
Excess..........................  $ 18,622     5.78%  $ 39,044    11.73%   $ 42,719   12.76%  $ 46,393   13.77%  $ 50,619    14.93%
                                  ========   ======   ========   ======    ========  ======   ========  ======   ========   ======
</TABLE>

--------------------------------
(1)   As adjusted to give effect to an increase in the number of shares which
      could occur due to a 15% increase in the offering range to reflect changes
      in market or general financial conditions following the commencement of
      the offering.
(2)   Tangible and core capital levels are shown as a percentage of total
      adjusted assets. Risk-based capital levels are shown as a percentage of
      risk-weighted assets.
(3)   Pro forma capital levels assume repayment by Sound Federal Savings of the
      additional loan to the ESOP to enable it to purchase 8% of the common
      stock sold in the offering.
(4)   The current Office of Thrift Supervision core capital requirement for
      financial institutions is 3% of total adjusted assets for financial
      institutions that receive the highest supervisory rating for safety and
      soundness and a 4% to 5% core capital ratio requirement for all other
      financial institutions.
(5)   Pro forma amounts and percentages assume net proceeds are invested in
      assets that carry a 50% risk-weighting.

                                       21

<PAGE>

                                 CAPITALIZATION

      The following table presents the historical consolidated capitalization of
Sound Federal Bancorp at June 30, 2002 and the pro forma consolidated
capitalization of Sound Federal Bancorp after giving effect to the conversion,
based upon the assumptions set forth in the "Pro Forma Data" section.

<TABLE>
<CAPTION>
                                                                                                                13,225,000
                                                              8,500,000        10,000,000      11,500,000       MAXIMUM AS
                                                               MINIMUM          MIDPOINT        MAXIMUM          ADJUSTED
                                                  SOUND         SHARES           SHARES          SHARES           SHARES
                                                 FEDERAL      OUTSTANDING,     OUTSTANDING,    OUTSTANDING,     OUTSTANDING,
                                                 BANCORP       5,000,890        5,883,400       6,765,910        7,780,737
                                                HISTORICAL    SHARES SOLD      SHARES SOLD     SHARES SOLD      SHARES SOLD
                                                 AT JUNE     $10.00 PER        $10.00 PER      $10.00 PER        $10.00 PER
                                                   2002         SHARE             SHARE           SHARE          SHARE (1)
                                               -----------   ------------     ------------    ------------     ------------
                                                                          (DOLLARS IN THOUSANDS)

<S>                                            <C>           <C>              <C>             <C>              <C>
 Deposits (2)............................      $   544,626   $    544,626     $    544,626    $    544,626     $    544,626
 Borrowings..............................           34,967         34,967           34,967          34,967           34,967
                                               -----------   ------------     ------------    ------------     ------------
   Total deposits and borrowings.........      $   579,593   $    579,593     $    579,593    $    579,593     $    579,593
                                               ===========   ============     ============    ============     ============

 Stockholders' equity:
  Preferred stock, $0.01 par value,
    1,000,000 shares authorized
    (post-conversion) (3)................               --             --               --              --               --
   Common stock $0.01 par value,
    24,000,000 shares authorized
    (post-conversion); shares to be
    issued as reflected (3) (4)..........              522             85              100             115              132
   Additional paid-in capital (3)........           22,596         71,952           80,652          89,416           99,358
   Retained earnings (5).................           44,589         44,589           44,589          44,589           44,589
   Accumulated comprehensive
    income, net of taxes.................            1,728          1,728            1,728           1,728            1,728
 Less:
   Treasury stock........................           (4,350)        (4,350)          (4,350)         (4,350)          (4,350)
   Common stock held by employee
     stock ownership plan................           (1,057)        (1,057)          (1,057)         (1,057)          (1,057)
   Common stock awards under the
    recognition and retention plan.......             (208)          (208)            (208)           (208)            (208)
   Common stock to be acquired by
    employee stock ownership plan (7)....               --         (4,001)          (4,708)         (5,413)          (6,225)
   Common stock to be acquired by
    recognition and retention plan (8)...               --         (2,000)          (2,354)         (2,706)          (3,112)
                                               -----------   ------------     ------------    ------------     ------------
     Total stockholders' equity..........      $    63,820   $    106,738     $    114,392    $    122,051     $    130,855
                                               ===========   ============     ============    ============     ============
     Total stockholders' equity as a
       percentage of total assets........             9.80%         15.37%           16.29%          17.20%           18.21%
     Tangible stockholders' equity as
       a percentage of total assets......             7.65%         13.36%           14.30%          15.23%           16.27%
</TABLE>

-----------------------------------------
(1)   As adjusted to give effect to an increase in the number of shares which
      could occur due to a 15% increase in the offering range to reflect changes
      in market or general financial conditions following the commencement of
      the subscription and community offerings.
(2)   Does not reflect withdrawals from deposit accounts for the purchase of
      common stock in the conversion. These withdrawals would reduce pro forma
      deposits by the amount of the withdrawals.
(3)   Sound Federal Bancorp has 10,000,000 authorized shares of preferred stock
      and 20,000,000 authorized shares of common stock, par value $0.10 per
      share. Pro forma Sound Federal Bancorp common stock and additional paid-in
      capital have been increased to reflect the number of shares of Sound
      Federal Bancorp common stock to be outstanding. Pro forma additional
      paid-in capital reflects consolidation of $373,000 of capital from Sound
      Federal, MHC.
(4)   No effect has been given to the issuance of additional shares of Sound
      Federal Bancorp common stock pursuant to an additional stock option plan.
      If this plan is implemented, an amount equal to 10% of the shares of Sound
      Federal Bancorp common stock sold in the offering will be reserved for
      issuance upon the exercise of options under the stock option plan. No
      effect has been given to the exercise of options currently outstanding.
      See "Management of Sound Federal Bancorp-Stock Benefit Plans."
(5)   The retained earnings of Sound Federal Savings will be substantially
      restricted after the conversion. See "The Conversion-Liquidation Rights"
      and "Supervision and Regulation-Federal Banking Regulation."
(6)   Pro forma data assumes the cancellation of treasury stock as a result of
      the conversion and exchange of shares.

                                         (FOOTNOTES CONTINUED ON FOLLOWING PAGE)

                                       22

<PAGE>

-----------------------------------------
(7)   Assumes that 8% of the shares sold in the offering will be acquired by the
      employee stock ownership plan financed by a loan from Sound Federal
      Bancorp. The loan will be repaid principally from Sound Federal Savings'
      contributions to the employee stock ownership plan. The amount of stock
      acquired by the employee stock ownership plan is shown in this table as a
      reduction of total stockholders' equity.
(8)   Assumes a number of shares of common stock equal to 4% of the common stock
      to be sold in the offering will be purchased by the recognition and
      retention plan in open market purchases. The dollar amount of common stock
      to be purchased is based on the $10.00 per share subscription price in the
      offering and represents unearned compensation. This amount does not
      reflect possible increases or decreases in the value of stock relative to
      the subscription price in the offering. As Sound Federal Bancorp accrues
      compensation expense to reflect the vesting of shares pursuant to the
      recognition and retention plan, the credit to capital will be offset by a
      charge to operations. Implementation of the recognition and retention plan
      will require stockholder approval. If the shares to fund the plan are
      assumed to come from authorized but unissued shares of Sound Federal
      Bancorp, the number of outstanding shares at the minimum, midpoint,
      maximum and the maximum, as adjusted, of the offering range would be
      8,700,036, 10,235,336, 11,770,636 and 13,536,229, respectively, total
      stockholders' equity would be $108.7 million, $116.7 million, $124.8
      million and $134.0 million, respectively, and total stockholders'
      ownership in Sound Federal Bancorp would be diluted by approximately 5.6%.

                                 PRO FORMA DATA

      The following table summarizes historical data of Sound Federal Bancorp
and pro forma data of Sound Federal Bancorp at or for the three months ended
June 30, 2002 and the year ended March 31, 2002, based on assumptions set forth
below and in the table, and should not be used as a basis for projections of
market value of the common stock following the conversion. No effect has been
given in the table to the possible issuance of additional shares pursuant to the
current outstanding stock option plan or for the possible issuance of additional
shares pursuant to any stock option plan or stock recognition and retention plan
that may be adopted by our stockholders no earlier than six months after the
conversion. Moreover, pro forma stockholders' equity per share does not give
effect to the liquidation account to be established in the conversion or, in the
event of a liquidation of Sound Federal Savings, to the tax effect of the
recapture of the bad debt reserve. See "The Conversion-Liquidation Rights."

      The net proceeds in the tables are based upon the following assumptions:

      (1)   all shares of common stock will be sold in the subscription and
            community offerings;

      (2)   108,000 shares of common stock will be purchased by our executive
            officers and directors, and their immediate families;

      (3)   our employee stock ownership plan will purchase 8.0% of the shares
            of common stock sold in the offering with a loan from Sound Federal
            Bancorp. The loan will be repaid in substantially equal principal
            payments over a period of 20 years;

      (4)   Keefe, Bruyette & Woods, Inc. will receive an aggregate fee equal to
            1.35% of the dollar amount of common stock sold in the subscription
            and community offerings. No fee will be paid with respect to shares
            of common stock purchased by the employee stock ownership plan and
            by our officers, directors and employees, and their immediate
            families; and

      (5)   total expenses of the offering, including the marketing fees to be
            paid to Keefe, Bruyette & Woods, Inc., will be between $1.5 million
            at the minimum of the offering range and $1.8 million at the maximum
            of the offering range, as adjusted.

      Pro forma consolidated net earnings of Sound Federal Bancorp for the three
months ended June 30, 2002 and the year ended March 31, 2002 has been calculated
as if the estimated net proceeds received by Sound Federal Bancorp and Sound
Federal Savings had been invested at an assumed interest rate of 3.34% (2.04% on
an after-tax basis) for the three months ended June 30, 2002 and for the year
ended March 31, 2001. The reinvestment rate was based on the three-year treasury
note rate. The effect of withdrawals from deposit accounts for the purchase of
common stock has not been reflected. Historical and pro forma per share amounts
have been calculated by dividing historical and pro forma amounts by the
indicated number of shares of common stock. No effect has been given in the pro
forma stockholders' equity calculations for the assumed earnings on the net
proceeds. It is assumed that Sound Federal Bancorp will retain 50% of the
estimated net conversion proceeds. The actual net proceeds from the sale of
common stock will not be determined until the conversion is completed. However,
we currently estimate the

                                       23

<PAGE>

net proceeds to be between $48.5 million and $66.0 million, or $76.0 million if
the offering range is increased by 15%. It is assumed that all shares will be
sold in the subscription offering and community offering.

      The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur, and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amounts of assets and liabilities of Sound
Federal Bancorp. The pro forma stockholders' equity is not intended to represent
the fair market value of the common stock.












                                       24

<PAGE>

<TABLE>
<CAPTION>
                                                                           AT OR FOR THE THREE MONTHS ENDED JUNE 30, 2002
                                                                             BASED UPON THE SALE AT $10.00 PER SHARE OF
                                                                   -----------------------------------------------------------
                                                                                                                   7,780,737
                                                                   5,000,890       5,883,400       6,765,910       SHARES (1)
                                                                     SHARES          SHARES          SHARES       15% ABOVE
                                                                   MINIMUM OF      MIDPOINT OF     MAXIMUM OF     MAXIMUM OF
                                                                    ESTIMATED      ESTIMATED       ESTIMATED       ESTIMATED
                                                                   PRICE RANGE    PRICE RANGE     PRICE RANGE     PRICE RANGE
                                                                   ------------   ------------    ------------    ------------
                                                                          (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<S>                                                                <C>            <C>             <C>             <C>
 Gross proceeds.................................................   $     50,009   $     58,834    $     67,659    $     77,807
 Expenses.......................................................         (1,463)        (1,573)         (1,682)         (1,808)
                                                                   ------------   ------------    ------------    ------------
    Estimated net proceeds......................................         48,546         57,261          65,977          75,999
 Common stock acquired by employee stock ownership plan (2).....         (4,001)        (4,708)         (5,413)         (6,235)
 Common stock acquired by recognition and retention plan (3)....         (2,000)        (2,354)         (2,706)         (3,112)
 Assets received from the MHC...................................            373            373             373             373
                                                                   ------------   ------------    ------------    ------------
    Estimated net proceeds, as adjusted.........................   $     42,918   $     50,564    $     58,231    $     67,005
                                                                   ============   ============    ============    ============

 FOR THE THREE MONTHS ENDED JUNE 30, 2002
 Consolidated net earnings:
    Historical..................................................   $      2,161   $      2,161    $      2,161    $      2,161
 Pro forma adjustments:
    Income on adjusted net proceeds.............................            217            256             295             340
    Employee stock ownership plan (2)...........................            (31)           (36)            (41)            (48)
    Recognition and retention plan (3)..........................            (61)           (72)            (83)            (95)
                                                                   ------------   ------------    ------------    ------------
      Pro forma net earnings....................................   $      2,286   $      2,309    $      2,332    $      2,358
                                                                   ============   ============    ============    ============

 Earnings per share (4):
    Historical..................................................   $       0.27   $       0.23    $       0.20    $       0.18
 Pro forma adjustments:
    Income on adjusted net proceeds.............................           0.03           0.03            0.03            0.03
    Employee stock ownership plan (2)...........................             --             --              --              --
    Recognition and retention plan (3)..........................          (0.01)         (0.01)          (0.01)          (0.01)
                                                                   ------------   ------------    ------------    ------------
      Pro forma earnings per share (4) (5)......................   $       0.29   $       0.25    $       0.22    $       0.20
                                                                   ============   ============    ============    ============

 Pro forma price to earnings....................................           8.62x         10.00x          11.36x          12.5x

 Number of shares used in earnings per share calculations.......      7,921,673      9,319,615      10,717,558      12,325,193

 AT JUNE 30, 2002 Stockholders' equity:
    Historical..................................................   $     63,820   $     63,820    $     63,820    $     63,820
    Estimated net proceeds......................................         48,546         57,261          65,977          75,999
    MHC capital consolidation...................................            373            373             373             373
    Common stock acquired by employee stock ownership plan (2)..         (4,001)        (4,708)         (5,413)         (6,225)
    Common stock acquired by recognition and retention plan (3).         (2,000)        (2,354)         (2,706)         (3,112)
                                                                    ------------   ------------    ------------    ------------
        Pro forma stockholders' equity (6)......................        106,738        114,392         122,051         130,855
    Intangible assets...........................................        (13,970)       (13,970)        (13,970)        (13,970)
                                                                   ------------   ------------    ------------    ------------
        Pro forma tangible stockholders' equity.................   $     92,768   $    100,422    $    108,081    $    116,885
                                                                   ============   ============    ============    ============

 Stockholders' equity per share (7):
    Historical..................................................   $       7.51   $       6.38    $       5.55    $       4.83
    Estimated net proceeds......................................           5.71           5.73            5.74            5.75
    MHC capital consolidation...................................           0.04           0.04            0.03            0.03
    Common stock acquired by employee stock ownership plan (2)..          (0.47)         (0.47)          (0.47)          (0.47)
    Common stock acquired by recognition and retention plan (3).   $      (0.24)  $      (0.24)   $      (0.24)   $      (0.24)
                                                                   ------------   ------------    ------------    ------------
        Pro forma stockholders' equity per share (6) (7)........   $      12.55   $      11.44    $      10.61    $       9.90
                                                                   ============   ============    ============    ============
    Intangible assets...........................................          (1.64)         (1.40)          (1.21)          (1.06)
                                                                   ------------   ------------    ------------    ------------
        Pro forma tangible stockholders' equity per share.......   $      10.91   $      10.04    $       9.40    $       8.84
                                                                   ============   ============    ============    ============

 Offering price as percentage of pro forma stockholders'
    equity per share............................................          79.68%         87.41%          94.25%         101.01%
 Offering price as percentage of pro forma tangible
    stockholders' equity per share..............................          91.66%         99.60%         106.38%         113.12%

 Number of shares used in book value per share calculations.....      8,500,000     10,000,000      11,500,000      13,225,000

                                                                                                       (FOOTNOTES ON NEXT PAGE)
</TABLE>

                                       25

<PAGE>

--------------------------------
(1)   As adjusted to give effect to an increase in the number of shares which
      could occur due to a 15% increase in the offering range to reflect changes
      in market and financial conditions following the commencement of the
      offering.
(2)   Assumes that 8% of shares of common stock sold in the offering will be
      purchased by the employee stock ownership plan. For purposes of this
      table, the funds used to acquire these shares are assumed to have been
      borrowed by the employee stock ownership plan from the net proceeds of the
      offering retained by Sound Federal Bancorp. Sound Federal Savings intends
      to make annual contributions to the employee stock ownership plan in an
      amount at least equal to the principal of the debt. Sound Federal Savings'
      total annual payments on the employee stock ownership plan debt are based
      upon 20 equal annual installments of principal and interest. Statement of
      Position 93-6 requires that an employer record compensation expense in an
      amount equal to the fair value of the shares committed to be released to
      employees. The pro forma adjustments assume that the employee stock
      ownership plan shares are allocated in equal annual installments based on
      the number of loan repayment installments assumed to be paid by Sound
      Federal Savings, the fair value of the common stock remains that the
      subscription price and the employee stock ownership plan expense reflects
      an effective combined federal and state tax rate of 38.9%. The unallocated
      employee stock ownership plan shares are reflected as a reduction of
      stockholders' equity. No reinvestment is assumed on proceeds contributed
      to fund the employee stock ownership plan. The pro forma net income
      further assumes (i) that 9,700, 11,411, 13,123 and 15,092 shares were
      committed to be released during the period at the minimum, midpoint,
      maximum, and adjusted maximum of the offering range, respectively, and
      (ii) in accordance with Statement of Position 93-6, only the employee
      stock ownership plan shares committed to be released during the period
      were considered outstanding for purposes of net income per share
      calculations.
(3)   If approved by Sound Federal Bancorp's stockholders, the recognition and
      retention plan intends to purchase an aggregate number of shares of common
      stock equal to 4% of the shares to be sold in the offering. Stockholder
      approval of the recognition and retention plan and purchases by the plan
      may not occur earlier than six months after the completion of the
      conversion. The shares may be acquired directly from Sound Federal Bancorp
      or through open market purchases. The funds to be used by the recognition
      and retention plan to purchase the shares will be provided by Sound
      Federal Bancorp. The table assumes that (i) the recognition and retention
      plan acquires the shares through open market purchases at $10.00 per
      share, (ii) 5% of the amount contributed to the recognition and retention
      plan is amortized as an expense during the three months ended June 30,
      2002 and (iii) the recognition and retention plan expense reflects an
      effective combined federal and state tax rate of 38.9%. Assuming
      stockholder approval of the plan and that the plan shares are awarded
      through the use of authorized but unissued shares of common stock,
      stockholders would have their voting interests diluted by approximately
      2.3%.
(4)   Per share figures include publicly held shares of Sound Federal Bancorp
      common stock that will be exchanged for new shares of Sound Federal
      Bancorp common stock in the conversion. See "The Conversion-Share Exchange
      Ratio." Net income per share computations are determined by taking the
      number of shares assumed to be sold in the offering and the number of new
      shares assumed to be issued in exchange for publicly held shares and
      subtracting the recognition and retention plan shares and the employee
      stock ownership plan shares which have not been committed for release
      during the respective periods. See note 2 above. The number of shares of
      common stock actually sold and the corresponding number of exchange shares
      may be more or less than the assumed amounts.
(5)   No effect has been given to the issuance of additional shares of common
      stock pursuant to the stock option plan, which is expected to be adopted
      by Sound Federal Bancorp following the offering and presented to
      stockholders for approval not earlier than six months after the completion
      of the conversion. If the stock option plan is approved by stockholders, a
      number of shares equal to 10% of the shares sold in the offering will be
      reserved for future issuance upon the exercise of options to be granted
      under the stock option plan. The issuance of authorized but previously
      unissued shares of common stock pursuant to the exercise of options under
      such plan would dilute existing stockholders' interests by approximately
      5.6%.
(6)   The retained earnings of Sound Federal Savings will be substantially
      restricted after the conversion. See "Our Dividend Policy," "The
      Conversion-Liquidation Rights" and "Supervision and Regulation-Federal
      Banking Regulation-Capital Distributions."
(7)   Per share figures include publicly held shares of Sound Federal Bancorp
      common stock that will be exchanged for new shares of Sound Federal
      Bancorp common stock in the conversion. Stockholders' equity per share
      calculations are based upon the sum of (i) the number of subscription
      shares assumed to be sold in the offering and (ii) new shares to be issued
      in exchange for publicly held shares at the minimum, midpoint, maximum and
      adjusted maximum of the offering range, respectively. The exchange shares
      reflect an exchange ratio of 1.7782, 2.0920, 2.4058 and 2.7667,
      respectively, at the minimum, midpoint, maximum and adjusted maximum of
      the offering range, respectively. The number of subscription shares
      actually sold and the corresponding number of exchange shares may be more
      or less than the assumed amounts.

                                       26

<PAGE>

<TABLE>
<CAPTION>
                                                                          AT OR FOR THE THREE MONTHS ENDED MARCH 31, 2002
                                                                             BASED UPON THE SALE AT $10.00 PER SHARE OF
                                                                   -----------------------------------------------------------
                                                                                                                   7,780,737
                                                                   5,000,890       5,883,400       6,765,910       SHARES (1)
                                                                     SHARES          SHARES          SHARES       15% ABOVE
                                                                   MINIMUM OF      MIDPOINT OF     MAXIMUM OF     MAXIMUM OF
                                                                    ESTIMATED      ESTIMATED       ESTIMATED       ESTIMATED
                                                                   PRICE RANGE    PRICE RANGE     PRICE RANGE     PRICE RANGE
                                                                   ------------   ------------    ------------    ------------
                                                                          (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<S>                                                                <C>            <C>             <C>             <C>
 Gross proceeds.................................................   $     50,009   $     58,834    $     67,659    $     77,807
 Expenses.......................................................         (1,463)        (1,573)         (1,682)         (1,808)
                                                                   ------------   ------------    ------------    ------------
    Estimated net proceeds......................................         48,546         57,261          65,977          75,999
 Common stock acquired by employee stock ownership plan (2).....         (4,001)        (4,708)         (5,413)         (6,235)
 Common stock acquired by recognition and retention plan (3)....         (2,000)        (2,354)         (2,706)         (3,112)
 Assets received from the MHC...................................            373            373             373             373
                                                                   ------------   ------------    ------------    ------------
    Estimated net proceeds, as adjusted.........................   $     42,918   $     50,564    $     58,231    $     67,005
                                                                   ============   ============    ============    ============

 FOR THE YEAR ENDED MARCH 31, 2002
 Consolidated net earnings:
    Historical..................................................   $      5,770   $      5,770    $      5,770    $      5,770
 Pro forma adjustments:
    Income on adjusted net proceeds.............................            868          1,024           1,180           1,360
    Employee stock ownership plan (2)...........................           (122)          (144)           (165)           (190)
    Recognition and retention plan (3)..........................           (244)          (288)           (331)           (380)
                                                                   ------------   ------------    ------------    ------------
      Pro forma net earnings....................................   $      6,272   $      6,362    $      6,454    $      6,560
                                                                   ============   ============    ============    ============

 Earnings per share (4):
    Historical..................................................   $       0.73   $       0.62    $       0.54    $       0.47
 Pro forma adjustments:
    Income on adjusted net proceeds.............................           0.11           0.11            0.11            0.11
    Employee stock ownership plan (2)...........................          (0.02)         (0.02)          (0.02)          (0.02)
    Recognition and retention plan (3)..........................          (0.03)         (0.03)          (0.03)          (0.03)
                                                                   ------------   ------------    ------------    ------------
      Pro forma earnings per share (4) (5)......................   $       0.79   $       0.68    $       0.60    $       0.53
                                                                   ============   ============    ============    ============

 Pro forma price to earnings....................................          12.66x         14.71x          16.67x          18.87x
 Number of shares used in earnings per share calculations.......      7,950,772      9,353,850      10,756,928      12,370,468

 AT MARCH 31, 2002
 Stockholders' equity:
    Historical..................................................   $     61,015   $     61,015    $     61,015    $     61,015
    Estimated net proceeds......................................         48,546         57,261          65,977          75,999
    MHC capital consolidation...................................            373            373             373             373
    Common stock acquired by employee stock ownership plan (2)..         (4,001)        (4,708)         (5,413)         (6,225)
    Common stock acquired by recognition and retention plan (3).         (2,000)        (2,354)         (2,706)         (3,112)
                                                                   ------------   ------------    ------------    ------------
        Pro forma stockholders' equity (6)......................        103,933        111,589         119,246         128,050
    Intangible assets...........................................        (13,970)       (13,970)        (13,970)        (13,970)
                                                                   ------------   ------------    ------------    ------------
        Pro forma tangible stockholders' equity.................   $     89,963   $     97,619    $    105,276    $    114,080
                                                                   ============   ============    ============    ============

 Stockholders' equity per share (7):
    Historical..................................................   $       7.18   $       6.10    $       5.31    $       4.61
    Estimated net proceeds......................................           5.71           5.73            5.74            5.75
    MHC capital consolidation...................................           0.04           0.04            0.03            0.03
    Common stock acquired by employee stock ownership plan (2)..          (0.47)         (0.47)          (0.47)          (0.47)
    Common stock acquired by recognition and retention plan (3).          (0.24)         (0.24)          (0.24)          (0.24)
                                                                   ------------   ------------    ------------    ------------
        Pro forma stockholders' equity per share (6) (7)........   $      12.22   $      11.16    $      10.37    $       9.68
                                                                   ============   ============    ============    ============
    Intangible assets...........................................          (1.64)         (1.40)          (1.21)          (1.06)
                                                                   ------------   ------------    ------------    ------------
        Pro forma tangible stockholders' equity per share.......   $      10.58   $       9.76    $       9.16    $       8.62
                                                                   ============   ============    ============    ============

 Offering price as percentage of pro forma stockholders'
    equity per share............................................          81.83%         89.61%          96.43%         103.31%
 Offering price as percentage of pro forma tangible
    stockholders' equity per share..............................          94.52%        102.46%         109.17%         116.01%

 Number of shares used in book value per share calculations.....      8,500,000     10,000,000      11,500,000      13,225,000

                                                                                                       (FOOTNOTES ON NEXT PAGE)
</TABLE>

                                       27

<PAGE>

---------------------------------
(1)   As adjusted to give effect to an increase in the number of shares which
      could occur due to a 15% increase in the offering range to reflect changes
      in market and financial conditions following the commencement of the
      offering.
(2)   Assumes that 8% of shares of common stock sold in the offering will be
      purchased by the employee stock ownership plan. For purposes of this
      table, the funds used to acquire these shares are assumed to have been
      borrowed by the employee stock ownership plan from the net proceeds of the
      offering retained by Sound Federal Bancorp. Sound Federal Savings intends
      to make annual contributions to the employee stock ownership plan in an
      amount at least equal to the principal of the debt. Sound Federal Savings'
      total annual payments on the employee stock ownership plan debt are based
      upon 20 equal annual installments of principal and interest. Statement of
      Position 93-6 requires that an employer record compensation expense in an
      amount equal to the fair value of the shares committed to be released to
      employees. The pro forma adjustments assume that the employee stock
      ownership plan shares are allocated in equal annual installments based on
      the number of loan repayment installments assumed to be paid by Sound
      Federal Savings, the fair value of the common stock remains that the
      subscription price and the employee stock ownership plan expense reflects
      an effective combined federal and state tax rate of 38.9%. The unallocated
      employee stock ownership plan shares are reflected as a reduction of
      stockholders' equity. No reinvestment is assumed on proceeds contributed
      to fund the employee stock ownership plan. The pro forma net income
      further assumes (i) that 38,000, 45,646, 52,493 and 60,367 shares were
      committed to be released during the twelve months ended March 31, 2002 at
      the minimum, midpoint, maximum, and adjusted maximum of the offering
      range, respectively, and (ii) in accordance with Statement of Position
      93-6, only the employee stock ownership plan shares committed to be
      released during the period were considered outstanding for purposes of net
      income per share calculations.
(3)   If approved by Sound Federal Bancorp's stockholders, the stock recognition
      and retention plan intends to purchase an aggregate number of shares of
      common stock equal to 4% of the shares to be sold in the offering.
      Stockholder approval of the recognition and retention plan and purchases
      by the plan may not occur earlier than six months after the completion of
      the conversion. The shares may be acquired directly from Sound Federal
      Bancorp or through open market purchases. The funds to be used by the
      recognition and retention plan to purchase the shares will be provided by
      Sound Federal Bancorp. The table assumes that (i) the recognition and
      retention plan acquires the shares through open market purchases at $10.00
      per share, (ii) 20% of the amount contributed to the recognition and
      retention plan is amortized as an expense during the year ended March 31,
      2002 and (iii) the recognition and retention plan expense reflects an
      effective combined federal and state tax rate of 38.9%. Assuming
      stockholder approval of the plan and that the plan shares are awarded
      through the use of authorized but unissued shares of common stock,
      stockholders would have their voting interests diluted by approximately
      2.3%.
(4)   Per share figures include publicly held shares of Sound Federal Bancorp
      common stock that will be exchanged for new shares of Sound Federal
      Bancorp common stock in the conversion. See "The Conversion-Share Exchange
      Ratio." Net income per share computations are determined by taking the
      number of shares assumed to be sold in the offering and the number of new
      shares assumed to be issued in exchange for publicly held shares and
      subtracting the recognition and retention plan shares and the employee
      stock ownership plan shares which have not been committed for release
      during the respective periods. See note 2 above. The number of shares of
      common stock actually sold and the corresponding number of exchange shares
      may be more or less than the assumed amounts.
(5)   No effect has been given to the issuance of additional shares of common
      stock pursuant to the stock option plan, which is expected to be adopted
      by Sound Federal Bancorp following the offering and presented to
      stockholders for approval not earlier than six months after the completion
      of the conversion. If the stock option plan is approved by stockholders, a
      number of shares equal to 10% of the shares sold in the offering will be
      reserved for future issuance upon the exercise of options to be granted
      under the stock option plan. The issuance of authorized but previously
      unissued shares of common stock pursuant to the exercise of options under
      such plan would dilute existing stockholders' interests by approximately
      5.6%.
(6)   The retained earnings of Sound Federal Savings will be substantially
      restricted after the conversion. See "Our Dividend Policy," "The
      Conversion-Liquidation Rights" and "Supervision and Regulation-Federal
      Banking Regulation-Capital Distributions."
(7)   Per share figures include publicly held shares of Sound Federal Bancorp
      common stock that will be exchanged for new shares of Sound Federal
      Bancorp common stock in the conversion. Stockholders' equity per share
      calculations are based upon the sum of (i) the number of subscription
      shares assumed to be sold in the offering and (ii) new shares to be issued
      in exchange for publicly held shares at the minimum, midpoint, maximum and
      adjusted maximum of the offering range, respectively. The exchange shares
      reflect an exchange ratio of 1.7782, 2.0920, 2.4058 and 2.7667,
      respectively, at the minimum, midpoint, maximum and adjusted maximum of
      the offering range, respectively. The number of subscription shares
      actually sold and the corresponding number of exchange shares may be more
      or less than the assumed amounts.


                                       28

<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

      The discussion and analysis that follows focuses on the factors affecting
our consolidated financial condition at June 30, 2002 and March 31, 2002 and
2001, and our consolidated results of operations for the three months ended June
30, 2002 and 2001 and for the years ended March 31, 2002, 2001 and 2000. The
consolidated financial statements and related notes beginning at page F-1 of
this prospectus should be read in conjunction with this discussion.

GENERAL

      Our principal business has historically consisted of offering savings and
other deposits to the general public and using the funds from these deposits to
make loans secured by residential real estate. Our results of operations depend
primarily upon our net interest income, which is the difference between income
earned on interest-earning assets, such as loans and investments, and the
interest expense paid on deposits. To a much lesser degree, our operations are
affected by non-interest income, such as banking service charges and fees. Net
income is also affected by, among other things, provisions for loan losses and
non-interest expenses. Our principal non-interest expenses consist of
compensation and benefits, occupancy and equipment, data processing service
fees, advertising and promotion and other expenses, such as ATM expenses,
professional fees and insurance premiums. Our results of operations also are
affected significantly by general economic and competitive conditions,
particularly changes in market interest rates; government legislation and
policies affecting fiscal affairs, housing and financial institutions; monetary
policies of the Federal Reserve System; and the actions of bank regulatory
authorities.

CRITICAL ACCOUNTING POLICIES

      Accounting policies considered particularly critical to our financial
results include the allowance for loan losses and accounting for goodwill. The
methodology for determining the allowance for loan losses is considered a
critical accounting policy by management due to the high degree of judgment
involved, the subjectivity of the assumptions utilized and the potential for
changes in the economic environment that could result in changes to the amount
of the allowance for loan losses considered necessary. Management considers
accounting for goodwill to be a critical policy because goodwill must be tested
for impairment at least annually using a "two-step" approach that involves the
identification of reporting units and the estimation of fair values. The
estimation of fair values involves a high degree of judgment and subjectivity in
the assumptions utilized.

MANAGEMENT OF MARKET RISK

      Our most significant form of market risk is interest rate risk. Our assets
consist primarily of fixed-rate mortgage loans, which have longer maturities
than our liabilities, which consist primarily of deposits. Our interest rate
risk management program focuses primarily on evaluating and managing the
composition of assets and liabilities in the context of various interest rate
scenarios. Factors beyond management's control, such as market interest rates
and competition, also have an impact on interest income and interest expense. We
do not own any trading assets and have not engaged in hedging transactions such
as interest rate swaps and caps.

      We attempt to manage interest rate risk and to minimize the exposure of
earnings to changes in market interest rates. During the low interest rate
environment that has existed in recent years, we have followed the following
strategies to manage interest rate risk: (i) purchasing adjustable rate
mortgage-backed securities guaranteed by Fannie Mae or Ginnie Mae and (ii)
maintaining a high level of liquid interest-earning assets such as short-term
federal funds sold. In addition, in fiscal 2002, we began to originate a higher
volume of three-, five- and seven-year adjustable-rate mortgage loans, which
reprice annually after the initial term. By investing in short-term, liquid
securities we believe we are better positioned to react to increases in market
interest rates. However, investments in shorter term securities generally bear
lower yields than longer term investments. Thus, during the sustained period of
declining interest rates, these strategies have resulted in lower levels of
interest income than would be obtained by investing in longer term fixed rate
loans. Management believes, however, that maintaining a significant portion of
our assets in short-term investments, enables us to take advantage of increases
in interest rates, reduces the exposure of earnings to interest rate
fluctuations and enhances long-term profitability.

                                       29

<PAGE>

      Management monitors interest rate sensitivity through the use of a model
that estimates the change in Sound Federal Savings' net portfolio value ("NPV")
in response to a range of assumed changes in market interest rates. NPV is the
present value of expected cash flows from assets, liabilities, and off-balance
sheet items. Management is not aware of any known trends that would
significantly affect the timing or amount of the expected cash flows utilized in
the NPV model. The model estimates the effect on NPV of instantaneous and
permanent 100 to 300 basis point increases and a 100 basis point decrease in
market interest rates, with no effect given to any steps that management might
take to counter the effect of interest rate movements. We historically estimated
the effect on NPV of 100 to 300 basis point decreases in interest rates.
However, given the current low level of market interest rates and the low
probability of further significant declines in absolute rates, we did not
calculate NPV for interest rate decreases of greater than 100 basis points.

      The table below sets forth, as of June 30, 2002, the estimated changes in
Sound Federal Savings' NPV that would result from the designated instantaneous
changes in interest rates.

                 CHANGES IN                   ESTIMATED INCREASE
                  INTEREST                   (DECREASE) IN NPV(1)
                   RATES       ESTIMATED   ------------------------
               (BASIS POINTS)     NPV         AMOUNT       PERCENT
               -------------- ------------ -----------  -----------
                               (DOLLARS IN THOUSANDS)

                    +300      $   43,942   $  (33,028)      (42.9)%
                    +200          55,627      (21,343)      (27.7)
                    +100          67,353       (9,617)      (12.5)
                      0           76,970           --          --
                    -100          80,038        3,068         4.0

      -------------------
      (1)   Represents the increase (decrease) in the estimated NPV at the
            indicated change in interest rates compared to the NPV assuming no
            change in interest rates.

      Computations of prospective effects of hypothetical interest rate changes
are based on numerous assumptions including relative levels of market interest
rates, loan prepayments and deposit decay, and should not be relied upon as
indicative of actual results. Further, the computations do not reflect any
actions management may undertake in response to changes in interest rates.

      The above table indicates that at June 30, 2002, in the event of a 100
basis point decrease in interest rates, we would expect to experience a 4.0%
increase in NPV. In the event of a 200 basis point increase in interest rates,
we would expect to experience a 27.7% decrease in NPV. Subsequent to June 30,
2002, there have been no significant changes in our interest rate risk exposures
or how those exposures would be managed.

      Certain shortcomings are inherent in the NPV methodology. Modeling changes
in NPV requires that management make certain assumptions that may or may not
reflect the manner in which yields and costs will actually respond to changes in
market interest rates. Further, the computations do not reflect any actions
management may undertake in response to changes in interest rates. In this
regard, the NPV table presented assumes that (i) the composition of the interest
sensitive assets and liabilities existing at the beginning of a period will
remain constant over the period being measured and (ii) a particular change in
interest rates is reflected uniformly across the yield curve regardless of the
duration or repricing of specific assets and liabilities. Accordingly, although
the NPV table provides an indication of interest rate risk exposure at a
particular point in time, these measurements are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
our net interest income, and will differ from actual results. Additionally, the
interest rate risk guidelines established by the Board of Directors are not
strict limitations. While a goal of the Asset/Liability Management Committee and
the Board of Directors is to limit projected NPV changes within the Board's
guidelines, we will not necessarily limit projected changes in NPV if the
required action would present a disproportionate risk to continued
profitability.

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2002 AND MARCH 31, 2002

      ASSETS. Assets totaled $651.5 million at June 30, 2002 as compared to
$624.0 million at March 31, 2002. The increase in assets reflects increases in
loans and in cash and cash equivalents, partially offset by a decrease in

                                       30

<PAGE>

securities. Net loans increased $19.0 million, or 4.6%, to $437.4 million at
June 30, 2002 as compared to $418.4 million at March 31, 2002. The increase in
net loans primarily reflects our continued strong level of loan originations,
which totaled $52.5 million during the quarter ended June 30, 2002, and which
were partially offset by loan principal repayments of $33.9 million during the
quarter. Cash and cash equivalents increased $15.2 million, or 56.9%, to $42.0
million at June 30, 2002, as compared to $26.8 million at March 31, 2002. These
increases were funded by an increase of $24.7 million in deposits and the $33.9
million in loan principal repayments. Securities, consisting of mortgage-backed
securities (including collateralized mortgage obligations), U.S. Government and
agency securities and mutual funds, decreased $6.4 million, or 4.3%, to $143.8
million at June 30, 2002 from $150.2 million at March 31, 2002. The decrease in
securities reflects the reinvestment into liquid assets as securities were
called or matured during the quarter.

      LIABILITIES. Deposits totaled $544.6 million at June 30, 2002 as compared
to $519.9 million at March 31, 2002. Certificates of deposit increased $12.5
million to $324.8 million from $312.3 million, savings and club accounts
increased $4.8 million to $123.4 million from $118.6 million and money market
accounts increased $5.6 million to $41.6 million from $36.0 million. Borrowings
totaled $35.0 million at June 30, 2002, as compared to $34.9 million at March
31, 2002. Borrowings at June 30, 2002 consisted of Federal Home Loan Bank
borrowings.

      STOCKHOLDERS' EQUITY. Stockholders' equity increased $2.8 million to $63.8
million at June 30, 2002 as compared to $61.0 million at March 31, 2002. The
increase in stockholders' equity reflects $2.2 million in net income and an
increase of $627,000 in accumulated other comprehensive income, partially offset
by dividends paid of $138,000.

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2002 AND 2001

      ASSETS. Assets totaled $624.0 million at March 31, 2002 as compared to
$552.9 million at March 31, 2001. Net loans increased $124.6 million, or 42.4%,
to $418.4 million at March 31, 2002 as compared to $293.8 million at March 31,
2001. The increase in total loans was a result of our increased loan
originations. We originated loans with principal balances of $219.9 million
during fiscal 2002 compared to $86.6 million originated in fiscal 2001. This
increase was funded principally by a decrease of $35.5 million in securities to
$150.2 million, an increase of $46.4 million in total deposits to $519.9 million
and an increase of $20.2 million in borrowings.

      LIABILITIES. Deposits increased $46.4 million, or 9.8%, to $519.9 million
at March 31, 2002 as compared to $473.5 million at March 31, 2001. Certificates
of deposit increased $16.6 million to $312.3 million from $295.7 million,
savings and club accounts increased $10.2 million to $118.6 million from $108.4
million, money market accounts increased $7.7 million to $36.0 million from
$28.3 million and NOW accounts increased $8.9 million to $47.6 million from
$38.7 million. The increase in deposits was due primarily to growth in our New
Rochelle branch, which opened in December 2001, as well as growth in other
branches due to our efforts to market certificates of deposit. Borrowings
increased $20.2 million to $34.9 million at March 31, 2002 from $14.7 million at
March 31, 2001. We borrowed funds from the Federal Home Loan Bank to fund loan
growth.

      STOCKHOLDERS' EQUITY. Total stockholders' equity increased $4.1 million to
$61.0 million at March 31, 2002 as compared to $56.9 million at March 31, 2001.
The increase in stockholders' equity reflects net income of $5.8 million during
the year ended March 31, 2002, which was partially offset by a decrease of $1.2
million in accumulated other comprehensive income, dividends paid of $517,000
and treasury stock purchases of $483,000.

                                       31

<PAGE>

AVERAGE BALANCE SHEETS

      The following tables set forth average balance sheets, average yields and
costs, and certain other information for the three months ended June 30, 2002
and 2001 and the years ended March 31, 2002, 2001 and 2000. The tables reflect
the average yield on interest-earning assets and the average cost of
interest-bearing liabilities (derived by dividing interest income or expense by
the monthly average balance of interest-earning assets or interest-bearing
liabilities, respectively), as well as the net yield on interest-earning assets.
Management believes that the use of monthly average balances rather than daily
average balances did not have a material effect on the data presented. No
tax-equivalent adjustments were made, as the effect thereof was not material.
Nonaccrual loans were included in the computation of average balances, but have
been included in the tables as loans having a zero yield. The yields set forth
below include the effect of deferred origination fees and costs, and purchase
discounts and premiums that are amortized or accreted to interest income.

<TABLE>
<CAPTION>
                                                                           FOR THE THREE MONTHS ENDED JUNE 30,
                                          AT JUNE 30,      -------------------------------------------------------------------
                                              2002                       2002                              2001
                                    ---------------------  -------------------------------  ----------------------------------
                                                  AVERAGE    AVERAGE               AVERAGE    AVERAGE                 AVERAGE
                                    OUTSTANDING    YIELD/  OUTSTANDING              YIELD/  OUTSTANDING                YIELD/
                                      BALANCE       RATE     BALANCE    INTEREST     RATE     BALANCE     INTEREST      RATE
                                    -----------   -------  -----------  --------   -------  -----------   --------   ---------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                 <C>             <C>    <C>          <C>          <C>    <C>           <C>          <C>
Interest-earning assets:
  Loans(1).......................   $   437,419     7.12%  $   426,530  $  7,614     7.16%  $   305,697   $  5,813     7.63%
  Mortgage-backed securities(2)..        98,662     6.03        97,513     1,512     6.22       138,427      2,482     7.19
  Other securities(2)............        42,195     4.98        44,287       528     4.78        38,780        665     6.88
  Federal funds and other
    overnight deposits(3)........        35,370     1.63        28,963       105     1.45        27,544        307     4.47
  Certificates of deposit........            --      --             --        --      --          1,856         22     4.75
  Other(4).......................         4,299     4.52         4,225        65     6.17         3,834         76     7.95
                                    -----------            -----------  --------            -----------   --------
   Total interest-earning assets.       617,945     6.47       601,518     9,824     6.55       516,138      9,365     7.28
                                                                        --------                          --------
Non-interest earning assets......        33,520                 33,262                           31,856
                                    -----------            -----------                      -----------
   Total assets..................   $   651,465            $   634,780                      $   547,994
                                    ===========            ===========                      ===========

Interest-bearing liabilities:
  Passbook and club accounts.....   $   123,397     1.00%  $   118,692  $    311     1.05%  $   107,822   $    511     1.90%
  Money market accounts..........        41,560     1.34        35,980       148     1.65        31,523        185     2.35
  NOW accounts...................        48,514     0.75        47,206        86     0.73        37,015         94     1.02
  Certificates of deposit........       324,773     3.15       320,550     2,558     3.20       293,506      4,264     5.83
  Borrowings.....................        34,967     4.18        34,938       416     4.78        14,724        269     7.33
  Mortgage escrow funds..........         4,402     2.00         4,427        20     1.81         4,697         16     1.37
                                    -----------            -----------  --------            -----------   --------
   Total interest-bearing
    liabilities..................       577,613     2.43       561,793     3,539     2.53       489,287      5,339     4.38
                                                                        --------                          --------
Non-interest bearing
    liabilities..................        10,032                 11,200                            4,729
                                    -----------            -----------                      -----------
   Total liabilities.............       587,645                572,993                          494,016
Stockholders' equity.............        63,820                 61,787                           53,978
                                    -----------            -----------                      -----------
   Total liabilities and
    stockholders' equity.........   $   651,465            $   634,780                      $   547,994
                                    ===========            ===========                      ===========
Net interest income..............                                       $  6,285                          $  4,026
                                                                        ========                          ========
Average interest rate spread(5)..                   4.04%                            4.02%                             2.90%
Net earning assets(6)............   $    40,332            $    39,725                      $    26,851
                                    ===========            ===========                      ===========
Net interest margin(7)...........                                                    4.19%                             3.13%
Ratio of interest-earning assets
    to interest-bearing
    liabilities..................          1.07x                  1.07x                            1.05x

                                                                                         (FOOTNOTES BEGIN ON FOLLOWING PAGE)
</TABLE>

                                       32

<PAGE>

<TABLE>
<CAPTION>
                                                                    FOR THE YEARS ENDED MARCH 31,
                                ---------------------------------------------------------------------------------------------------
                                              2002                              2001                             2000
                                --------------------------------  -------------------------------   -------------------------------
                    (             AVERAGE                AVERAGE   AVERAGE                AVERAGE    AVERAGE              AVERAGE
                                OUTSTANDING               YIELD/  OUTSTANDING              YIELD/   OUTSTANDING              YIELD/
                                  BALANCE     INTEREST     RATE     BALANCE     INTEREST    RATE      BALANCE     INTEREST   RATE
                                -----------   --------   -------  -----------   --------   ------   -----------   --------  -------
                                                                      (DOLLARS IN THOUSANDS)
<S>                             <C>           <C>          <C>    <C>           <C>         <C>     <C>           <C>        <C>
Interest-earning assets:
  Loans(1)....................  $   342,447   $ 25,560     7.46%  $   253,320   $ 19,837    7.83%   $   162,753   $12,427    7.64%
  Mortgage-backed
    securities(2).............      120,307      8,629     7.17       114,185      8,194    7.18         56,951     3,353    5.89
  Other securities(2).........       42,357      2,209     5.22        42,864      3,143    7.33         38,628     2,443    6.32
  Federal funds and other
    overnight deposits(3).....       28,537        777     2.72        25,769      1,577    6.12         27,855     1,472    5.28
  Certificates of deposit.....          865         43     4.97         5,836        437    7.47         11,316       654    5.78
  Other(4)....................        3,716        227     6.11         5,440        388    7.13          3,033       187    6.17
                                -----------   --------            -----------   --------            -----------   -------
   Total interest-earning
    assets....................      538,229     37,445     6.96       447,414     33,576    7.50        300,536    20,536    6.83
                                              --------                          --------                          -------
Non-interest earning assets...       32,907                            28,225                            11,161
                                -----------                       -----------                       -----------
   Total assets...............  $   571,136                       $   475,639                       $   311,697
                                ===========                       ===========                       ===========

Interest-bearing liabilities:
  Passbook and club accounts..  $   109,469   $  1,609     1.47%  $    94,032   $  2,420    2.57%   $    60,144   $ 1,245    2.07%
  Money market accounts.......       36,126        674     1.87        26,849        631    2.35         18,929       510    2.69
  NOW accounts................       38,954        360     0.92        32,658        470    1.44         24,232       370    1.53
  Certificates of deposit.....      302,786     14,760     4.87       249,145     14,487    5.81        151,511     7,696    5.08
  Borrowings..................       16,348      1,065     6.51        12,030        927    7.71             86         8    9.30
  Mortgage escrow funds.......        4,314         71     1.64         3,508         73    2.08          2,069        39    1.89
                                -----------   --------            -----------   --------            -----------   -------
   Total interest-bearing
    liabilities...............      507,997     18,539     3.65       418,222     19,008    4.54        256,971     9,868    3.84
                                              --------                          --------                          -------
Non-interest bearing
  liabilities.................        4,545                             3,109                             1,366
                                -----------                       -----------                       -----------
      Total liabilities.......      512,542                           421,331                           258,377
Stockholders' equity..........       58,594                            54,308                            53,360
                                -----------                       -----------                       -----------
   Total liabilities and
    stockholders' equity......  $   571,136                       $   475,639                       $   311,697
                                ===========                       ===========                       ===========
Net interest income...........                $ 18,906                          $ 14,568                          $10,668
                                              ========                          ========                          =======
Average interest rate
spread(5).....................                             3.31%                            2.96%                            2.99%
Net earning assets(6).........  $    30,232                       $    29,192                       $    43,565
                                ===========                       ===========                       ===========
Net interest margin(7)........                             3.51%                            3.26%                            3.55%
Ratio of interest-earning
  assets to interest-bearing
  liabilities.................         1.06x                             1.07x                             1.17x
</TABLE>

---------------------------
(1)   Balances are net of construction loans in process and the allowance for
      loan losses.
(2)   Average outstanding balances are based on amortized cost.
(3)   Other overnight deposits represents Sound Federal Savings'
      interest-earning demand account at the Federal Home Loan Bank of New York.
(4)   Consists primarily of Federal Home Loan Bank stock.
(5)   Net interest rate spread represents the difference between the yield on
      average interest-earning assets and the cost of average interest-bearing
      liabilities.
(6)   Net earning assets represent total interest-earning assets less total
      interest-bearing liabilities.
(7)   Net interest margin represents net interest income divided by average
      total interest-earning assets.

RATE/VOLUME ANALYSIS

      The following table presents the dollar amount of changes in interest
income and interest expense for the major categories of our interest-earning
assets and interest-bearing liabilities. Information is provided for each
category of interest-earning assets and interest-bearing liabilities, with
respect to (i) changes attributable to changes in volume (i.e., changes in
balances multiplied by the prior-period rate) and (ii) changes attributable to
rate (i.e., changes in rate multiplied by prior-period balances). For purposes
of this table, changes attributable to both rate and volume, which cannot be
segregated, have been allocated proportionately to the change due to volume and
the change due to rate.

                                       33

<PAGE>

<TABLE>
<CAPTION>
                                                                                      YEAR ENDED MARCH 31,
                              THREE MONTHS ENDED JUNE 30,     -------------------------------------------------------------------
                                     2002 VS. 2001                     2002 VS. 2001                       2001 VS. 2000
                            ------------------------------    --------------------------------    -------------------------------
                            INCREASE(DECREASE)                 INCREASE (DECREASE)                INCREASE (DECREASE)
                                  DUE TO            TOTAL           DUE TO                              DUE TO
                            -------------------   INCREASE    --------------------   INCREASE     ------------------     INCREASE
                            VOLUME       RATE    (DECREASE)   VOLUME       RATE     (DECREASE)    VOLUME      RATE      (DECREASE)
                                                                   (IN THOUSANDS)
<S>                         <C>        <C>       <C>          <C>        <C>        <C>           <C>        <C>        <C>
Interest-earning
 assets:
  Loans...................  $ 4,045    $(2,244)  $   1,801    $ 6,698    $  (975)   $   5,723     $ 7,093    $   317    $   7,410
  Mortgage-backed
    securities............     (666)      (304)       (970)       446        (11)         435       3,974        867        4,841
  Other securities........      474       (611)       (137)       (37)      (897)        (934)        285        415          700
  Federal funds and
    other overnight
    deposits..............      103       (305)       (202)       154       (954)        (800)       (116)       221          105
  Certificates of
    deposit...............      (88)        66         (22)      (282)      (112)        (394)       (373)       156         (217)
  Other...................       39        (50)        (11)      (111)       (50)        (161)        169         32          201
                            -------    -------   ---------    -------    -------    ---------     -------    -------    ---------

     Total
      interest-earning
      assets..............    3,907     (3,448)        459      6,868     (2,999)       3,869      11,032      2,008       13,040
                            -------    -------   ---------    -------    -------    ---------     -------    -------    ---------

Interest-bearing
 liabilities:
  Passbook and club
    accounts..............      301       (501)       (200)       349     (1,160)        (811)        822        353        1,175
  Money market
    accounts..............      130       (167)        (37)       183       (140)          43         191        (70)         121
  NOW accounts............      102       (110)         (8)        83       (193)        (110)        123        (23)         100
  Certificates of
    deposit...............    2,330     (4,036)     (1,706)     2,830     (2,557)         273       5,553      1,238        6,791
  Borrowings..............      716       (569)        147        297       (159)         138         920         (1)         919
  Mortgage escrow
    funds.................       (6)        10           4         15        (17)          (2)         30          4           34
                            -------    -------   ---------    -------    -------    ---------     -------    -------    ---------

    Total
     interest-bearing
     liabilities..........    3,573     (5,373)     (1,800)     3,757     (4,226)        (469)      7,639      1,501        9,140
                            -------    -------   ---------    -------    -------    ---------     -------    -------    ---------

Net interest income.......  $   334    $ 1,925   $   2,259    $ 3,111    $ 1,227    $   4,338     $ 3,393    $   507    $   3,900
                            =======    =======   =========    =======    =======    =========     =======    =======    =========
</TABLE>

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND
2001

      NET INCOME. Net income amounted to $2.2 million, or $0.46 per common
share, for the quarter ended June 30, 2002, as compared to $1.2 million, or
$0.25 per common share, for the quarter ended June 30, 2001. The increase in net
income was due primarily to an increase of $2.3 million in net interest income,
partially offset by increases of $509,000 in non-interest expense and $688,000
in income tax expense.

      INTEREST INCOME. Interest income totaled $9.8 million during the quarter
ended June 30, 2002 as compared to $9.4 million for the same period in the prior
year. This increase was due to an increase of $85.4 million in average
interest-earning assets to $601.5 million during the quarter ended June 30, 2002
as compared to $516.1 million for the same quarter in the prior year, offset
partially by a decrease of 73 basis points in the average yield on
interest-earning assets to 6.55% from 7.28%. The increase in the average balance
of interest-earning assets was due primarily to an increase in loans and other
securities, partially offset by decreases in mortgage-backed securities. The
decrease in the average yield on interest-earning assets reflects the
origination of fixed-rate loans and the repricing of our adjustable-rate
securities portfolio during periods of declining interest rates, and
particularly during the second half of calendar 2001.

      LOANS. Interest income on loans increased $1.8 million, or 31.0%, to $7.6
million for the quarter ended June 30, 2002 as compared to $5.8 million for the
same quarter in 2001. This increase was due to an increase of $120.8 million in
the average balance of loans to $426.5 million from $305.7 million, partially
offset by a 47 basis point decrease in the average yield earned to 7.16% from
7.63%.

                                       34

<PAGE>

      The growth of the loan portfolio was principally a result of increased
mortgage loan originations, as borrowers sought to take advantage of the lowest
market interest rates in 40 years. The low market interest rates created a
robust housing market and also compelled many consumers to refinance their
existing mortgage loans. We originated $52.5 million of loans during the quarter
ended June 30, 2002, as compared to $47.4 million for the same quarter in the
prior year. These loans were originated at lower rates than the yields being
earned on the existing loan portfolio. As a result, the average yield earned on
the loan portfolio decreased during fiscal 2002 and the first quarter of fiscal
2003. The yield on the loan portfolio may decrease further until market interest
rates begin to increase.

      MORTGAGE-BACKED SECURITIES. Interest on mortgage-backed securities
decreased $970,000, or 39.1%, to $1.5 million for the quarter ended June 30,
2002, due primarily to a decrease of $40.9 million in the average balance to
$97.5 million and a decrease of 97 basis points in the average yield to 6.22%
from 7.19%. The lower average balances in the current year reflect principal
repayments and prepayments on mortgage-backed securities, which we used to fund
loan growth.

      OTHER SECURITIES. Interest on other securities decreased $137,000, or
20.6%, to $528,000 for the quarter ended June 30, 2002, as compared to $665,000
for the same quarter in 2001, due to a 210 basis point decrease in the average
yield to 4.78% from 6.88%, which was partially offset by an increase of $5.5
million in the average balance to $44.3 million. The decrease in the average
yield earned reflects the decrease in market interest rates during fiscal 2002.

      FEDERAL FUNDS SOLD AND OTHER OVERNIGHT DEPOSITS. For the quarter ended
June 30, 2002, interest on Federal funds sold and other overnight deposits
decreased $202,000, or 65.8%, to $105,000, reflecting a 302 basis point decrease
in the average yield earned to 1.45%, partially offset by an increase of $1.4
million in the average balance to $29.0 million. The decrease in the average
yield earned reflects the decrease in market interest rates during fiscal 2002.

      INTEREST EXPENSE. Interest expense decreased $1.8 million, or 33.7%, to
$3.5 million for the quarter ended June 30, 2002, as compared to $5.3 million
for the quarter ended June 30, 2001. The decrease in interest expense was due to
a decrease in the average cost of liabilities to 2.53% from 4.38%, reflecting
the decrease in market interest rates during fiscal 2002. The average balance of
interest-bearing liabilities increased $72.5 million to $561.8 million for the
quarter ended June 30, 2002, from $489.3 million for the same quarter in the
prior year.

      Interest expense on certificates of deposit decreased $1.7 million, or
40.0%, to $2.6 million for the 2002 quarter as compared to $4.3 million for the
same quarter in 2001. The decrease was due primarily to a 263 basis point
decrease in the average cost to 3.20% from 5.83%, offset partially by an
increase of $27.1 million in the average balance of certificates of deposit to
$320.6 million from $293.5 million in the same quarter in the prior year.
Interest on savings accounts amounted to $311,000 for the current quarter as
compared to $511,000 for the quarter ended June 30, 2001, a decrease of
$200,000, or 39.1%. The decrease was a result of an 85 basis point decrease in
the average cost of savings accounts to 1.05% from 1.90%, offset partially by an
increase of $10.9 million in the average balance of savings accounts to $118.7
million. Interest expense on other deposits (NOW and money market accounts)
amounted to $234,000 for the quarter ended June 30, 2002 as compared to $279,000
for the same quarter in the prior year. The average cost of these accounts
decreased 50 basis points to 1.13% and the average balance increased $14.6
million to $83.2 million. The increase in deposits reflects growth throughout
our branch network, as well as the opening of our New Rochelle branch in
December 2001.

      For the quarter ended June 30, 2002, interest expense on borrowings
amounted to $416,000 as compared to $269,000 in the prior year. The average
balance of borrowings for the current quarter was $34.9 million and the average
cost was 4.78%. For the quarter ended June 30, 2001, the average balance of
borrowings was $14.7 million and the average cost was 7.33%. We used the
increase in Federal Home Loan Bank borrowings to fund loan originations during
fiscal 2002.

      NET INTEREST INCOME. Net interest income for the quarter ended June 30,
2002 amounted to $6.3 million, an increase of $2.3 million, or 56.1% from the
same period in the prior year. The interest rate spread was 4.02% and 2.90% for
the quarters ended June 30, 2002 and 2001, respectively. The net interest margin
for those periods was

                                       35

<PAGE>

4.19% and 3.13%, respectively. The increases in the interest rate spread and net
interest margin were the result of declining market interest rates during
calendar 2001. The decrease in market interest rates reduced the cost of our
interest-bearing liabilities faster than the rates on our interest-earning
assets. However, if market interest rates decrease further, our interest rate
spread and net interest margin may decrease since market and competitive factors
could inhibit our ability to lower interest rates on deposit accounts any
further. In addition, if interest rates increase, the cost of our
interest-bearing liabilities will increase faster than the rates on our
interest-earning assets, also causing decreases in our net interest rate spread
and net interest margin.

      PROVISION FOR LOAN LOSSES. Management regularly reviews our loan portfolio
and makes provisions for loan losses in amounts required to maintain the
allowance for loan losses in accordance with generally accepted accounting
principles. The allowance consists of known and inherent losses that are both
probable and estimable at the date of the financial statements. The allowance
for loan losses consists of amounts allocated to specific nonperforming loans
and to loans in each major portfolio category. Loan categories such as
single-family residential mortgage loans, which represented 90.7% of total loans
at June 30, 2002, are generally evaluated on an aggregate or "pool" basis. Our
allowance for loan losses is predominately determined on a pool basis by
applying loss factors to the current balances of the various loan categories.
The loss factors are determined by management based on an evaluation of our
historical loss experience, delinquency trends, volume and type of lending
conducted, and the impact of current economic conditions in our market area.

      The provision for loan losses was $75,000 for the quarter ended June 30,
2002, as compared to $25,000 for the quarter ended June 30, 2001. Non-performing
loans amounted to $952,000, or 0.22% of total loans at June 30, 2002, as
compared to $1.1 million, or 0.35% of total loans at June 30, 2001. The
allowance for loan losses amounted to $2.3 million, or 0.52% of total loans at
June 30, 2002, and $2.2 million, or 0.53% of total loans at March 31, 2002.

      NON-INTEREST INCOME. Non-interest income totaled $170,000 and $196,000 for
the quarters ended June 30, 2002 and 2001, respectively. Non-interest income
consists principally of service charges on deposit accounts, late charges on
loans and various other service fees. Service fees amounted to $170,000 for the
quarter ended June 30, 2002 as compared to $139,000 for the same quarter in
2001. Service fees include fees of $41,000 and $15,000 generated by Mamaroneck
Advisors, Inc. during the three months ended June 30, 2002 and 2001,
respectively. Mamaroneck Advisors, Inc. is our service corporation that sells
investment and insurance products. Non-interest income for the quarter ended
June 30, 2001 included a gain on the sale of real estate owned of $57,000.

      NON-INTEREST EXPENSE. Non-interest expense totaled $2.8 million for the
quarter ended June 30, 2002 as compared to $2.3 million for the quarter ended
June 30, 2001. The increase was due primarily to increases of $203,000 in
compensation and benefits, $123,000 in occupancy and equipment and $154,000 in
other non-interest expenses. The increase in compensation and benefits was
primarily due to a new branch location opened in December 2001, increased costs
related to lending operations and overall internal growth. Occupancy and
equipment expense was higher in the 2002 quarter as a result of refund of
$125,000 for property taxes related to branch locations that reduced expenses
for the quarter ended June 30, 2001. Other non-interest expense increased
primarily due to the new branch location and internal growth to support lending
and branch operations.

      INCOME TAXES. Income tax expense amounted to $1.4 million and $688,000 for
the quarters ended June 30, 2002 and 2001, respectively. The effective tax rates
for those same periods were 38.9% and 36.9%, respectively.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 2002 AND 2001

      NET INCOME. Net income amounted to $5.8 million, or diluted earnings per
share of $1.23, for the year ended March 31, 2002 as compared to $2.7 million,
or $0.56 per share for the prior year. This increase was due primarily to an
increase of $4.3 million in net interest income and an increase of $349,000 in
non-interest income, partially offset by an increase of $283,000 in non-interest
expense and an increase of $1.3 million in income tax expense.

      We completed the acquisition of Peekskill Financial Corporation on July
18, 2000. This transaction was accounted for as a purchase business combination.
Accordingly, our operating results for the year ended March 31,

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<PAGE>

2001 include the effect of the acquired business for the period of approximately
nine months after the acquisition date. In addition, our operating results for
fiscal 2001 include $765,000 in goodwill amortization expense prior to the
adoption, effective April 1, 2001, of a new accounting standard that prohibits
further amortization of goodwill. If goodwill had not been amortized in fiscal
2001, net income and earnings per share would have been $3.4 million and $0.72,
respectively.

      INTEREST INCOME. Interest income totaled $37.4 million for the year ended
March 31, 2002 as compared to $33.6 million for the prior year. The increase was
due to an increase of $90.8 million in average interest-earning assets to $538.2
million as compared to $447.4 million for the prior year, partially offset by a
54 basis point decrease in the average yield on interest-earning assets to
6.96%. The increase in the average balance of interest-earning assets was due
primarily to growth in the loan portfolio, which was funded by deposits and
redemptions of securities. The increase in the average balance of
interest-earning assets was also due to the assets acquired from Peekskill
Financial Corporation being included in the average balance for the entire 2002
fiscal year. The decrease in the average yield on interest-earning assets
reflects declining market interest rates during 2001.

      LOANS. Interest income on loans increased $5.7 million, or 28.9%, to $25.6
million during fiscal 2002 as compared to $19.8 million for 2001. This increase
was due to an increase of $89.1 million in the average balance of loans to
$342.4 million, partially offset by a 37 basis point decrease in the average
yield earned to 7.46%.

      The growth of the loan portfolio was principally a result of the lowest
mortgage interest rates in forty years. The low market interest rates created a
robust housing market and also compelled many consumers to refinance existing
mortgage loans. We originated $219.9 million of loans during the year ended
March 31, 2002 as compared to $86.6 million in the prior year. These loans were
originated at lower rates than the yields being earned on the existing loan
portfolio. As a result, the average yield earned on the loan portfolio decreased
during fiscal 2002. The yield on the loan portfolio may decrease further until
market interest rates begin to increase.

      MORTGAGE-BACKED SECURITIES. Interest on mortgage-backed securities
amounted to $8.6 million for the year ended March 31, 2002 as compared to $8.2
million for the prior year. The average balance of mortgage-backed securities
increased $6.1 million to $120.3 million and the average yield remained
virtually unchanged at 7.17%. The increase in the average balance was a result
of the securities acquired in the acquisition of Peekskill Financial Corporation
being included in the average balance for the entire 2002 fiscal year, as
compared to only a portion of the 2001 fiscal year following the acquisition.

      OTHER SECURITIES. Interest on other securities decreased $934,000, or
29.7%, to $2.2 million for the year ended March 31, 2002, as compared to $3.1
million for the prior year, due to a decrease of $507,000 in the average balance
of other securities to $42.4 million and a 211 basis point decrease in the
average yield earned to 5.22%. The decreases in average balance and average
yield earned in the 2002 fiscal year primarily reflect the issuer redemptions of
securities as interest rates decreased during fiscal 2002. The proceeds from
these redemptions were used to fund loan originations.

      FEDERAL FUNDS AND OTHER OVERNIGHT DEPOSITS. For the year ended March 31,
2002, interest on Federal funds and other overnight deposits decreased $800,000
to $777,000, reflecting a 340 basis point decrease in the average yield earned
to 2.72%, partially offset by an increase of $2.8 million in the average balance
to $28.5 million. Other overnight deposits consist of a demand deposit at the
Federal Home Loan Bank of New York, which earns interest at a rate approximating
the Federal funds rate. The decrease in the average yield earned reflects the
declining interest rate environment during 2001.

      CERTIFICATES OF DEPOSIT. Interest on certificates of deposit decreased
$394,000 to $43,000 for the year ended March 31, 2002 from $437,000 for the year
ended March 31, 2001. The average outstanding balance of certificates of deposit
decreased to $865,000 for the year ended March 31, 2002 from $5.8 million for
the year ended March 31, 2001.

      INTEREST EXPENSE. Interest expense for the year ended March 31, 2002
totaled $18.5 million, as compared to $19.0 million for the year ended March 31,
2001. The decrease in interest expense reflects the decrease in the cost of
interest-bearing liabilities. The average balance of interest-bearing
liabilities increased $89.8 million, to

                                       37
<PAGE>

$508.0 million for the year ended March 31, 2002 from $418.2 million for the
prior year. The average cost of these liabilities decreased 89 basis points to
3.65%. The decrease in the cost of interest-bearing liabilities was the result
of declining market interest rates. The increase in average interest-bearing
liabilities was due primarily to the deposits of Peekskill Financial Corporation
being included in the average balance for the entire 2002 fiscal year, as
compared to only a portion of the 2001 fiscal year following the acquisition,
and to deposits received at the New Rochelle branch, which opened in December
2001.

      Interest expense on certificates of deposit totaled $14.8 million for the
year ended March 31, 2002 year as compared to $14.5 million for the prior year.
The increase was due primarily to an increase of $53.7 million in the average
balance of certificates of deposit to $302.8 million for the year ended March
31, 2002 as compared to $249.1 million for the prior year. This increase was
partially offset by a 94 basis point decrease in the average cost to 4.87%. The
decrease in the average cost was due to a decrease in market interest rates
during 2001. The increase in the average balance of time deposits was primarily
a result of the time deposits of Peekskill Financial Corporation being included
in the average balance for the entire 2002 fiscal year, as compared to only a
portion of the 2001 fiscal year following the acquisition, and the new branch,
which opened in December 2001. Certificates of deposit amounted to $312.3
million at March 31, 2002 as compared to $295.7 million at March 31, 2001.

      Interest expense on savings accounts amounted to $1.6 million for the year
ended March 31, 2002, as compared to $2.4 million for the year ended March 31,
2001. The average balance of savings accounts increased $15.4 million to $109.5
million, and the average cost decreased 110 basis points to 1.47%. The increase
in the average balance of savings accounts was primarily a result of savings
accounts of Peekskill Financial Corporation being included in the average
balance for the entire 2002 fiscal year, as compared to only a portion of the
2001 fiscal year following the acquisition, and an increase in the number of
savings accounts. The decrease in the average cost was due to decreases in
market interest rates during 2001. Savings accounts amounted to $118.6 million
at March 31, 2002 as compared to $108.4 million at March 31, 2001.

      Interest expense on other deposits (NOW and money market accounts)
amounted to $1.0 million for the year ended March 31, 2002 as compared to $1.1
million for the prior year. The average balance of these accounts increased
$15.6 million to $75.1 million and the average cost decreased 47 basis points to
1.38%, reflecting the lower level of interest rates in fiscal 2002 compared to
2001. Other deposits amounted to $89.0 million at March 31, 2002 as compared to
$69.4 million at March 31, 2001.

      For the year ended March 31, 2002, interest paid on borrowings amounted to
$1.1 million, as compared to $927,000 for the prior year. The average balance of
borrowings for fiscal 2002 was $16.3 million and the average cost was 6.51%. For
the year ended March 31, 2001, the average balance of borrowings was $12.0
million and the average cost was 7.71%. The increase in borrowings consisted of
Federal Home Loan Bank borrowings that were a component of Peekskill Financial
Corporation's management strategy and that we assumed in the acquisition, as
well as Federal Home Loan Bank borrowings we used to fund loan originations
during fiscal 2002. Borrowings amounted to $34.9 million at March 31, 2002 and
had a weighted average coupon rate of 4.17%. The average cost of the borrowings
was higher than the average coupon rate as a result of the amortization of
purchase accounting adjustments made to the carrying values of the borrowings
assumed from Peekskill Financial Corporation.

      NET INTEREST INCOME. Net interest income amounted to $18.9 million for the
year ended March 31, 2002 as compared to $14.6 million for 2001. The interest
rate spread was 3.31% and 2.96% and the net interest margin was 3.51% and 3.26%
for the respective years. The increase in interest rate spread and net interest
margin were the result of decreasing market interest rates during calendar 2001.
The decrease in market interest rates reduced the cost of our interest-bearing
liabilities faster than the rates on our interest-earning assets.

      PROVISION FOR LOAN LOSSES. The provision for loan losses was $175,000 for
the year ended March 31, 2002 as compared to $208,000 for the prior year.
Non-performing loans amounted to $755,000, or 0.18% of total loans at March 31,
2002 as compared to $933,000, or 0.32% of total loans at March 31, 2001. The
allowance for loan losses amounted to $2.2 million and $2.0 million at March 31,
2002 and 2001, respectively. Charge-offs, net of recoveries, amounted to $1,000
for the year ended March 31, 2002 as compared to $133,000 for the year ended
March 31, 2001.

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<PAGE>

      NON-INTEREST INCOME. Non-interest income totaled $731,000 and $382,000 for
the years ended March 31, 2002 and 2001, respectively. Service fees amounted to
$662,000 for the year ended March 31, 2002, as compared to $354,000 for fiscal
2001. The increase in service fees was due to increased levels of service
charges on deposit accounts, fees earned from the sale of investment products
and various other service fees. We began selling investment products during
fiscal 2002. Non-interest income for the year ended March 31, 2002 included a
gain of $69,000 on the sale of real estate owned as compared to $28,000 for
fiscal 2001.

      NON-INTEREST EXPENSE. Non-interest expense totaled $10.3 million for the
year ended March 31, 2002, as compared to $10.0 million for the year ended March
31, 2001. Compensation and benefits increased $484,000, data processing fees
increased $230,000 and other non-interest expenses increased $451,000. The
increases were substantially offset by a decrease of $71,000 in occupancy and
equipment, a decrease of $46,000 in advertising and promotion and the absence of
$765,000 in goodwill amortization. As described in Note 2 of the Notes to
Consolidated Financial Statements, we ceased amortizing goodwill as an expense
effective April 1, 2001, when we adopted a new financial accounting standard.
Occupancy and equipment expense for fiscal 2002 was reduced by a refund of
$170,000 of real estate taxes related to branch locations.

      INCOME TAXES. Income tax expense amounted to $3.4 million and $2.1 million
for the years ended March 31, 2002 and 2001, respectively. The effective tax
rates for those same periods were 36.9% and 43.5%, respectively. The higher
effective tax rate in the 2001 fiscal year was primarily the result of the
non-deductibility of goodwill amortization.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 2001 AND 2000

      NET INCOME. Net income amounted to $2.7 million, or $0.56 per common share
for the year ended March 31, 2001 as compared to $2.4 million, or $0.48 per
common share for the year ended March 31, 2000. The increase in net income was
due primarily to an increase of $3.9 million in net interest income,
substantially offset by an increase of $3.0 million in non-interest expense and
an increase of $607,000 in income tax expense.

      The results for the year ended March 31, 2001 reflect increases in income
and expense largely attributable to the acquisition of Peekskill Financial
Corporation, as the related operating results are included for approximately
nine months of the 2001 fiscal year.

      INTEREST INCOME. For the year ended March 31, 2001, interest income
totaled $33.6 million as compared to $20.5 million for the prior fiscal year.
The increase was due to an increase of $146.9 million in the average balance of
interest-earning assets to $447.4 million and a 67 basis point increase in the
yield earned to 7.50%. The increase in the average balance of interest-earning
assets was due primarily to the acquisition of Peekskill Financial Corporation.
The increase in the average yield on interest-earning assets reflects fixed-rate
loan growth and adjustable-rate security repricings during periods of rising
interest rates (particularly the first half of calendar 2000), as well as
higher-yielding securities recorded in the acquisition of Peekskill Financial
Corporation.

      LOANS. For the year ended March 31, 2001, interest income on loans
increased $7.4 million, or 59.6%, to $19.8 million as compared to $12.4 million
for fiscal 2000. This increase was due to an increase of $90.6 million in the
average balance of loans to $253.3 million and a 19 basis point increase in the
yield earned to 7.83%. The growth of the loan portfolio was principally a result
of the acquisition, as Peekskill Financial Corporation had net loans of $67.3
million at the acquisition date, as well as our efforts to expand the loan
products we offer and the markets we serve, and the strong demand for fixed rate
loans, our primary mortgage loan product. We originated $82.5 million of fixed
rate loans for the year ended March 31, 2001 as compared to $62.3 million in the
prior year.

      MORTGAGE-BACKED SECURITIES. Interest income from mortgage-backed
securities increased $4.8 million, to $8.2 million for the year ended March 31,
2001, due primarily to an increase of $57.2 million in the average balance of
mortgage-backed securities to $114.2 million and an increase of 129 basis points
in the average yield to 7.18%. The higher average balances in the 2001 fiscal
year reflects securities acquired in the acquisition of Peekskill Financial
Corporation. At March 31, 2001, mortgage-backed securities had a total carrying
value of $141.1 million, of which $83.7 million were adjustable rate securities.
The increases in market interest rates during the first half of

                                       39
<PAGE>

fiscal 2001 resulted in our adjustable rate securities repricing to higher
rates. However, recent declines in interest rates caused these securities to
reprice to lower rates and also cause repayments of principal amounts to
accelerate.

      OTHER SECURITIES. Interest income from other securities increased
$700,000, to $3.1 million for the year ended March 31, 2001 as compared to $2.4
million for the year ended March 31, 2000, due to an increase of $4.2 million in
the average balance of other securities to $42.9 million and a 101 basis point
increase in the average yield earned to 7.33%. The higher average balances in
the 2001 fiscal year reflect the impact of securities acquired in the
acquisition of Peekskill Financial Corporation, net of sales of securities which
were made in order to fund a portion of the acquisition.

      FEDERAL FUNDS. Interest income from Federal funds increased $105,000, to
$1.6 million, reflecting an 84 basis point increase in the average yield earned
to 6.12%, partially offset by a decrease of $2.1 million in the average balance
to $25.8 million. The lower level of Federal funds in the 2001 fiscal year
reflects the utilization of Federal funds to fund a portion of the cost of
acquiring Peekskill Financial Corporation.

      INTEREST EXPENSE. For the year ended March 31, 2001, interest expense
totaled $19.0 million, as compared to $9.9 million for the year ended March 31,
2000. The average balance of interest-bearing liabilities increased $161.2
million to $418.2 million for the year ended March 31, 2001 from $257.0 million
in the prior year. The average cost of these liabilities increased 70 basis
points to 4.54%. The increase in interest-bearing liabilities was due primarily
to the acquisition of Peekskill Financial Corporation. The increase in the cost
of interest-bearing liabilities was due to borrowings that were assumed in the
acquisition, an increase in the amount of certificates of deposit in relation to
total deposits and, to a lesser extent, an increase in interest rates during
calendar year 2000. Certificates of deposit carry interest rates that are higher
than those for other deposit accounts. For the year ended March 31, 2001, the
average balance of time deposits accounted for 61.9% of average total deposits
as compared to 59.5% for the prior year.

      Interest expense on certificates of deposit totaled $14.5 million for the
year ended March 31, 2001 as compared to $7.7 million for the prior fiscal year.
The increase was due to an increase of $97.6 million in the average balance of
certificates of deposit and a 73 basis point increase in the average cost to
5.81%.

      Interest on savings accounts amounted to $2.4 million for the year ended
March 31, 2001 as compared to $1.2 million for the prior fiscal year. The
average balance of savings accounts increased $33.9 million to $94.0 million,
and the average cost increased 50 basis points to 2.57%.

      Interest expense on other deposits (NOW and money market accounts)
amounted to $1.1 million for the year ended March 31, 2001 as compared to
$880,000 for the prior fiscal year. The average balance of these accounts
increased $16.3 million to $59.5 million, and the average cost decreased 19
basis points to 1.85%.

      For the year ended March 31, 2001, interest on borrowings amounted to
$927,000 as compared to $8,000 for the prior year. The average balance of
borrowings for the year ended March 31, 2001 was $12.0 million and the average
cost was 7.71%. The increase in borrowings consisted of securities repurchase
agreements with the Federal Home Loan Bank that were a component of Peekskill
Financial Corporation's management strategy and that we assumed in the
acquisition.

      NET INTEREST INCOME. Net interest income for the year ended March 31, 2001
amounted to $14.6 million as compared to $10.7 million for the prior fiscal
year. The interest rate spread was 2.96% and 2.99%, respectively. The net
interest margin was 3.26% for the year ended March 31, 2001 as compared to 3.55%
for the 2000 fiscal year. The decrease in net interest margin was primarily a
result of a decrease in the ratio of interest-earning assets to interest-bearing
liabilities, to 1.07 for fiscal 2001 from 1.17 for the prior year. The lower
ratio in the 2001 fiscal year reflects higher levels of non-earning assets
(primarily goodwill) and the use of earning assets to fund stock repurchases. In
addition, the decreases in interest rate spread and net interest margin were
also caused by the rising market interest rates during the first half of
calendar 2000. While the yield on interest-earning assets increased as a result
of the rising market interest rates, the cost of interest-bearing liabilities
grew faster as borrowings and time deposits accounted for a greater percentage
of these funds. The average balances of time deposits and borrowings accounted
for 62.4% of interest-bearing liabilities during fiscal 2001 as compared to
59.0% during the prior year.

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<PAGE>

      PROVISION FOR LOAN LOSSES. The provision for loan losses was $208,000 for
the year ended March 31, 2001 as compared to $100,000 for the prior year.
Non-performing loans amounted to $933,000, or 0.32% of total loans at March 31,
2001 as compared to $969,000, or 0.53% of total loans at March 31, 2000. The
allowance for loan losses amounted to $2.0 million and $1.2 million at March 31,
2001 and 2000, respectively. The increase in the allowance for loan losses was
primarily a result of Peekskill Financial Corporation's allowance for loan
losses that was transferred in the acquisition. Charge-offs, net of recoveries,
amounted to $133,000 for the year ended March 31, 2001 as compared to $6,000 for
the year ended March 31, 2000.

      NON-INTEREST INCOME. Non-interest income amounted to $382,000 and $294,000
for the years ended March 31, 2001 and 2000, respectively. For the years ended
March 31, 2001 and 2000, service fees amounted to $354,000 and $192,000,
respectively. The year ended March 31, 2001 included net gains on the sale of
real estate owned of $28,000, as compared to $102,000 in the prior year.

      NON-INTEREST EXPENSE. Non-interest expense totaled $10.0 million for
fiscal 2001 as compared to $7.0 million for fiscal 2000. This increase was due
primarily to increases of $1.2 million in compensation and benefits, $708,000 in
occupancy and equipment costs, $211,000 in data processing service fees,
$101,000 in advertising and promotion, and $765,000 in goodwill amortization,
partially offset by a decrease of $13,000 in other non-interest expenses.

      The increases in non-interest expenses were due primarily to the
acquisition, as well as continuing internal growth. In addition to ongoing
expenses attributable to the acquired operations, non-interest expense for the
2001 fiscal year includes $216,000 in costs related to the conversion of
Peekskill Financial Corporation's operations to our data processing system and
customer service costs incurred during the conversion process, and a charge of
$148,000 for benefits that vested under our recognition and retention plan for
participants who retired during the year. Other non-interest expense for fiscal
2000 included $225,000 related to the establishment of a real estate investment
trust.

      INCOME TAX EXPENSE. Income tax expense amounted to $2.1 million and $1.4
million for the fiscal years ended March 31, 2001 and 2000, respectively. The
effective tax rate for those same periods was 43.5% and 37.6%, respectively. The
higher effective tax rate in the 2001 fiscal year was primarily due to the
amortization of goodwill, which was not deductible for tax purposes.

IMPACT OF INFLATION AND CHANGING PRICES

      The Consolidated Financial Statements and related Notes have been prepared
in conformity with accounting principles generally accepted in the United States
of America, which require the measurement of financial position and operating
results without considering the change in the relative purchasing power of money
over time due to inflation. The impact of inflation is reflected in the
increased cost of our operations. Unlike industrial companies, nearly all of our
assets and liabilities are financial in nature. As a result, our net income is
directly impacted by changes in interest rates, which are influenced by
inflationary expectations. Our ability to match the interest sensitivity of our
financial assets to the interest sensitivity of our financial liabilities as
part of our interest rate risk management program may reduce the effect that
changes in interest rates have on our net income. Changes in interest rates do
not necessarily move to the same extent as changes in prices of goods and
services. In the current interest rate environment, liquidity and the maturity
structure of our assets and liabilities are critical to the maintenance of
acceptable levels of net income. Management believes that by maintaining a
significant portion of our assets in short-term investments and adjustable rate
mortgage-backed securities, we will be able to redeploy our assets in a rising
interest rate environment.

LIQUIDITY AND CAPITAL RESOURCES

      Our liquidity management objective is to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for expansion. Liquidity management addresses our ability to meet
deposit withdrawals on demand or at contractual maturity, to repay borrowings as
they mature, and to fund new loans and investments as opportunities arise.

                                       41
<PAGE>

      Our primary investing activities are the origination of mortgage loans,
and the purchase of short-term investments, government agency bonds and
adjustable rate mortgage-backed securities. These activities are funded
primarily by deposit growth and principal repayments on loans, mortgage-backed
securities and other investment securities. During the three months ended June
30, 2002 and the fiscal year ended March 31, 2002, we originated loans of $52.5
million and $219.9 million, respectively, and purchased securities of $13.3
million and $57.7 million, respectively. These disbursements in the three months
ended June 30, 2002 and the fiscal year ended March 31, 2002, respectively, were
funded by $20.8 million and $90.2 million in principal payments, maturities and
calls of securities; $33.9 million and $95.0 million in loan principal
repayments; $0 and $20.0 million in borrowings; and increased deposits of $24.7
million and $46.4 million.

      At June 30, 2002, we had outstanding loan origination commitments of $65.6
million. If we require funds beyond our internal funding capabilities,
additional borrowings are available from the Federal Home Loan Bank of New York.
At June 30, 2002, approximately $270.4 million in certificates of deposit were
scheduled to mature within one year. Our experience has been that a substantial
portion of our maturing certificate of deposit accounts are renewed.

      Office of Thrift Supervision regulations also require savings
associations, such as Sound Federal Savings, to meet three minimum capital
standards: a tangible capital ratio requirement of 1.5% of total assets as
adjusted under the Office of Thrift Supervision regulations; a leverage ratio
requirement of 4.0% of core capital to such adjusted total assets; and a
risk-based capital ratio requirement of 8.0% of core and supplementary capital
to total risk-based assets. We satisfied these minimum capital standards at June
30, 2002 with tangible and leverage capital ratios of 6.6% and a total
risk-based capital ratio of 13.8%, and we were classified as a well-capitalized
institution for regulatory purposes. In determining the amount of risk-weighted
assets for purposes of the risk-based capital requirement, a savings association
multiplies its assets and credit equivalent amounts for certain off-balance
sheet items by risk-weights, which range from 0% for cash and obligations issued
by the U.S. Government or its agencies to 100% for assets such as consumer and
commercial loans, as assigned by the Office of Thrift Supervision capital
regulations. These capital requirements, which are applicable to Sound Federal
Savings only, do not consider additional capital retained by Sound Federal
Bancorp.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

      Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities", requires entities to
recognize all derivatives as either assets or liabilities in the balance sheet
at fair value. If certain conditions are met, a derivative may be specifically
designated as a fair value hedge, a cash flow hedge, or a foreign currency
hedge. A specific accounting treatment applies to each type of hedge. Entities
were permitted to reclassify securities from the held-to-maturity category to
the available-for-sale category at the time of adopting SFAS No. 133. As
amended, SFAS No. 133 was effective for fiscal years beginning after June 15,
2000. We adopted SFAS No. 133 on April 1, 2001 and reclassified all of our
held-to-maturity securities to the available-for-sale portfolio. We have not
engaged in derivatives and hedging activities covered by the new standard, nor
do we expect to do so in the foreseeable future.

      In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires use of the purchase method of
accounting for all business combinations initiated after June 30, 2001. SFAS No.
142 requires that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at least annually
using a "two-step" approach that involves the identification of reporting units
and the estimation of fair values. SFAS No. 142 also requires that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of."

      We adopted SFAS Nos. 141 and 142 as of April 1, 2001. As a result, we
ceased recording goodwill amortization. Goodwill resulting from the acquisition
of Peekskill Financial Corporation totaled $15.2 million, and the remaining
balance at June 30, 2002 was $14.0 million. As of April 1, 2001 (the date of
adoption of SFAS No. 142) and as of June 30, 2002, we were not required to
recognize any impairment of our goodwill. The elimination

                                       42
<PAGE>

of goodwill amortization increased our net income and earnings per share
subsequent to March 31, 2001. See Notes 2 and 3 of the Notes to the Consolidated
Financial Statements.

      SFAS No. 143, "Accounting for Asset Retirement Obligations," is effective
for financial statements issued for fiscal years beginning after June 15, 2002.
SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. Management does not expect that the adoption of this
pronouncement will impact our results of operations or financial condition.

      In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001.
The standard addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. The adoption of this pronouncement did not affect
our results of operations or financial condition.

      SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections," was issued in April 2002.
Among other things, the standard changes the income statement classification of
gains and losses from early extinguishments of debts. Management does not expect
that the provisions of this statement will impact our results of operations or
financial condition.

      SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," was issued in June 2002 and requires that a liability be recognized
for these costs only when incurred, while existing practice calls for
recognition of a liability when an entity commits to an exit plan. This
statement is effective for exit or disposal activities initiated after December
31, 2002 and is not expected to impact our results of operations or financial
condition.

                        BUSINESS OF SOUND FEDERAL BANCORP
                 AND SOUND FEDERAL SAVINGS AND LOAN ASSOCIATION

GENERAL

SOUND FEDERAL BANCORP

      Sound Federal Bancorp is a federal corporation that was organized in
October 1998. Sound Federal Bancorp's principal asset is its investment in Sound
Federal Savings. Sound Federal Bancorp is majority owned by Sound Federal, MHC,
a federally-chartered mutual holding company. On October 8, 1998, Sound Federal
Bancorp sold 2,299,508 shares of its common stock to the public, issued
2,810,510 shares of common stock to Sound Federal, MHC, and contributed 102,200
shares of common stock to the Sound Federal Savings and Loan Association
Charitable Foundation. As of June 30, 2002, 1,967,782 shares of common stock
were held by public stockholders other than Sound Federal, MHC. At June 30,
2002, Sound Federal Bancorp had total consolidated assets of $651.5 million,
total deposits of $544.6 million, and total stockholders' equity of $63.8
million.

SOUND FEDERAL SAVINGS

      Sound Federal Savings is a federally chartered savings association
headquartered in Mamaroneck, New York. Sound Federal Savings' deposits are
insured by the Federal Deposit Insurance Corporation. Sound Federal Savings was
organized as a New York chartered savings bank in 1891 and became a federally
chartered savings association in 1934. In July 2000, Sound Federal Bancorp and
Sound Federal Savings completed the acquisition of Peekskill Financial
Corporation and its wholly owned subsidiary, First Federal Savings Bank. At June
30, 2002, Sound Federal Savings operated from nine locations in New York and
Connecticut. In July 2002, we opened our tenth branch location in Somers, New
York.

                                       43
<PAGE>

BUSINESS STRATEGY

      Our business strategy is designed to continue our profitable operations
consistent with safety and soundness guidelines and principles. The strategies
we employ to achieve our objective are (i) operating a community-oriented
financial institution that provides quality service by monitoring the needs of
its customers and offering customers personalized services; (ii) emphasizing
one-to-four family residential real estate lending; (iii) maintaining
appropriate levels of liquid investments and adjustable-rate securities; (iv)
maintaining asset quality; and (v) expanding our market presence.

      COMMUNITY ORIENTED INSTITUTION. We were established in Mamaroneck, New
York in 1891 and have been operating continuously since that time. We have been,
and continue to be, committed to meeting the financial needs of the communities
in which we operate and we are dedicated to providing quality service to our
customers. We believe that we can be more effective than many of our competitors
in serving our communities because of our ability to promptly and effectively
provide senior management responses to customer needs and inquiries. Our ability
to provide these services is enhanced by the stability of senior management,
which has an average tenure in the savings and loan industry of over 21 years.

      EMPHASIS ON RESIDENTIAL REAL ESTATE LENDING. We have emphasized the
origination of one-to-four family residential loans within Westchester and
Rockland Counties in New York and Fairfield County in Connecticut. As of June
30, 2002, approximately $351.5 million, or 80.2% of our loan portfolio consisted
of one-to-four family mortgage loans. We have historically emphasized the
origination of fixed-rate residential mortgage loans, although beginning in
fiscal 2002 we have attempted to increase our origination of adjustable-rate
mortgage loans. Of the $219.9 million loans originated in fiscal 2002, $161.2
million had fixed rates of interest.

      MAINTAINING APPROPRIATE LEVELS OF LIQUID INVESTMENTS AND ADJUSTABLE-RATE
SECURITIES. Because we have historically emphasized the origination of fixed
rate residential mortgage loans, we have sought to manage our interest rate risk
by maintaining other assets in liquid investments and adjustable rate
securities. In order to be better positioned to redeploy assets profitably in a
rising interest rate environment, management has determined to invest a
significant portion of our assets in liquid investments. At June 30, 2002, our
securities portfolio totaled $143.8 million, or 22.1% of total assets, all of
which are classified as available for sale. We maintain a portion of our assets
in U.S. Government and agency securities and other interest-earning assets,
consisting of federal funds sold and other overnight deposits. At June 30, 2002,
U.S. Government and agency securities due in five years or less totaled $11.2
million, and total cash and cash equivalents (consisting of federal funds sold,
overnight deposits and cash and due from banks) totaled $42.0 million, or 6.5%
of our assets. In addition, $75.8 million, or 74.6%, of our mortgage-backed
securities portfolio had adjustable rates of interest.

      MAINTAINING ASSET QUALITY. Our high asset quality is a result of our
conservative underwriting standards, the diligence of our loan collection
personnel and the stability of the local economy. In addition, we also invest in
mortgage-backed securities issued by Ginnie Mae, Freddie Mac and Fannie Mae and
other investment securities, primarily U.S. Government securities and federal
agency obligations. Our ratio of nonperforming assets to total assets was 0.15%,
0.14% and 0.20% at June 30, 2002, March 31, 2002 and March 31, 2001,
respectively.

      EXPANDING OUR MARKET PRESENCE. Since our mutual holding company
reorganization in 1998 we have sought to expand our presence in our market area
and the contiguous areas. At the time of our mutual holding company
reorganization, we operated from our main office in Mamaroneck and two branches,
all of which were located in Southern Westchester County. A principal component
of our branch expansion has been to identify attractive locations for opening
new branches that either complement our existing operations or provide access to
new customers within our market area. Since our reorganization we have expanded
our branch network through the acquisition of Peekskill Financial Corporation
and its wholly-owned subsidiary, First Federal Savings Bank, and a controlled
strategy of opening new branches. Our acquisition of Peekskill Financial
Corporation added three branches in Northern Westchester County.

      We have opened new branch offices in Westchester and Rockland Counties,
New York and in Fairfield County, Connecticut. As a consequence of our efforts,
we have grown to ten branch locations as of July 2002, and have expanded our
market area to include Rockland and Fairfield Counties. We intend to continue to
expand our

                                       44
<PAGE>

branch franchise in a prudent and disciplined manner. We expect to open one
branch per year over the next five years. However, we have no existing
commitments to use any of the net proceeds from this offering for branch
expansion.

COMPETITION

      Sound Federal Savings has significant competition in originating loans
from savings and loan associations, savings banks, mortgage banking companies,
insurance companies and commercial banks, many of which have greater financial
and marketing resources than Sound Federal Savings. Sound Federal Savings also
faces significant competition in attracting deposits from savings and loan
associations, savings banks, commercial banks and credit unions. Sound Federal
Savings faces additional competition for deposits from common stock mutual
funds, money market funds and other corporate and government securities funds,
and from other financial service providers such as brokerage firms and insurance
companies.

      Sound Federal Savings attracts and retains deposits by offering
personalized service, convenient office locations and competitive interest
rates. Loan originations are obtained primarily through (i) direct contacts by
employees with individuals, businesses and attorneys in Sound Federal Savings'
community, (ii) mortgage brokers, (iii) personalized service that Sound Federal
Savings provides borrowers and (iv) competitive pricing. Competition is affected
by, among other things, the general availability of lendable funds, general and
local economic conditions, current interest rate levels, and other factors that
management cannot readily predict.

      As of June 30, 2001, the latest date for which deposit market share
information is available, Sound Federal Savings had deposits of $426.3 million
in Westchester County. These deposits represented 2.1% of all bank and thrift
deposits in Westchester County as of that date, making us the ninth largest
financial institution out of 30 financial institutions in terms of deposits in
that county. As of June 30, 2001, we had deposits of $17.0 million in Rockland
County, representing 0.3% of all bank and thrift deposits in Rockland County as
of that date, making us the 30th largest financial institution out of 30
financial institutions in terms of deposits in that county. As of June 30, 2001,
we had deposits of $39.1 million in Fairfield County. These deposits represented
0.2% of all bank and thrift deposits in Fairfield County as of that date, making
us the 23rd largest financial institution out of 30 financial institutions in
terms of deposits in that county.

MARKET AREA

      Sound Federal Savings is a community-oriented financial institution that
offers a variety of financial products and services from its main office and
branch offices. Sound Federal Savings' loan origination activities are primarily
concentrated in Westchester County, New York and Fairfield County, Connecticut.
Most of Sound Federal Savings' deposit customers are residents of Westchester
County. Sound Federal Savings also obtains deposits from persons in Rockland
County and Fairfield County. Sound Federal Savings' market area consists of
middle income and upper income communities. Significant employers headquartered
in Westchester County include IBM and Pepsico. However, the local economy is not
dependent upon any single employer, but rather is affected by the general
economy of the New York City metropolitan area.

      From 1990 to 2001, Westchester County, Rockland County and Fairfield
County experienced annual population growth of 6.0%, 8.8% and 7.2%,
respectively. This growth exceeded the overall population growth rate of 1.4% in
the United States during that same period. From 1990 to 2001, median household
income grew in Westchester County, Rockland County and Fairfield County by
58.0%, 51.3% and 67.8%, respectively. During that same period, median household
income grew by 43.5% in the State of New York, 45.8% in the State of Connecticut
and 49.6% in the United States.

LENDING ACTIVITIES

      Historically, our principal lending activity has been the origination of
fixed-rate first mortgage loans for the purchase or refinancing of one-to-four
family residential real property. In fiscal 2002, we began to originate
adjustable-rate mortgage loans with fixed-rates for initial terms of three, five
and seven years. After the initial terms, the interest rate on the loan adjusts
annually. We currently retain all one-to-four family residential mortgage

                                       45
<PAGE>

loans that we originate, although we may sell such loans on a servicing-retained
basis in the future. One-to-four family residential mortgage loans represented
$351.5 million, or 80.2%, of our loan portfolio at June 30, 2002. Home equity
lines of credit represented $45.9 million, or 10.5%, of our loan portfolio at
June 30, 2002. We also offer multi-family mortgage loans, commercial mortgage
loans and construction loans. Multi-family mortgage loans totaled $6.9 million,
or 1.6% of the loan portfolio, at June 30, 2002. Commercial mortgage loans
totaled approximately $29.8 million, or 6.8% of the loan portfolio, at June 30,
2002. Construction loans totaled $1.9 million, or 0.4% of the loan portfolio, at
June 30, 2002. We also originate consumer loans, which primarily consist of
automobile, passbook, home improvement and secured personal loans. Consumer
loans totaled $2.4 million, or 0.5% of the loan portfolio, at June 30, 2002.














                                       46
<PAGE>

      LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition
of our loan portfolio by type of loan at the dates indicated.

<TABLE>
<CAPTION>

                                                                                      AT MARCH 31,
                                                      ----------------------------------------------------------------------------
                                  AT JUNE 30, 2002          2002                2001                 2000               1999
                                 ------------------   -----------------   -----------------   -----------------  -----------------
                                  AMOUNT    PERCENT    AMOUNT   PERCENT    AMOUNT   PERCENT    AMOUNT   PERCENT   AMOUNT   PERCENT
                                 --------   -------   --------  -------   --------  -------   --------  -------  --------  -------
                                                                      (DOLLARS IN THOUSANDS)
<S>                             <C>          <C>     <C>         <C>     <C>          <C>    <C>          <C>    <C>         <C>
Mortgage loans:
  One-to-four family..........  $ 351,509    80.2%   $ 334,683   79.7%   $ 221,617    75.1%  $ 138,375    76.1%  $ 119,015   82.3%
  Home equity lines of credit.     45,867    10.5       47,889   11.4       47,315    16.0      24,337    13.4      16,441   11.4
  Multi-family................      6,900     1.6        8,347    2.0        3,959     1.3       4,621     2.5         396    0.3
  Commercial..................     29,764     6.8       23,701    5.6       16,771     5.7      10,795     5.9       5,930    4.1
  Construction................      1,944     0.4        3,733    0.9        3,659     1.2       2,922     1.6       1,821    1.3
                                ---------  ------    --------- ------    ---------  ------   ---------  ------   --------- ------
     Total mortgage loans.....    435,984    99.5      418,353   99.6      293,321    99.3     181,050    99.5     143,603   99.4
                                ---------  ------    --------- ------    ---------  ------   ---------  ------   --------- ------

Consumer loans:
  Automobile loans............        427     0.1          785    0.2        1,154     0.4         467     0.3         609    0.4
  Other (1)...................      2,005     0.4          684    0.2          746     0.3         353     0.2         395    0.2
                                ---------  ------    --------- ------    ---------  ------   ---------  ------   --------- ------
     Total consumer loans.....      2,432     0.5        1,469    0.4        1,900     0.7         820     0.5       1,004    0.6
                                ---------  ------    --------- ------    ---------  ------   ---------  ------   --------- ------

     Total loans..............    438,416   100.0%     419,822  100.0%     295,221   100.0%    181,870   100.0%    144,607  100.0%
                                           ======              ======               ======              ======             ======

Allowance for loan losses.....     (2,296)              (2,221)             (2,047)             (1,188)             (1,094)
Deferred loan origination
  costs (fees), net...........      1,299                  767                 633                 250                  23
                                ---------            ---------           ---------           ---------           ---------
    Total loans, net..........  $ 437,419            $ 418,368           $ 293,807           $ 180,932           $ 143,536
                                =========            =========           =========           =========           =========

<CAPTION>

                                 ------------------
                                        1998
                                 ------------------
                                  AMOUNT    PERCENT
                                 --------   -------
<S>                              <C>         <C>
Mortgage loans:
  One-to-four family..........   $ 109,207   84.1%
  Home equity lines of credit.      13,138   10.1
  Multi-family................         412    0.3
  Commercial..................       3,811    3.0
  Construction................       1,227    0.9
                                 --------- ------
     Total mortgage loans.....     127,795   98.4
                                 --------- ------

Consumer loans:
  Automobile loans............       1,011    0.8
  Other (1)...................       1,016    0.8
                                 --------- ------
     Total consumer loans.....       2,027    1.6
                                 --------- ------

     Total loans..............     129,822  100.0%
                                           ======

Allowance for loan losses.....        (984)
Deferred loan origination
  costs (fees), net...........        (280)
                                 ---------
    Total loans, net..........   $ 128,558
                                 =========

</TABLE>

----------------------------------
(1)   Primarily secured personal loans, loans secured by deposit accounts and
      home improvement loans.

                                       47

<PAGE>

      The following table sets forth the composition of our loan portfolio by
fixed and adjustable rates at the dates indicated.

<TABLE>
<CAPTION>
                                                                                       AT MARCH 31,
                                                      ----------------------------------------------------------------------------
                                  AT JUNE 30, 2002          2002                2001                 2000               1999
                                 ------------------   -----------------   -----------------   -----------------  -----------------
                                  AMOUNT    PERCENT    AMOUNT   PERCENT    AMOUNT   PERCENT    AMOUNT   PERCENT   AMOUNT   PERCENT
                                 --------   -------   --------  -------   --------  -------   --------  -------  --------  -------
                                                                      (DOLLARS IN THOUSANDS)
<S>                             <C>          <C>     <C>         <C>     <C>          <C>    <C>          <C>    <C>         <C>
Fixed Rate Loans:
Mortgage loans:
  One-to-four family..........  $ 281,813    64.3%   $ 272,203   64.8%   $ 215,202    72.9%  $ 135,912    74.7%  $ 116,113   80.3%
  Home equity lines of credit.     45,710    10.4       47,724   11.4       46,908    15.9      23,940    13.2      15,590   10.8
  Multi-family................      6,900     1.6        8,347    2.0        3,959     1.3       4,621     2.5         396    0.3
  Commercial..................     28,504     6.5       23,296    5.6       16,771     5.7      10,740     5.9       5,930    4.1
  Construction................      1,944     0.4        3,733    0.9        3,659     1.2       2,922     1.6       1,821    1.3
                                ---------  ------    --------- ------    ---------  ------   ---------  ------   --------- ------

     Total mortgage loans.....    364,871    83.2      355,303   84.6      286,499    97.0     178,135    97.9     139,850   96.8
Consumer loans................      2,432     0.5        1,469    0.4        1,900     0.7         820     0.5       1,004    0.6
                                ---------  ------    --------- ------    ---------  ------   ---------  ------   --------- ------
     Total fixed rate loans...    367,303    83.7      356,772   85.0      288,399    97.7     178,955    98.4     140,854   97.4
                                ---------  ------    --------- ------    ---------  ------   ---------  ------   --------- ------

Adjustable Rate Loans:
Mortgage loans:
  One-to-four family..........     69,696    15.9       62,480   14.9        6,415     2.2       2,463     1.4       2,902    2.0
  Home equity lines of credit.        157     0.1          165     --          407     0.1         397     0.2         851    0.6
  Commercial..................      1,260     0.3          405    0.1           --      --          55      --          --     --
                                ---------  ------    --------- ------    ---------  ------   ---------  ------   --------- ------
     Total adjustable rate
       loans..................     71,113    16.3       63,050   15.0        6,822     2.3       2,915     1.6       3,753    2.6
                                ---------  ------    --------- ------    ---------  ------   ---------  ------   --------- ------

Total loans...................    438,416   100.0%     419,822  100.0%     295,221   100.0%    181,870   100.0%    144,607  100.0%
                                           ======              ======               ======              ======             ======

Allowance for loan losses......    (2,296)              (2,221)             (2,047)             (1,188)             (1,094)
Deferred loan origination
    costs (fees), net..........     1,299                  767                 633                 250                  23
                                ---------            ---------           ---------           ---------           ---------
     Total loans, net.......... $ 437,419            $ 418,368           $ 293,807           $ 180,932           $ 143,536
                                =========            =========           =========           =========           =========

<CAPTION>

                                 ------------------
                                        1998
                                 ------------------
                                  AMOUNT    PERCENT
                                 --------   -------
<S>                             <C>         <C>
Fixed Rate Loans:
Mortgage loans:
  One-to-four family..........  $ 103,887   80.0%
  Home equity lines of credit.     12,094    9.3
  Multi-family................        412    0.3
  Commercial..................      3,811    3.0
  Construction................      1,227    1.0
                                --------- ------

     Total mortgage loans.....    121,431  93.6
Consumer loans................      2,027   1.6
                                --------- ------
     Total fixed rate loans...    123,458   95.1
                                --------- ------

Adjustable Rate Loans:
Mortgage loans:
  One-to-four family..........      5,320    4.1
  Home equity lines of credit.      1,044    0.7
  Commercial..................         --     --
                                --------- ------
     Total adjustable rate
       loans..................      6,364    4.8
                                --------- ------

Total loans...................    129,822  100.0%
                                          ======

Allowance for loan losses......      (984)
Deferred loan origination
    costs (fees), net..........      (280)
                                ---------
     Total loans, net.......... $128, 558
                                =========

</TABLE>

-------------------------------
(1)   Primarily secured personal loans, loans secured by deposit accounts and
      home improvement loans.

                                       48

<PAGE>

      LOAN MATURITY SCHEDULE. The following table summarizes the contractual
maturities of our loan portfolio at March 31, 2002. Loans with adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract is due. The table reflects the entire unpaid principal balance of a
loan in the maturity period that includes the final payment date, and
accordingly, does not reflect the effects of scheduled payments, possible
prepayments or enforcement of due-on-sale clauses.

<TABLE>
<CAPTION>
                                                                                           MULTI-FAMILY AND
                       ONE-TO-FOUR FAMILY (1)     COMMERCIAL           CONSTRUCTION            CONSUMER               TOTAL
                       -------------------    --------------------  --------------------  -------------------  --------------------
                                  WEIGHTED               WEIGHTED              WEIGHTED              WEIGHTED              WEIGHTED
                                  AVERAGE                AVERAGE               AVERAGE               AVERAGE               AVERAGE
                        AMOUNT      RATE       AMOUNT      RATE      AMOUNT      RATE      AMOUNT      RATE      AMOUNT      RATE
                       --------   --------    --------   --------   --------   --------   --------   --------   --------   --------
                                                                  (DOLLARS IN THOUSANDS)
Due During the Years
 Ending March 31,
<C>                    <C>          <C>       <C>           <C>     <C>           <C>     <C>           <C>     <C>           <C>
2003(2)............    $     959    7.65%     $   1,021     7.09%   $   3,733     7.63%   $     616     5.42%   $   6,329     7.33%
2004...............        1,452    8.29          1,181     7.79           --      --           619     7.18        3,252     7.89
2005...............          854    8.09            919     7.47           --      --         1,191     7.74        2,964     7.76
2006 to 2008.......        5,530    7.45          3,931     7.90           --      --            --      --         9,461     7.63
2009 to 2012.......       18,804    7.35         12,163     8.40           --      --         4,408     7.80       35,375     7.77
2013 to 2017.......       74,771    6.52          1,507     8.31           --      --         1,005     7.44       77,283     6.57
2018 and following.      280,202    5.96          2,979     7.49           --      --         1,977     7.62      285,158     5.99
                       ---------              ---------             ---------             ---------             ---------
     Total.........    $ 382,572    6.18%     $  23,701     8.07%   $   3,733     7.63%   $   9,816     7.53%   $ 419,822     6.33%
                       =========              =========             =========             =========             =========
</TABLE>

----------------
(1)   Includes home equity lines of credit.
(2)   Includes demand loans having no stated maturity.

         The following table sets forth the dollar amount of all fixed rate and
adjustable rate loans at March 31, 2002 that are contractually due after March
31, 2003.

                                             FIXED      ADJUSTABLE       TOTAL
                                          -----------   ----------    ----------
                                                      (IN THOUSANDS)

  One-to-four family......................$   319,133   $   62,480    $ 381,613
  Commercial..............................     22,275          405       22,680
  Construction............................         --           --           --
  Multi-family and consumer...............      9,200           --        9,200
                                          -----------   ----------    ---------
     Total................................$   350,608   $   62,885    $ 413,493
                                          ===========   ==========    =========

      ONE-TO-FOUR FAMILY RESIDENTIAL LOANS. Our primary lending activity is the
origination of one-to-four family residential mortgage loans secured by property
located in our primary lending area. Generally, one-to-four family residential
mortgage loans are made in amounts up to 95% of the lesser of the appraised
value or purchase price of the property, with private mortgage insurance
required for loans with a loan-to-value ratio over 80%. Generally, fixed-rate
loans are originated for terms of up to 30 years. One-to-four family loans are
offered with a monthly or bi-weekly payment feature. We have not historically
sold loans that we originate.

      We primarily originate fixed-rate loans; however, we also offer adjustable
rate mortgage loans with a fixed rate for initial terms of three, five and seven
years and then subsequent one year adjustment periods. At June 30, 2002, 80.2%
of our one-to-four family residential loans had fixed interest rates. The
interest rate on adjustable rate mortgage loans is indexed to the one-year
constant maturity Treasury bill. Our adjustable rate mortgage loans currently
provide for maximum rate adjustments of 2.00% per year and 5.00% over the term
of the loan. We do not offer adjustable rate mortgage loans with initial
interest rates that are below market, referred to as "teaser rates." Residential
adjustable rate mortgage loans amortize over terms of up to 30 years.

      Adjustable rate mortgage loans decrease the risk associated with changes
in market interest rates by periodically repricing, but involve other risks
because as interest rates increase, the underlying payments by the borrower
increase, thus increasing the potential for default by the borrower. At the same
time, the marketability of the underlying collateral may be adversely affected
by higher interest rates. Upward adjustment of the contractual interest rate is
also limited by the maximum periodic and lifetime interest rate adjustment
permitted by the terms of

                                       49
<PAGE>

the ARM loans, and, therefore, is potentially limited in effectiveness during
periods of rapidly rising interest rates. At June 30, 2002, 19.8% of our
one-to-four family residential loans had adjustable interest rates.

      All one-to-four family residential mortgage loans we originate include
"due-on-sale" clauses, which give us the right to declare a loan immediately due
and payable in the event that, among other things, the borrower, without our
consent, sells or otherwise disposes of the real property subject to the
mortgage and the loan is not repaid.

      All one-to-four family residential mortgage borrowers are required to
obtain title insurance. We also require homeowner's insurance, fire and casualty
insurance and, where appropriate, flood insurance.

      At June 30, 2002, approximately $351.5 million, or 80.2% of our loan
portfolio, consisted of one-to-four family residential loans. Approximately
$952,000 of such loans (representing 10 loans) were nonperforming loans at that
date. See "Nonperforming and Problem Assets."

      HOME EQUITY LINES OF CREDIT. We offer home equity lines of credit that are
secured by the borrower's primary residence. The borrower is permitted to draw
on the home equity line of credit during the first five years after it is
originated and may repay the outstanding balance over a term not to exceed 20
years from the date the line of credit is originated. Virtually all of our home
equity lines of credit are originated with fixed rates of interest. Home equity
lines of credit are generally underwritten under the same criteria that we use
to underwrite one-to-four family fixed-rate loans. Home equity lines of credit
may be underwritten with a loan-to-value ratio of 80% when combined with the
principal balance of the existing mortgage loan, however, the maximum principal
amount of a home equity line of credit may not exceed $500,000 unless approved
by the Board of Directors. We appraise the property securing the loan at the
time of the loan application in order to determine the value of the property
securing the home equity line of credit. At the time we close a home equity line
of credit, we file a mortgage to perfect our security interest in the underlying
collateral. At June 30, 2002, the outstanding balances of home equity lines of
credit totaled $45.9 million, or 10.5% of our loan portfolio.

      COMMERCIAL MORTGAGE LOANS. At June 30, 2002, $29.8 million, or 6.8%, of
our total loan portfolio consisted of commercial mortgage loans. Commercial
mortgage loans are secured by office buildings, private schools, religious
facilities and other commercial properties. We generally originate fixed-rate
commercial mortgage loans with maximum terms of up to 20 years. The maximum
loan-to-value ratio of commercial mortgage loans is 75%. At June 30, 2002, we
had 62 commercial mortgage loans, the largest of which had a principal balance
of $1.8 million and was secured by a combination of office building and retail
stores. As of June 30, 2002, there were no nonperforming commercial mortgage
loans.

      In underwriting commercial mortgage loans, we review a number of factors,
such as the expected net operating income generated by the real estate to ensure
that it is at least 125% of the amount of the monthly debt service; the age and
condition of the collateral; the financial resources and income level of the
borrower; and the borrower's business experience. Personal guarantees are
typically required from commercial mortgage borrowers.

      Loans secured by commercial real estate generally are larger than
one-to-four family residential loans and involve a greater degree of risk.
Commercial mortgage loans can involve large loan balances to single borrowers or
groups of related borrowers. Payments on these loans depend to a large degree on
the results of operations and management of the properties or underlying
businesses, and may be affected to a greater extent by adverse conditions in the
real estate market or in the economy in general. Accordingly, the nature of
commercial real estate loans makes them more difficult to monitor and evaluate.

      MULTI-FAMILY MORTGAGE LOANS. Loans secured by multi-family real estate
totaled approximately $6.9 million, or 1.6% of the total loan portfolio at June
30, 2002. Multi-family mortgage loans generally are secured by multi-family
rental properties (including mixed-use buildings and walk-up apartments). At
June 30, 2002, we had 14 multi-family mortgage loans, the largest of which had a
principal balance of $1.0 million. Multi-family mortgage loans generally are
offered with both fixed and adjustable interest rates, although in the current
interest rate environment we have not recently originated adjustable rate
multi-family loans. Multi-family loans are originated for terms of up to 30
years.

                                       50
<PAGE>

      In underwriting multi-family mortgage loans, we consider a number of
factors, which include the net operating income projected to be generated by the
real estate to ensure that it is at least 125% of the amount of the monthly debt
service; the age and condition of the collateral; the financial resources and
income level of the borrower; and the borrower's experience in owning or
managing similar properties. Multi-family mortgage loans are originated in
amounts up to 75% of the appraised value of the property securing the loan.
Personal guarantees are obtained when possible from multi-family mortgage
borrowers.

      Loans secured by multi-family real estate generally involve a greater
degree of credit risk than one-to-four family residential mortgage loans and
carry larger loan balances. This increased credit risk is a result of several
factors, including the concentration of principal in a limited number of loans
and borrowers, the effects of general economic conditions on income producing
properties, and the increased difficulty of evaluating and monitoring these
types of loans. Furthermore, the repayment of loans secured by multi-family real
estate typically depends upon the successful operation of the related real
estate property. If the cash flow from the project is reduced, the borrower's
ability to repay the loan may be impaired.

      CONSTRUCTION LENDING. To a limited extent, we originate residential
construction loans to local home builders, generally with whom we have an
established relationship, and to individuals who have a contract with a builder
for the construction of their residence. Construction loans are disbursed as
certain portions of the project are completed. Our construction loans are
secured by property located in our market area. At June 30, 2002, we had
construction loans totaling $1.9 million, or 0.4% of total loans.

      Our construction loans to home builders generally have fixed interest
rates, are for a term of 12 months and have a maximum loan to value ratio of
80%. Loans to builders are made on either a pre-sold or speculative (unsold)
basis. Construction loans to individuals are generally originated pursuant to
the same policy guidelines regarding loan-to-value ratios and interest rates
that are used in connection with loans secured by one-to-four family residential
real estate. Construction loans to individuals who intend to occupy the
completed dwelling may be converted to permanent financing after the
construction phase is completed.

      We generally limit the number of outstanding loans on unsold homes under
construction to individual builders, with the amount dependent on the financial
strength, including existing borrowings, of the builder and prior sales of homes
in the development. Prior to making a commitment to fund a construction loan, we
require an appraisal of the property from a qualified appraiser approved by us,
and all appraisals are reviewed by management. Loan proceeds are disbursed after
an inspection of the property based on a percentage of completion. Monthly
payment of accrued interest is required.

      Construction loans are generally considered to involve a higher degree of
risk than single-family permanent mortgage loans because of the inherent
difficulty in estimating both a property's value at completion of the project
and the estimated cost of the project. If the estimate of construction costs is
inaccurate, we may be required to advance funds beyond the amount originally
committed to permit completion of the project. If the estimate of value upon
completion is inaccurate, the value of the property may be insufficient to
assure full repayment. Projects may also be jeopardized by disagreements between
borrowers and builders and by the failure of builders to pay subcontractors.
Loans to builders to construct homes for which no purchaser has been identified
carry more risk because the repayment of the loan depends on the builder's
ability to sell the property prior to the time that the construction loan is
due. We have attempted to minimize these risks by, among other things, limiting
its construction lending primarily to residential properties and generally
requiring personal guarantees from the principals of its corporate borrowers.

      CONSUMER LENDING. Our consumer loans primarily consist of automobile
loans, secured personal loans, passbook loans and home improvement loans. At
June 30, 2002, consumer loans totaled $2.4 million, or 0.5% of the total loan
portfolio.

      Consumer loans generally have shorter terms and higher interest rates than
one-to-four family mortgage loans. While consumer loans expand the products and
services we offer, these loans generally involve greater credit risk than
residential mortgage loans because of the difference in the underlying
collateral. Repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance

                                       51
<PAGE>

because of the greater likelihood of damage to, loss of or depreciation in the
underlying collateral. The remaining deficiency often does not warrant further
substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections depend on the
borrower's personal financial stability. Furthermore, the application of various
federal and state laws, including federal and state bankruptcy and insolvency
laws, may limit the amount that can be recovered on such loans.

      Our underwriting procedures for consumer loans include an assessment of
the applicant's credit history and the ability to meet existing and proposed
debt obligations. Although the applicant's creditworthiness is the primary
consideration, the underwriting process also includes a comparison of the value
of the security, to the proposed loan amount.

      LOAN APPROVAL PROCEDURES AND AUTHORITY. The loan approval process is
intended to assess the borrower's ability to repay the loan, the viability of
the loan, and the adequacy of the value of the property that will secure the
loan. To assess the borrower's ability to repay, we review the employment and
credit history and information on the historical and projected income and
expenses of borrowers. Loans of up to $1.5 million may be approved by two of
three designated lending officers acting together. All loans in excess of $1.5
million must be approved by the Board of Directors. In addition, the Board of
Directors reviews and confirms all loan commitments. We will generally not
originate a loan with a principal balance in excess of $2.0 million.

      We require appraisals of real property securing loans. Appraisals are
performed by independent appraisers, who are approved by the Board of Directors
annually. We require fire and extended coverage insurance in amounts adequate to
protect our principal balance. Where appropriate, flood insurance is also
required. Private mortgage insurance is required for all residential mortgage
loans with loan-to-value ratios greater than 80%.

      ORIGINATION OF LOANS. We originate mortgage loans pursuant to underwriting
standards that generally conform with the Fannie Mae guidelines. Loan
origination activities are primarily concentrated in Westchester County, New
York and Fairfield County, Connecticut. New loans are generated primarily from
mortgage brokers, customer referrals, local real estate agents, local attorneys
and other parties with whom we do business, and from the efforts of employees
and advertising.










                                       52
<PAGE>

      The following table sets forth our loan originations, principal repayments
and other portfolio activity for the periods indicated. We did not purchase or
sell any loans during the periods indicated.

<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED JUNE 30,           YEARS ENDED MARCH 31,
                                                         -----------------------      ------------------------------------
                                                           2002          2001           2002          2001          2000
                                                         ---------     ---------      ---------     ---------    ---------
                                                                                  (IN THOUSANDS)

<S>                                                      <C>           <C>            <C>           <C>          <C>
Unpaid  principal  balances at  beginning of period...   $ 419,822     $ 295,221      $ 295,221     $ 181,870    $ 144,607
                                                         ---------     ---------      ---------     ---------    ---------
Loans acquired in acquisition of Peekskill
  Financial Corporation(1)............................          --            --             --        67,845           --

LOANS ORIGINATED BY TYPE:
Fixed rate:
    Mortgage loans:
      One-to-four family..............................      24,638        23,088        107,782        35,623       32,403
      Advances under home equity lines of credit......       7,679         7,020         27,214        34,890       16,676
      Multi-family....................................          --           150          4,823           440        4,404
      Commercial......................................       6,872         4,702         15,288         5,887        4,466
      Construction....................................         934         3,788          4,892         4,216        3,678
    Consumer loans....................................       1,014           463          1,244         1,471          679
                                                         ---------     ---------      ---------     ---------    ---------
      Total fixed rate................................      41,137        39,211        161,243        82,527       62,306

Adjustable rate mortgage loans:
    One-to-four family................................      10,539         8,193         58,609         4,114           --
    Commercial........................................         855            --             --            --           55
                                                         ---------     ---------      ---------     ---------    ---------
      Total loans originated..........................      52,531        47,404        219,852        86,641       62,361
                                                         ---------     ---------      ---------     ---------    ---------

PRINCIPAL REPAYMENTS:
    Mortgage loans....................................     (33,886)      (20,103)       (93,308)      (39,925)     (24,111)
    Consumer loans....................................         (51)         (265)        (1,675)         (758)        (863)
                                                         ---------     ---------      ---------     ---------    ---------
      Total principal repayments......................     (33,937)      (20,368)       (94,983)      (40,683)     (24,974)
                                                         ---------     ---------      ---------     ---------    ---------

Charge-offs...........................................          --            --            (15)         (162)          (6)
Transfers to real estate owned........................          --          (118)          (253)         (290)        (118)
                                                         ---------     ---------      ---------     ---------    ---------
Unpaid principal balances at end of period............     438,416       322,139        419,822       295,221      181,870

Allowance for loan losses.............................      (2,296)       (2,072)        (2,221)       (2,047)      (1,188)
Deferred loan origination costs (fees), net...........       1,299           663            767           633          250
                                                         ---------     ---------      ---------     ---------    ---------
Net loans at end of period............................   $ 437,419     $ 320,730      $ 418,368     $ 293,807    $ 180,932
                                                         =========     =========      =========     =========    =========
</TABLE>

-----------------
(1)   Represents primarily fixed-rate one-to-four family mortgage loans.

NONPERFORMING AND PROBLEM ASSETS

      After a mortgage loan becomes fifteen days past due, we deliver a computer
generated delinquency notice to the borrower. When loans become 30 days past
due, we send additional delinquency notices and we attempt to make personal
contact with the borrower by letter or telephone to establish acceptable
repayment schedules. The Board of Directors is advised of all loans delinquent
60 days or more. The Board will consider the borrower's willingness to comply
with the loan terms, our actions to date, and the value of the loan collateral
in determining what actions, if any, are to be taken. Generally, when a mortgage
loan is 90 days delinquent and no acceptable resolution has been reached, we
will send the borrower a demand letter. If the delinquency is not cured within
120 days, we will generally refer the matter to our attorney. Generally,
management will begin foreclosure proceedings on any loan after it is delinquent
over 120 days unless management is engaged in active discussions with the
borrower.

      Mortgage loans are reviewed on a regular basis and such loans are placed
on nonaccrual status when they become 90 days delinquent. When loans are placed
on nonaccrual status, unpaid accrued interest is fully reserved, and further
income is recognized only to the extent of interest payments actually received.

                                       53
<PAGE>

      NONPERFORMING ASSETS. The table below sets forth the amounts and
categories of our nonperforming assets at the dates indicated. At each date
presented, we had no troubled debt restructurings (which involve forgiving a
portion of interest or principal or making loans at rates significantly less
than current market rates).

<TABLE>
<CAPTION>
                                                                               AT MARCH 31,
                                            AT JUNE 30,   --------------------------------------------------------
                                              2002         2002        2001         2000        1999        1998
                                            --------     --------    --------     --------    --------    --------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                         <C>          <C>         <C>          <C>         <C>         <C>
Nonaccrual loans:
  Mortgage loans:
     One-to-four family(1)...............   $    952     $    755    $    933     $    969    $  1,077    $  1,721
     Commercial..........................          c           --          --           --          --         236
  Consumer loans.........................         --           --          --           --          14           1
                                            --------     --------    --------     --------    --------    --------
     Total nonaccrual loans..............        952          755         933          969       1,091       1,958

Real estate owned:
  One-to-four family.....................         --          144         197           55         288         129
                                            --------     --------    --------     --------    --------    --------

     Total nonperforming assets..........   $    952     $    869    $  1,130     $  1,024    $  1,379    $  2,087
                                            ========     ========    ========     ========    ========    ========

Ratios:
     Nonperforming loans to total loans..       0.22%        0.18%       0.31%        0.53%       0.75%       1.50%
     Nonperforming assets to total assets       0.15%        0.14%       0.20%        0.31%       0.47%       0.82%
     Ratio of net charge-offs to average
       loans outstanding.................         --%          --%       0.05%          --%       0.12%       0.01%
</TABLE>
----------------
(1)   Includes home equity lines of credit.

      For the three months ended June 30, 2002 and for the year ended March 31,
2002, gross interest income that would have been recorded had nonaccrual loans
been current in accordance with their original terms amounted to $20,000 and
$67,000 respectively. Interest amounts on such loans that were included in
interest income totaled $6,600 for the three months ended June 30, 2002 and
$20,000 for the year ended March 31, 2002.

      The following table sets forth certain information with respect to our
loan portfolio delinquencies at the dates indicated.

<TABLE>
<CAPTION>
                                                   LOANS DELINQUENT FOR:
                                 ----------------------------------------------------     ------------------------
                                       60-89 DAYS                 90 DAYS AND OVER                  TOTAL
                                 -----------------------      -----------------------     ------------------------
                                   NUMBER        AMOUNT         NUMBER        AMOUNT        NUMBER         AMOUNT
                                 ---------     ---------      ---------     ---------     ---------      ---------
                                                                (DOLLARS IN THOUSANDS)
<S>                                     <C>    <C>                   <C>    <C>                  <C>     <C>
   AT JUNE 30, 2002
   One-to-four family........            5     $     930             10     $     952            15      $   1,882
   Consumer..................           --            --             --            --            --             --
                                 ---------     ---------      ---------     ---------     ---------      ---------
        Total................            5     $     930             10     $     952            15      $   1,882
                                 =========     =========      =========     =========     =========      =========

   AT MARCH 31, 2002
   One-to-four family........           10     $   1,115             11     $     755            21      $   1,870
   Consumer..................           --            --             --            --            --             --
                                 ---------     ---------      ---------     ---------     ---------      ---------
        Total................           10     $   1,115             11     $     755            21      $   1,870
                                 =========     =========      =========     =========     =========      =========

   AT MARCH 31, 2001
   One-to-four family........            8     $     508             14     $     933            22      $   1,441
   Consumer..................           --            --             --            --            --             --
                                 ---------     ---------      ---------     ---------     ---------      ---------
        Total................            8     $     508             14     $     933            22      $   1,441
                                 =========     =========      =========     ==========    =========      =========

   AT MARCH 31, 2000
   One-to-four family........            7     $     829             11     $     969            18      $   1,798
   Consumer..................            3             9             --            --             3              9
                                 ---------     ---------      ---------     ---------     ----------     ---------
        Total................           10     $     838             11     $     969            21      $   1,807
                                 =========     =========      =========     =========     =========      =========
</TABLE>

      CLASSIFIED ASSETS. Federal regulations and our Asset Classification Policy
provide for the classification of loans and other assets, such as debt and
equity securities, considered by the Office of Thrift Supervision to be of
lesser quality as "substandard," "doubtful" or "loss" assets. An asset is
considered "substandard" if it is inadequately

                                       54
<PAGE>

protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. "Substandard" assets include those characterized by
the "distinct possibility" that the institution will sustain "some loss" if the
deficiencies are not corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectable" and of such little value that their continuance as assets is not
warranted.

      An insured institution is required to establish general allowances for
loan losses in an amount deemed prudent by management for loans classified
substandard or doubtful, as well as for other problem loans. General allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies problem assets as "loss," it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset so classified or to charge off such amount. An institution's determination
as to the classification of its assets and the amount of its valuation
allowances is subject to review by the Office of Thrift Supervision, which can
order the establishment of additional general or specific loss allowances.

      At June 30, 2002, our assets classified as substandard totaled $952,000,
representing all loans delinquent for 90 days or more. At June 30, 2002 we had
no assets classified as doubtful or loss. The loan portfolio is reviewed on a
regular basis to determine whether any loans require classification in
accordance with applicable regulations.

ALLOWANCE FOR LOAN LOSSES

      Management regularly reviews our loan portfolio and makes provisions for
loan losses in order to maintain the adequacy of the allowance for loan losses.
All loan losses are charged to the allowance and all recoveries are credited to
it. Additions to the allowance for loan losses are provided by charges to income
based on various factors which, in management's judgment, deserve current
recognition in estimating losses that are inherent in the loan portfolio and
that are both probable and estimable. The allowance for loan losses consists of
amounts specifically allocated to nonperforming loans and potential problem
loans (if any) as well as allowances determined for each major loan category.
Loan categories, such as one-to-four family residential mortgages and home
equity lines of credit (which represent a combined 90.7% of our total loans at
June 30, 2002) are generally evaluated on an aggregate or "pool" basis. Our
allowance for loan losses is predominantly determined on a pool basis by
applying loss factors to the current balances of the various loan categories.
The loss factors are determined by management based on an evaluation of our
historical loss experience, delinquency trends, volume and type of lending
conducted, and the impact of current economic conditions in our market area. The
carrying values of loans are periodically evaluated and the allowance is
adjusted accordingly. While management uses the best information available to
make evaluations, future adjustments to the allowance may be necessary if
conditions differ substantially from the assumptions used in making the
evaluations.

      In addition, various regulatory agencies, as an integral part of their
examination process, periodically review our allowance for loan losses. Such
agencies may require us to recognize additions to the allowance based on their
judgments of information available to them at the time of their examination.



                                       55
<PAGE>

      The following table sets forth activity in our allowance for loan losses
for the periods indicated.

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED
                                                    JUNE 30,                            YEARS ENDED MARCH 31,
                                             ----------------------   ---------------------------------------------------------
                                               2002         2001        2002         2001       2000        1999        1998
                                             ---------    ---------   ---------   ---------   ---------   ---------   ---------
                                                                          (DOLLARS IN THOUSANDS)

<S>                                          <C>          <C>         <C>         <C>         <C>         <C>         <C>
Balance at beginning of period.............  $   2,221    $   2,047   $   2,047   $   1,188   $   1,094   $     984   $     845
                                             ---------    ---------   ---------   ---------   ---------   ---------   ---------

Provision for loan losses..................         75           25         175         208         100         272         155

Allowance transferred in acquisition
  of Peekskill Financial Corporation.......         --           --          --         784          --          --          --

Charge-offs:
  One-to-four family mortgage loans........         --           --         (15)       (162)         (6)       (162)        (16)

Recoveries:
  One-to-four family mortgage loans........         --           --          14          29          --          --          --
                                             ---------    ---------   ---------   ---------   ---------   ---------   ---------
Net charge-offs............................         --           --          (1)       (133)         (6)       (162)        (16)

Balance at end of period...................  $   2,296    $   2,072   $   2,221   $   2,047   $   1,188   $   1,094   $     984
                                             =========    =========   =========   =========   =========   =========   =========

Ratios:
  Allowance for loan losses to nonperforming
    loans..................................     241.18%     184.01%    294.20%     219.40%     122.60%     100.27%      50.26%
  Allowance for loan losses to total loans.       0.52%       0.64%      0.53%       0.69%       0.65%       0.75%       0.75%
</TABLE>

      ALLOCATION OF ALLOWANCE FOR LOAN LOSSES. The following table presents an
analysis of the allocation of the allowance for loan losses at the dates
indicated. The allocation of the allowance to each category is not necessarily
indicative of future loss in any particular category and does not restrict the
use of the allowance to absorb losses in other categories.

<TABLE>
<CAPTION>
                                                                                         AT MARCH 31,
                                                             -----------------------------------------------------------------
                                    AT JUNE 30, 2002                        2002                              2001
                            ------------------------------   -------------------------------   -------------------------------
                                                  PERCENT                           PERCENT                           PERCENT
                                                  OF LOANS                          OF LOANS                          OF LOANS
                                       LOAN       IN EACH                LOAN       IN EACH                LOAN       IN EACH
                            LOAN       BALANCES   CATEGORY    LOAN       BALANCES   CATEGORY    LOAN       BALANCES   CATEGORY
                            LOSS       BY         TO TOTAL    LOSS       BY         TO TOTAL    LOSS       BY         TO TOTAL
                            ALLOWANCE  CATEGORY     LOANS     ALLOWANCE  CATEGORY     LOANS     ALLOWANCE  CATEGORY     LOANS
                            ---------  ---------  --------    ---------  ---------  --------    ---------  ---------  --------
                                                               (DOLLARS IN THOUSANDS)
<S>                         <C>        <C>            <C>     <C>        <C>            <C>     <C>        <C>            <C>
Mortgage loans:
    One-to-four family(1)   $   1,130  $ 397,376      90.7%   $   1,090  $ 382,572      91.1%   $   1,009  $ 268,932      91.1%
    Multi-family.......           120      6,900       1.6          150      8,347       2.0          150      3,959       1.3
    Commercial.........           841     29,764       6.8          741     23,701       5.6          600     16,771       5.7
    Construction.......            50      1,944       0.4           90      3,733       0.9           90      3,659       1.2
Consumer...............           155      2,432       0.5          150      1,469       0.4          198      1,900       0.7
                            ---------  ---------  --------    ---------  ---------  --------    ---------  ---------  --------
       Total...........     $   2,296  $ 438,416     100.0%   $   2,221  $ 419,822     100.0%   $   2,047  $ 295,221     100.0%
                            =========  =========  ========    =========  =========  ========    =========  =========  ========
</TABLE>

-------------------
(1)   Includes home equity lines of credit.

                                       56
<PAGE>

<TABLE>
<CAPTION>
                                                                     AT MARCH 31,
                            --------------------------------------------------------------------------------------------------
                                          2000                              1999                              1998
                            ------------------------------   -------------------------------   -------------------------------
                                                  PERCENT                           PERCENT                           PERCENT
                                                  OF LOANS                          OF LOANS                          OF LOANS
                                       LOAN       IN EACH                LOAN       IN EACH                LOAN       IN EACH
                            LOAN       BALANCES   CATEGORY    LOAN       BALANCES   CATEGORY    LOAN       BALANCES   CATEGORY
                            LOSS       BY         TO TOTAL    LOSS       BY         TO TOTAL    LOSS       BY         TO TOTAL
                            ALLOWANCE  CATEGORY     LOANS     ALLOWANCE  CATEGORY     LOANS     ALLOWANCE  CATEGORY     LOANS
                            ---------  ---------  --------    ---------  ---------  --------    ---------  ---------  --------
                                                               (DOLLARS IN THOUSANDS)
<S>                         <C>        <C>            <C>     <C>        <C>            <C>     <C>        <C>            <C>
Mortgage loans:
    One-to-four family(1)   $     633  $ 162,712      89.5%   $     718  $ 135,456      93.7%   $     668  $ 122,345      94.2%
    Multi-family.......           125      4,621       2.5           26        396       0.3           27        412       0.3
    Commercial.........           300     10,795       5.9          237      5,930       4.1          152      3,811       3.0
    Construction.......            70      2,922       1.6           43      1,821       1.3           36      1,227       0.9
Consumer...............            60        820       0.5           70      1,004       0.6          101      2,027       1.6
                            ---------  ---------  --------    ---------  ---------  --------    ---------  ---------  --------
       Total...........     $   1,188  $ 181,870     100.0%   $   1,094  $ 144,607     100.0%   $     984  $ 129,822     100.0%
                            =========  =========  ========    =========  =========  ========    =========  =========  ========
</TABLE>
------------
(1)   Includes home equity lines of credit.

INVESTMENT ACTIVITIES

      Our investments include mortgage-backed securities, collateralized
mortgage obligations, U.S. Government and agency securities, federal funds sold,
mutual funds and Federal Home Loan Bank stock. Management invests a significant
portion of our assets in overnight and short-term investments and adjustable
rate mortgage-backed securities in order to increase our ability to reinvest
assets in higher yielding securities in a rising interest rate environment.
Under Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," entities were permitted to
reclassify securities from the held-to-maturity category to the
available-for-sale category at the adoption date. We adopted SFAS No. 133 on
April 1, 2001 and reclassified all of our held-to-maturity securities to the
available-for-sale portfolio. We have not engaged in derivatives and hedging
activities covered by SFAS No. 133, nor do we expect to do so in the foreseeable
future.

      Our mortgage-backed securities portfolio had a carrying value of $101.6
million, or 15.6% of total assets at June 30, 2002. Of this amount, $75.8
million of mortgage-backed securities had adjustable rates of interest and $25.8
million had fixed rates of interest.

      Mortgage-backed securities are created by the pooling of mortgages and the
issuance of a security with an interest rate that is less than the interest rate
on the underlying mortgages. Our mortgage-backed securities at June 30, 2002
consist of pass-through securities of $89.4 million insured or guaranteed by
Fannie Mae, Ginnie Mae or Freddie Mac, and collateralized mortgage obligations
("CMOs") of $12.2 million. Mortgage-backed securities increase our liquidity and
credit quality. We have not invested in privately issued mortgage-backed
securities.

      CMOs are typically issued by a special-purpose entity, which may be
organized in a variety of legal forms, such as a trust, a corporation or a
partnership. The entity aggregates pools of pass-through securities, which are
used to collateralize the CMO. Once combined, the cash flows are divided into
"tranches" or "classes" of individual bonds, thereby creating more predictable
average duration for each bond than the underlying pass-through pools.
Accordingly, under the CMO structure, all principal pay-downs from the various
mortgage pools are allocated to a CMO's first class until it has been paid off,
then to a second class until such class has been paid off and then to the next
classes. The loans underlying our CMOs are either guaranteed by Freddie Mac or
Fannie Mae. Virtually all of our CMOs were held by Peekskill Financial
Corporation prior to the acquisition in July 2000. We have not purchased a
significant amount of CMOs.

      At June 30, 2002, the carrying value of our investment securities other
than mortgage-backed securities included $23.2 million in U.S. Government and
agency securities, which consisted of fixed rate Federal Home Loan Bank, Federal
Farm Credit and Fannie Mae issues with maturities of 20 years or less, as well
as adjustable rate Small Business Administration participation certificates that
are guaranteed by the U.S. Government with contractual terms of up to 30 years.
The U. S. Government and agency securities typically have call dates of six
months to three years. At June 30, 2002, we had also invested $18.0 million in
three mutual funds that provide a

                                       57
<PAGE>

rate of return that adjusts daily. The first mutual fund, in which we have a
$2.0 million investment, invests primarily in repurchase agreements secured by
U.S. Government and agency securities and federal funds. The average maturities
of the underlying securities can be from one to seven days, but primarily are
overnight. The second mutual fund, in which we have a $12.0 million investment,
is an adjustable rate mortgage fund that invests primarily in securities backed
by or representing an interest in mortgages on residential properties meeting
the definition of such assets for purposes of the qualified thrift lender test
under Office of Thrift Supervision regulations. The third mutual fund, in which
we have a $3.0 million investment, invests in mortgage-backed securities, which
are collateralized by mortgages on properties located in our primary lending
area. These mutual fund investments are permissible investments as set forth in
our investment policy. The securities were purchased, as part of our ongoing
interest rate risk management process, to provide interest earning liquid funds
and an adjustable interest rate.

      Our earning assets also include overnight federal funds sold and an
interest-earning checking account at the Federal Home Loan Bank of New York. At
June 30, 2002, $35.4 million, or 5.4% of our total assets, were invested in such
instruments.

      The following table sets forth the composition of our securities
classified as available for sale and other earning assets at the dates
indicated:

<TABLE>
<CAPTION>
                                                                                      AT MARCH 31,
                                                              -------------------------------------------------------------------
                                         AT JUNE 30, 2002              2002                   2001                   2000
                                       ---------------------  ---------------------   --------------------   --------------------
                                       AMORTIZED     FAIR     AMORTIZED      FAIR     AMORTIZED     FAIR     AMORTIZED     FAIR
                                         COST       VALUE       COST        VALUE       COST       VALUE       COST       VALUE
                                       ---------   ---------  ---------   ---------   ---------  ---------   ---------  ---------
<S>                                    <C>         <C>        <C>         <C>         <C>        <C>         <C>        <C>
                                                                            (IN THOUSANDS)
Mortgage-backed securities:
 Adjustable rate:
   Mortgage pass-through securities:
     Ginnie Mae......................  $  46,194   $  47,120  $  45,867   $  46,496   $  37,294  $  38,032   $  10,493  $  10,370
     Fannie Mae......................     18,808      19,026     17,154      17,285      12,008     12,196       5,515      5,500
     Freddie Mac.....................      9,458       9,652     10,789      10,892       7,035      7,188       4,202      4,120
  Collateralized mortgage
   obligations.......................         --          --         --          --       1,518      1,526          --         --
 Fixed rate:
  Mortgage pass-through securities:
     Ginnie Mae......................      1,106       1,166      1,246       1,298       1,384      1,413         916        865
     Fannie Mae......................      3,283       3,541      3,518       3,731       5,667      5,992       1,621      1,545
     Freddie Mac.....................      8,458       8,862      9,824      10,173      18,848     19,536       2,738      2,580
  Collateralized mortgage
   obligations.......................     11,355      12,248     13,238      14,259      28,316     30,048          --         --
                                       ---------   ---------  ---------   ---------   ---------  ---------   ---------  ---------
     Total mortgage-backed
       securities....................     98,662     101,615    101,636     104,134     112,070    115,931      25,485     24,980

U.S. Government agency securities....     23,349      23,246     29,788      29,229      32,804  $   2,649      35,891     34,417
Mutual fund investments..............     18,000      18,024     16,000      15,946       8,000      7,996       3,000      2,968
Municipal securities.................        846         957        845         922         840        950          --         --

    Total securities available for
       sale..........................    140,857   $ 143,842    148,269   $ 150,231     153,714  $ 157,526   $  64,376  $  62,365
                                                   =========              =========              =========              =========

Other earning assets:
  Federal funds sold.................      3,000                  3,000                  35,000                 25,000
  Other overnight deposits...........     32,370                 16,847                   2,491                 10,075
  FHLB stock.........................      4,141                  4,141                   3,745                  2,195
                                       ---------              ---------               ---------              ---------
     Total...........................  $ 180,368              $ 172,257               $ 194,950              $ 101,646
                                       =========              =========               =========              =========
</TABLE>

                                       58

<PAGE>

      The following table sets forth the composition of our securities
classified as held to maturity at the dates indicated. At June 30, 2002 and
March 31, 2002, we did not have any securities classified as held to maturity.

<TABLE>
<CAPTION>
                                                                    AT MARCH 31,
                                                   ----------------------------------------------
                                                            2001                     2000
                                                   ---------------------     --------------------
                                                   AMORTIZED     FAIR        AMORTIZED    FAIR
                                                     COST        VALUE         COST       VALUE
                                                   --------     --------     --------    --------
                                                                  (IN THOUSANDS)
<S>                                                <C>          <C>          <C>         <C>
      Mortgage pass-through securities:
        Adjustable rate:
          Ginnie Mae.........................      $ 21,613     $ 21,682     $ 27,772    $ 27,171
          Fannie Mae.........................         3,114        3,127        3,827       3,711
        Fixed rate:
          Ginnie Mae.........................           429          452          571         570
          Fannie Mae.........................            21           21           40          38
                                                   --------     --------     --------    --------
          Total mortgage pass-through........        25,177       25,282       32,210      31,490

      Federal agency obligations.............         3,038        3,035        3,448       3,309
                                                   --------     --------     --------    --------
          Total securities held to maturity..      $ 28,215     $ 28,317     $ 35,658    $ 34,799
                                                   ========     ========     ========    ========
</TABLE>

      The following table sets forth the activity in our mortgage-backed
securities portfolio for the periods indicated.

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED JUNE 30,          YEARS ENDED MARCH 31,
                                                      ------------------------   -------------------------------------
                                                         2002           2001         2002          2001         2000
                                                      ----------    ----------   ----------    ----------    ---------
                                                                              (IN THOUSANDS)

<S>                                                   <C>           <C>          <C>           <C>           <C>
Amortized cost at beginning of period...............  $  101,636    $  137,247   $  137,247    $   57,695    $  58,318
Acquired in acquisition of Peekskill
  Financial Corporation.............................          --            --           --        97,784           --
Purchases of mortgage-backed securities.............       9,272        11,189       28,944        15,075       13,257
Principal repayments................................     (12,361)      (15,029)     (65,392)      (33,538)     (13,660)
Premium  amortization and discount accretion, net...         115          (305)         837           231         (220)
                                                      ----------    ----------   ----------    ----------    ---------
Amortized cost at end of period.....................  $   98,662    $  133,102   $  101,636    $  137,247    $  57,695
                                                      ==========    ==========   ==========    ==========    =========
</TABLE>



                                       59

<PAGE>

      The composition and contractual maturities of our mortgage-backed
securities and other debt securities at June 30, 2002 are indicated in the
following table. All of our securities were classified as available for sale at
June 30, 2002. The table does not reflect the impact of prepayments or
redemptions that may occur.

<TABLE>
<CAPTION>
                                                                 MORE THAN ONE YEAR  MORE THAN FIVE YEARS
                                             ONE YEAR OR LESS    THROUGH FIVE YEARS    THROUGH TEN YEARS   MORE THAN TEN YEARS
                                            -------------------  -------------------  ------------------- --------------------
                                                       WEIGHTED             WEIGHTED             WEIGHTED           WEIGHTED
                                            AMORTIZED  AVERAGE   AMORTIZED  AVERAGE   AMORTIZED  AVERAGE  AMORTIZED  AVERAGE
                                              COST      YIELD      COST      YIELD       COST     YIELD      COST     YIELD
                                            ---------  --------  ---------  --------  ---------  -------- --------- ----------
                                                                          (DOLLARS IN THOUSANDS)

<S>                                         <C>         <C>      <C>         <C>      <C>         <C>     <C>         <C>
Mortgage-backed securities:
Pass-through securities:
  Ginnie Mae...........................     $     2     6.50%    $    285    8.27%    $    124    8.79%   $ 46,889    6.07%
  Fannie Mae...........................       1,000     5.13        2,063    5.96        2,027    7.00      17,001    5.28
  Freddie Mac..........................         645     7.27        5,263    7.11           46    9.37      11,962    6.20
Collateralized mortgage obligations....          --       --           --      --          336    7.00      11,019    6.06
                                            -------              --------              -------            --------
     Total mortgage-backed securities..       1,647     5.97        7,611    6.84        2,533    7.13      86,871    5.93

Other debt securities:
  Federal agency obligations...........       5,999     5.18        5,000    5.25        3,745    5.28       8,605    4.46
  Municipal securities.................          --       --           --      --           --      --         846    5.79
                                            -------              --------              -------            --------

     Total securities available for
         sale..........................     $ 7,646     5.35%    $ 12,611    6.21%     $ 6,278    6.03%   $ 96,322    5.80%
                                            =======              ========              =======            ========

<CAPTION>

                                                    TOTAL SECURITIES
                                            ---------------------------------
                                                                    WEIGHTED
                                            AMORTIZED     FAIR       AVERAGE
                                              COST        VALUE      YIELD
                                            ---------   ---------   ---------

<S>                                         <C>         <C>          <C>
Mortgage-backed securities:
Pass-through securities:
  Ginnie Mae...........................     $  47,300   $  48,286    6.09%
  Fannie Mae...........................        22,091      22,567    5.50
  Freddie Mac..........................        17,916      18,514    6.51
Collateralized mortgage obligations....        11,355      12,248    6.09
                                            ---------   ---------
     Total mortgage-backed securities..        98,662     101,615    6.03

Other debt securities:
  Federal agency obligations...........        23,349      23,246    4.95
  Municipal securities.................           846         957    5.79
                                            ---------   ---------

     Total securities available for
         sale..........................     $ 122,857   $ 125,818    5.83%
                                            =========   =========
</TABLE>

                                       60

<PAGE>

SOURCES OF FUNDS

      GENERAL. Deposits have traditionally been our primary source of funds for
our lending and investment activities. In addition to deposits, funds are
derived from a variety of sources including scheduled loan payments, investment
maturities, loan prepayments and income on earning assets. While scheduled loan
payments and income on earning assets are relatively stable sources of funds,
deposit inflows and outflows can vary widely and are influenced by prevailing
interest rates, market conditions and levels of competition. In addition,
borrowings from the Federal Home Loan Bank of New York may be used in the
short-term to compensate for reductions in deposits and to fund growth. We used
$20.0 million of fixed-rate borrowings during fiscal 2002 to fund a portion of
our loan originations. In addition, we assumed certain borrowings at the time we
acquired Peekskill Financial Corporation, which had a remaining balance of $14.9
million at June 30, 2002.

      DEPOSITS. We obtain deposits primarily from customers who live or work in
the New York counties of Westchester and Rockland and Fairfield County,
Connecticut. We offer a selection of deposit instruments, including savings and
club accounts, money market accounts, NOW accounts, commercial checking and
fixed-term certificate of deposit accounts. We do not actively solicit deposits
outside of our market area. Deposit account terms vary, with the principal
differences being the minimum balance required, the amount of time the funds
must remain on deposit and the interest rate. We do not pay broker fees for any
deposits.

      Interest rates paid, maturity terms, service fees and withdrawal penalties
are established on a periodic basis. Deposit rates and terms are based primarily
on current operating strategies and market rates, liquidity requirements, rates
paid by competitors and growth goals. We rely upon personalized customer service
and long-standing relationships with customers to attract and retain deposits.

      The flow of deposits is influenced significantly by general economic
conditions, changes in money markets and other prevailing interest rates and
competition. The variety of deposit accounts offered allows us to be competitive
in obtaining funds and responding to changes in consumer demand. In recent
years, we have become more susceptible to short-term fluctuations in deposit
flows as customers have become more interest rate conscious. We price our
deposits to reflect our interest rate risk management and profitability
objectives. Based on experience, management believes that passbook accounts and
money market accounts are relatively stable sources of deposits. However, the
ability to attract and maintain certificates of deposit, and the rates paid on
these deposits, have been and will continue to be significantly affected by
market conditions. At June 30, 2002, $324.8 million, or 59.6% of our deposit
accounts were certificates of deposit, of which $270.4 million have maturities
of one year or less.








                                       61

<PAGE>

      The following table sets forth the distribution of our deposit accounts by
account type at the dates indicated.

<TABLE>
<CAPTION>
                                                                                         AT MARCH 31,
                                                                  ---------------------------------------------------------
                                          AT JUNE 30, 2002                   2002                         2001
                                    ---------------------------   --------------------------- -----------------------------
                                                       WEIGHTED                      WEIGHTED                     WEIGHTED
                                                       AVERAGE                       AVERAGE                      AVERAGE
                                     AMOUNT   PERCENT   RATE       AMOUNT   PERCENT   RATE     AMOUNT    PERCENT   RATE
                                    --------  -------  --------   --------  ------- --------- --------   -------  --------
                                                                    (DOLLARS IN THOUSANDS)

<S>                                <C>          <C>     <C>      <C>         <C>      <C>     <C>          <C>     <C>
Transaction accounts and
  savings deposits:
   Savings and club accounts.....  $ 123,397    22.7%   1.00%    $ 118,578   22.8%    1.00%   $ 108,371    22.9%   2.00%
   Money market accounts.........     41,560     7.6    1.34        36,012    6.9     1.43       28,333     6.0    2.60
   NOW accounts..................     48,514     8.9    0.75        47,578    9.2     0.76       38,710     8.2    1.27
   Commercial checking...........      6,382     1.2      --         5,436    1.0       --        2,390     0.5      --
                                   ---------   -----             ---------  -----             ---------   -----
     Total.......................    219,853    40.4    0.98       207,604   39.9     0.99      177,804    37.6    1.91
                                   ---------   -----             ---------  -----             ---------   -----

Certificates of deposit maturing:
  Within one year................    270,443    49.6    3.03       268,116   51.6     3.24      272,570    57.6    6.01
  After one but within
    three years..................     42,424     7.8    3.52        37,622    7.2     3.66       20,619     4.4    5.41
  After three years..............     11,906     2.2    4.67         6,563    1.3     4.62        2,553     0.4    4.85
                                   ---------   -----             ---------  -----             ---------   -----
     Total.......................    324,773    59.6    3.15       312,301   60.1     3.32      295,742    62.4    5.96
                                   ---------   -----             ---------  -----             ---------   -----

Total deposits...................  $ 544,626   100.0%   2.27%    $ 519,905  100.0%    2.39%   $ 473,546   100.0%   4.44%
                                   =========   =====             =========  =====             =========   =====

<CAPTION>

                                    ---------------------------
                                                2000
                                    ---------------------------
                                                       WEIGHTED
                                                       AVERAGE
                                     AMOUNT   PERCENT   RATE
                                    --------  -------  --------

<S>                                 <C>         <C>     <C>
Transaction accounts and
  savings deposits:
   Savings and club accounts.....   $ 60,567    22.0%   2.00%
   Money market accounts.........     18,583     6.7    1.77
   NOW accounts..................     26,664     9.7    1.53
   Commercial checking...........         --      --      --
                                    --------   -----
     Total.......................    105,814    38.4    1.84
                                    --------   -----

Certificates of deposit maturing:
  Within one year................    158,085    57.3    5.23
  After one but within
    three years..................     10,653     3.9    5.69
  After three years..............      1,220     0.4    3.88
                                    --------   -----
     Total.......................    169,958    61.6    5.25
                                    --------   -----

Total deposits...................   $275,772  100.0%    3.94%
                                    ========  =====
</TABLE>

                                       62

<PAGE>

      The following table sets forth our deposit activity for the periods
indicated.

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED JUNE 30,           YEARS ENDED MARCH 31,
                                               ------------------------     -------------------------------------
                                                  2002          2001          2002          2001          2000
                                               ---------      ---------     ---------     ---------     ---------
                                                                     (DOLLARS IN THOUSANDS)

<S>                                            <C>            <C>           <C>           <C>           <C>
Balance at beginning of period.............    $ 519,905      $ 473,546     $   473,546   $   275,772   $   237,279
Deposits assumed in acquisition of Peekskill
  Financial Corporation....................           --             --            --       152,361            --
Deposits...................................      270,878        149,622       761,735       502,757       349,460
Withdrawals................................     (249,242)      (157,065)     (732,730)     (475,352)       (320,788)
Interest credited..........................        3,085          5,064        17,354        18,008         9,821
                                               ---------      ---------     ---------     ---------     ---------

Balance at end of period...................    $ 544,626      $ 471,167     $   519,905   $  473,546    $   275,772
                                               =========      =========     ===========   ==========    ===========

Net increase (decrease) during the period:
    Amount.................................    $  24,721      $  (2,379)    $  46,359     $ 197,774     $    38,493
    Percent................................         4.8%            (0.5)%        9.8%         71.7%         16.2%
</TABLE>

      The following table indicates the amount of our certificates of deposits
by time remaining until maturity as of June 30, 2002.

<TABLE>
<CAPTION>
                                                                             MATURITY
                                                      --------------------------------------------------------
                                                       3 MONTHS     OVER 3 TO 6     OVER 6 TO 12     OVER 12
                                                        OR LESS        MONTHS          MONTHS         MONTHS         TOTAL
                                                      -----------  -----------     -----------     -----------    -----------
                                                                                  (IN THOUSANDS)

<S>                                                   <C>          <C>             <C>             <C>            <C>
Certificates   of  deposit  less  than $100,000...    $   100,592  $    53,415     $    64,464     $    42,827    $   261,298
Certificates of deposit of $100,000 or
 more (1).........................................         21,369       13,610          16,993          11,503         63,475
                                                      -----------  -----------     -----------     -----------    -----------

Total of certificates of deposit..................    $   121,961  $    67,025     $    81,457     $    54,330    $   324,773
                                                      ===========  ===========     ===========     ===========    ===========
</TABLE>
-----------------
(1)   The weighted average interest rates for these accounts, by maturity
      period, are 2.86% for 3 months or less; 3.09% for 3 to 6 months; 3.07% for
      6 to 12 months; and 3.86% for over 12 months. The overall weighted average
      rate for accounts of $100,000 or more was 3.15%.

      BORROWED FUNDS. We utilize securities repurchase agreements with the
Federal Home Loan Bank of New York to fund loan originations and to provide cash
during periods of reduced deposits. We transfer U.S. Government and agency
securities and mortgage-backed securities and agree to repurchase the identical
securities from the Federal Home Loan Bank at a fixed price in the future. The
underlying securities are included in our securities portfolio.

      The following table sets forth certain information regarding our
borrowings from the Federal Home Loan Bank under securities repurchase
agreements at the dates and for the periods indicated:

<TABLE>
<CAPTION>
                                                              AT OR FOR THE
                                                            THREE MONTHS ENDED                  AT OR FOR THE
                                                                 JUNE 30,                   YEARS ENDED MARCH 31,
                                                         -----------------------   -----------------------------------
                                                            2002         2001         2002         2001         2000
                                                         ----------   ----------   ----------   ----------   ---------
                                                                              (DOLLARS IN THOUSANDS)

<S>                                                      <C>          <C>          <C>          <C>          <C>
  Average principal balance outstanding.............     $   35,084   $   15,085   $   16,348   $   12,030   $      --
  Maximum principal balance outstanding at any month
    end during the period...........................         35,084       15,085       35,084       15,086          --
  Principal balance outstanding at end of period....         35,084       15,085       35,084       15,086          --
  Weighted average interest rate during the period..           4.17%        5.18%        4.17%        5.18%         --%
  Weighted average interest rate at end of period...           4.17%        5.18%        4.17%        5.18%         --%
</TABLE>

                                       63

<PAGE>

      The following table sets forth the maturity dates of our borrowings under
securities repurchase agreements at the dates indicated.

<TABLE>
<CAPTION>
                                                                        AT MARCH 31,
                                         ----------------------------------------------------------------------------
           AT JUNE 30, 2002                              2002                                   2001
---------------------------------------  -------------------------------------  -------------------------------------
   MATURITY DATE       AMORTIZED COST      MATURITY DATE      AMORTIZED COST      MATURITY DATE      AMORTIZED COST
-------------------  ------------------  -----------------  ------------------  -----------------  ------------------
                                               (DOLLARS IN THOUSANDS)

<S>      <C>          <C>                         <C>         <C>                        <C>        <C>
         1/08(1)      $        9,883              1/08(1)     $        9,838             1/08(1)    $        9,685
        12/08(2)               5,000             12/08(2)              5,000            12/08(2)             4,927
         3/03                  7,000             03/03                 7,000             --                    --
         3/04                  7,000             03/04                 7,000             --                    --
         3/05                  6,000             03/05                 6,000             --                    --
</TABLE>

-----------------
(1)   Callable on a quarterly basis beginning January 2003.
(2)   Callable on a quarterly basis beginning November 2001.

SUBSIDIARY ACTIVITIES

      Sound Federal Savings has three active subsidiaries, Sound REIT, Inc.,
First Federal REIT, Inc. and Mamaroneck Advisors. In April 1999, Sound REIT,
Inc. was incorporated as a special purpose real estate investment trust under
New York law. First Federal REIT was also formed as a real estate investment
trust by Peekskill Financial Corporation prior to our acquiring Peekskill
Financial Corporation. Sound REIT, Inc. and First Federal REIT hold a portion of
our mortgage-related assets.

      In February 2001, Mamaroneck Advisors was incorporated as a New York
corporation for the purpose of providing investment and insurance products to
Sound Federal Savings' customers. For the year ended March 31, 2002, Mamaroneck
Advisors had net income of $47,000. Mamaroneck Advisors did not have any
meaningful operations in fiscal 2001.

      OTS regulations permit federal savings associations to invest in the
capital stock, obligations or other specified types of securities of
subsidiaries (referred to as "service corporations") and to make loans to such
subsidiaries and joint ventures in which such subsidiaries are participants in
an aggregate amount not exceeding 2% of an association's assets, plus an
additional 1% of assets if the amount over 2% is used for specified community or
inner-city development purposes. In addition, federal regulations permit
associations to make specified types of loans to such subsidiaries (other than
special purpose finance subsidiaries) in which the association owns more than
10% of the stock, in an aggregate amount not exceeding 50% of the association's
regulatory capital if the association's regulatory capital is in compliance with
applicable regulations.

PERSONNEL

      As of June 30, 2002, Sound Federal Savings employed 92 persons on a
full-time basis and 25 persons on a part-time basis. None of Sound Federal
Savings' employees is represented by a collective bargaining group and
management considers employee relations to be good.




                                       64

<PAGE>

PROPERTIES

      The following table provides certain information with respect to Sound
Federal Savings' offices at June 30, 2002.

<TABLE>
<CAPTION>

                                     LEASED OR OWNED,                                               NET BOOK VALUE
                                     LEASE EXPIRATION           YEAR             DEPOSITS PER             OF
            LOCATION                       DATE          ACQUIRED OR LEASED        LOCATION          REAL PROPERTY
--------------------------------    ------------------  ---------------------  ----------------  --------------------
                                                                                (IN THOUSANDS)      (IN THOUSANDS)

<S>                                       <C>                   <C>                 <C>                  <C>
Main Office                               Owned                 1954                $97,162               $ 589
300 Mamaroneck Avenue
Mamaroneck, New York 10543

Branch Office                             Owned                 1961                 80,623                 960
389 Halstead Avenue
Harrison, New York 10528

Branch Office                             Owned                 1972                 96,913               1,299
115 South Ridge Street
Rye Brook, New York 10573

Branch Office                             Leased                1998                 26,563                 146(1)
180 South Main Street                    12/31/03
New City, New York 10956

Branch Office                             Leased                1998                 47,277                 310(1)
East Putnam Avenue                       11/30/08
Cos Cob, Connecticut 06807

Branch Office                             Owned                 2000                 75,125                 478
1019 Park Street
Peekskill, New York 10566

Branch Office                             Leased                2000                 52,918                  --
1961 Commerce Street                     12/31/02
Yorktown Heights, New York 10598

Branch Office                             Leased                2000                 48,592                 780(1)
Cortlandt Town Center                    10/14/17
Cortlandt, New York 10547

Branch Office                             Leased                2001                 19,365                  12(1)
88 Fourth Street                          2/8/09
New Rochelle, New York 10801

Branch Office(2)                          Leased                2002                     90                 388(1)
3 Somers Commons                         12/31/21
Baldwin Place, New York 10589
</TABLE>

------------------
(1)   Net book value represents the amortized cost of leasehold improvements.
(2)   Opened in July 2002.

LEGAL PROCEEDINGS

      We are involved periodically in various claims and lawsuits that arise in
connection with our financial services business. We believe that these routine
legal proceedings, in the aggregate, are not material to our financial condition
and results of operations.

                                       65

<PAGE>

                           SUPERVISION AND REGULATION

GENERAL

      Sound Federal Savings is examined and supervised by the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation. This regulation and
supervision establishes a comprehensive framework of activities in which an
institution may engage and is intended primarily for the protection of the
Federal Deposit Insurance Corporation's deposit insurance funds and depositors.
Under this system of federal regulation, financial institutions are periodically
examined to ensure that they satisfy applicable standards with respect to their
capital adequacy, assets, management, earnings, liquidity and sensitivity to
market interest rates. Following completion of its examination, the federal
agency critiques the institution's operations and assigns its rating (known as
an institution's CAMELS). Under federal law, an institution may not disclose its
CAMELS rating to the public. Sound Federal Savings also is a member of and owns
stock in The Federal Home Loan Bank of New York, which is one of the twelve
regional banks in the Federal Home Loan Bank System. Sound Federal Savings also
is regulated to a lesser extent by the Board of Governors of the Federal Reserve
System, governing reserves to be maintained against deposits and other matters.
The Office of Thrift Supervision examines Sound Federal Savings and prepares
reports for the consideration of its board of directors on any operating
deficiencies. Sound Federal Savings' relationship with its depositors and
borrowers also is regulated to a great extent by both federal and state laws,
especially in matters concerning the ownership of deposit accounts and the form
and content of Sound Federal Savings' loan documents.

      Any change in these laws or regulations, whether by the Federal Deposit
Insurance Corporation, Office of Thrift Supervision or Congress, could have a
material adverse impact on Sound Federal Bancorp and Sound Federal Savings and
their operations.

FEDERAL BANKING REGULATION

      BUSINESS ACTIVITIES. A federal savings bank derives its lending and
investment powers from the Home Owners' Loan Act, as amended, and the
regulations of the Office of Thrift Supervision. Under these laws and
regulations, Sound Federal Savings may invest in mortgage loans secured by
residential and commercial real estate, commercial business and consumer loans,
certain types of debt securities and certain other assets. Sound Federal Savings
also may establish subsidiaries that may engage in activities not otherwise
permissible for Sound Federal Savings, including real estate investment and
securities and insurance brokerage.

      CAPITAL REQUIREMENTS. Office of Thrift Supervision regulations require
savings banks to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 4% leverage ratio (3% for banks receiving the highest rating on the
CAMELS rating system) and an 8% risk-based capital ratio. The prompt corrective
action standards discussed below, in effect, establish a minimum 2% tangible
capital standard.

      The risk-based capital standard for savings banks requires the maintenance
of Tier 1 (core) and total capital (which is defined as core capital and
supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the Office of Thrift Supervision capital
regulation based on the risks believed inherent in the type of asset. Core
capital is defined as common stockholders' equity (including retained earnings),
certain noncumulative perpetual preferred stock and related surplus and minority
interests in equity accounts of consolidated subsidiaries, less intangibles
other than certain mortgage servicing rights and credit card relationships. The
components of supplementary capital currently include cumulative preferred
stock, long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock, the allowance for loan and
lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45%
of net unrealized gains on available-for-sale equity securities with readily
determinable fair market values. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.

      At June 30, 2002, Sound Federal Savings' capital exceeded all applicable
requirements.

                                       66
<PAGE>

      LOANS-TO-ONE BORROWER. A federal savings bank generally may not make a
loan or extend credit to a single or related group of borrowers in excess of 15%
of unimpaired capital and surplus on an unsecured basis. An additional amount
may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is
secured by readily marketable collateral, but generally does not include real
estate. As of June 30, 2002, Sound Federal Savings was in compliance with the
loans-to-one borrower limitations.

      QUALIFIED THRIFT LENDER TEST. As a federal savings bank, Sound Federal
Savings is subject to a qualified thrift lender, or "QTL," test. Under the QTL
test, Sound Federal Savings must maintain at least 65% of its "portfolio assets"
in "qualified thrift investments" in at least nine months of the most recent 12
month period. "Portfolio assets" generally means total assets of a savings
institution, less the sum of specified liquid assets up to 20% of total assets,
goodwill and other intangible assets, and the value of property used in the
conduct of the savings bank's business.

      "Qualified thrift investments" includes various types of loans made for
residential and housing purposes, investments related to such purposes,
including certain mortgage-backed and related securities, and loans for
personal, family, household and certain other purposes up to a limit of 20% of
portfolio assets. "Qualified thrift investments" also include 100% of an
institution's credit card loans, education loans and small business loans. Sound
Federal Savings also may satisfy the QTL test by qualifying as a "domestic
building and loan association" as defined in the Internal Revenue Code of 1986.

      A savings bank that fails the QTL test must either convert to a bank
charter or operate under specified restrictions. At June 30, 2002, Sound Federal
Savings maintained approximately 98.5% of its portfolio assets in qualified
thrift investments, and therefore satisfied the QTL test.

      CAPITAL DISTRIBUTIONS. Office of Thrift Supervision regulations govern
capital distributions by a federal savings bank, which include cash dividends,
stock repurchases and other transactions charged to the capital account. A
savings bank must file an application for approval of a capital distribution if:

      o     the total capital distributions for the applicable calendar year
            exceed the sum of the savings bank's net income for that year to
            date plus the savings bank's retained net income for the preceding
            two years;

      o     the bank would not be at least adequately capitalized following the
            distribution;

      o     the distribution would violate any applicable statute, regulation,
            agreement or Office of Thrift Supervision-imposed condition; or

      o     the savings bank is not eligible for expedited treatment of its
            filings.

      Even if an application is not otherwise required, every savings bank that
is a subsidiary of a holding company must still file a notice with the Office of
Thrift Supervision at least 30 days before the board of directors declares a
dividend or approves a capital distribution.

      The Office of Thrift Supervision may disapprove a notice or application
if:

      o     the savings bank would be undercapitalized following the
            distribution;

      o     the proposed capital distribution raises safety and soundness
            concerns; or

      o     the capital distribution would violate a prohibition contained in
            any statute, regulation or agreement.

      LIQUIDITY. A federal savings bank is required to maintain a sufficient
amount of liquid assets to ensure its safe and sound operation.

                                       67
<PAGE>

      COMMUNITY REINVESTMENT ACT AND FAIR LENDING LAWS. All savings banks have a
responsibility under the Community Reinvestment Act and related regulations of
the Office of Thrift Supervision to help meet the credit needs of their
communities, including low- and moderate-income neighborhoods. In connection
with its examination of a federal savings bank, the Office of Thrift Supervision
is required to assess the savings bank's record of compliance with the Community
Reinvestment Act. In addition, the Equal Credit Opportunity Act and the Fair
Housing Act prohibit lenders from discriminating in their lending practices on
the basis of characteristics specified in those statutes. A bank's failure to
comply with the provisions of the Community Reinvestment Act could, at a
minimum, result in regulatory restrictions on its activities. The failure to
comply with the Equal Credit Opportunity Act and the Fair Housing Act could
result in enforcement actions by the Office of Thrift Supervision, as well as
other federal regulatory agencies and the Department of Justice. Sound Federal
Savings received a "satisfactory" Community Reinvestment Act rating in its most
recent federal examination.

      TRANSACTIONS WITH RELATED PARTIES. A federal savings bank's authority to
engage in transactions with its "affiliates" is limited by Office of Thrift
Supervision regulations and by Sections 23A and 23B of the Federal Reserve Act
(the "FRA"). The term "affiliates" for these purposes generally means any
company that controls or is under common control with an institution. Sound
Federal Bancorp and its non-savings institution subsidiaries are affiliates of
Sound Federal Savings. In general, transactions with affiliates must be on terms
that are as favorable to the savings bank as comparable transactions with
non-affiliates. In addition, certain types of these transactions are restricted
to an aggregate percentage of the savings bank's capital. Collateral in
specified amounts must usually be provided by affiliates in order to receive
loans from the savings bank. In addition, Office of Thrift Supervision
regulations prohibit a savings bank from lending to any of its affiliates that
are engaged in activities that are not permissible for bank holding companies
and from purchasing the securities of any affiliate, other than a subsidiary.

      Sound Federal Savings' authority to extend credit to its directors,
executive officers and 10% shareholders, as well as to entities controlled by
such persons, is currently governed by the requirements of Sections 22(g) and
22(h) of the FRA and Regulation O of the Federal Reserve Board. Among other
things, these provisions require that extensions of credit to insiders (i) be
made on terms that are substantially the same as, and follow credit underwriting
procedures that are not less stringent than, those prevailing for comparable
transactions with unaffiliated persons and that do not involve more than the
normal risk of repayment or present other unfavorable features, and (ii) not
exceed certain limitations on the amount of credit extended to such persons,
individually and in the aggregate, which limits are based, in part, on the
amount of Sound Federal Savings' capital. In addition, extensions of credit in
excess of certain limits must be approved by Sound Federal Savings' board of
directors.

      ENFORCEMENT. The Office of Thrift Supervision has primary enforcement
responsibility over federal savings institutions and has the authority to bring
enforcement action against all "institution-affiliated parties," including
stockholders, and attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors of the institution, receivership, conservatorship or the termination
of deposit insurance. Civil penalties cover a wide range of violations and
actions, and range up to $25,000 per day, unless a finding of reckless disregard
is made, in which case penalties may be as high as $1 million per day. The
Federal Deposit Insurance Corporation also has the authority to recommend to the
Director of the Office of Thrift Supervision that enforcement action be taken
with respect to a particular savings institution. If action is not taken by the
Director, the Federal Deposit Insurance Corporation has authority to take action
under specified circumstances.

      STANDARDS FOR SAFETY AND SOUNDNESS. Federal law requires each federal
banking agency to prescribe certain standards for all insured depository
institutions. These standards relate to, among other things, internal controls,
information systems and audit systems, loan documentation, credit underwriting,
interest rate risk exposure, asset growth, compensation, and other operational
and managerial standards as the agency deems appropriate. The federal banking
agencies adopted Interagency Guidelines Prescribing Standards for Safety and
Soundness to implement the safety and soundness standards required under federal
law. The guidelines set forth the safety and soundness standards that the
federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. The guidelines address
internal controls and information systems, internal audit systems, credit
underwriting, loan documentation, interest rate risk exposure, asset growth,
compensation, fees and benefits. If the appropriate federal banking agency
determines that an institution fails to

                                       68
<PAGE>

meet any standard prescribed by the guidelines, the agency may require the
institution to submit to the agency an acceptable plan to achieve compliance
with the standard. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan.

      PROMPT CORRECTIVE ACTION REGULATIONS. Under the prompt corrective action
regulations, the Office of Thrift Supervision is required and authorized to take
supervisory actions against undercapitalized savings banks. For this purpose, a
savings bank is placed in one of the following five categories based on the
bank's capital:

      o     well-capitalized (at least 5% leverage capital, 6% tier 1 risk-based
            capital and 10% total risk-based capital);

      o     adequately capitalized (at least 4% leverage capital, 4% tier 1
            risk-based capital and 8% total risk-based capital);

      o     undercapitalized (less than 8% total risk-based capital, 4% tier 1
            risk-based capital or 3% leverage capital);

      o     significantly undercapitalized (less than 6% total risk-based
            capital, 3% tier 1 risk-based capital or 3% leverage capital); and

      o     critically undercapitalized (less than 2% tangible capital).

      Generally, the banking regulator is required to appoint a receiver or
conservator for a bank that is "critically undercapitalized." The regulation
also provides that a capital restoration plan must be filed with the Office of
Thrift Supervision within 45 days of the date a bank receives notice that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." In addition, numerous mandatory supervisory actions become
immediately applicable to the bank, including, but not limited to, restrictions
on growth, investment activities, capital distributions and affiliate
transactions. The Office of Thrift Supervision may also take any one of a number
of discretionary supervisory actions against undercapitalized banks, including
the issuance of a capital directive and the replacement of senior executive
officers and directors.

      At June 30, 2002, Sound Federal Savings met the criteria for being
considered "well-capitalized."

      INSURANCE OF DEPOSIT ACCOUNTS. Deposit accounts in Sound Federal Savings
are insured by the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation, generally up to a maximum of $100,000 per separately
insured depositor. Sound Federal Savings' deposits therefore are subject to
Federal Deposit Insurance Corporation deposit insurance assessments. The Federal
Deposit Insurance Corporation has adopted a risk-based system for determining
deposit insurance assessments. The Federal Deposit Insurance Corporation is
authorized to raise the assessment rates as necessary to maintain the required
ratio of reserves to insured deposits of 1.25%. In addition, all Federal Deposit
Insurance Corporation-insured institutions must pay assessments to the Federal
Deposit Insurance Corporation at an annual rate of approximately .0212% of
insured deposits to fund interest payments on bonds maturing in 2017 issued by a
federal agency to recapitalize the predecessor to the Savings Association
Insurance Fund.

      PROHIBITIONS AGAINST TYING ARRANGEMENTS. Federal savings banks are
prohibited, subject to some exceptions, from extending credit to or offering any
other service, or fixing or varying the consideration for such extension of
credit or service, on the condition that the customer obtain some additional
service from the institution or its affiliates or not obtain services of a
competitor of the institution.

      FEDERAL HOME LOAN BANK SYSTEM. Sound Federal Savings is a member of the
Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan
Banks. The Federal Home Loan Bank System provides a central credit facility
primarily for member institutions. As a member of The Federal Home Loan Bank of
New York, Sound Federal Savings is required to acquire and hold shares of
capital stock in the Federal Home Loan Bank in an amount at least equal to 1% of
the aggregate principal amount of its unpaid residential mortgage loans and
similar obligations at the beginning of each year, or 1/20 of its borrowings
from the Federal Home Loan Bank, whichever is greater. As of June 30, 2002,
Sound Federal Savings was in compliance with this requirement.

                                       69
<PAGE>

FEDERAL RESERVE SYSTEM

      Federal Reserve Board regulations require savings banks to maintain
non-interest-earning reserves against their transaction accounts, such as
negotiable order of withdrawal and regular checking accounts. At June 30, 2002,
Sound Federal Savings was in compliance with these reserve requirements. The
balances maintained to meet the reserve requirements imposed by the Federal
Reserve Board may be used to satisfy liquidity requirements imposed by the
Office of Thrift Supervision.

THE USA PATRIOT ACT

      In response to the events of September 11th, the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001, or the USA PATRIOT Act, was signed into law on October
26, 2001. The USA PATRIOT Act gives the federal government new powers to address
terrorist threats through enhanced domestic security measures, expanded
surveillance powers, increased information sharing, and broadened anti-money
laundering requirements. By way of amendments to the Bank Secrecy Act, Title III
of the USA PATRIOT Act takes measures intended to encourage information sharing
among bank regulatory agencies and law enforcement bodies. Further, certain
provisions of Title III impose affirmative obligations on a broad range of
financial institutions, including banks, thrifts, brokers, dealers, credit
unions, money transfer agents and parties registered under the Commodity
Exchange Act.

      Among other requirements, Title III of the USA PATRIOT Act imposes the
following requirements with respect to financial institutions:

      o     Pursuant to Section 352, all financial institutions must establish
            anti-money laundering programs that include, at minimum: (i)
            internal policies, procedures, and controls; (ii) specific
            designation of an anti-money laundering compliance officer; (iii)
            ongoing employee training programs; and (iv) an independent audit
            function to test the anti-money laundering program.

      o     Section 326 of the Act authorizes the Secretary of the Department of
            Treasury, in conjunction with other bank regulators, to issue
            regulations by October 26, 2002 that provide for minimum standards
            with respect to customer identification at the time new accounts are
            opened.

      o     Section 312 of the Act requires financial institutions that
            establish, maintain, administer, or manage private banking accounts
            or correspondence accounts in the United States for non-United
            States persons or their representatives (including foreign
            individuals visiting the United States) to establish appropriate,
            specific, and, where necessary, enhanced due diligence policies,
            procedures, and controls designed to detect and report money
            laundering.

      o     Effective December 25, 2001, financial institutions are prohibited
            from establishing, maintaining, administering or managing
            correspondent accounts for foreign shell banks (foreign banks that
            do not have a physical presence in any country), and will be subject
            to certain record keeping obligations with respect to correspondent
            accounts of foreign banks.

      o     Bank regulators are directed to consider a holding company's
            effectiveness in combating money laundering when ruling on Federal
            Reserve Act and Bank Merger Act applications.

      The federal banking agencies have begun to propose and implement
regulations pursuant to the USA PATRIOT Act. These proposed and interim
regulations would require financial institutions to adopt the policies and
procedures contemplated by the USA PATRIOT Act.

HOLDING COMPANY REGULATION

      Upon completion of the conversion, Sound Federal Bancorp will be a unitary
savings and loan holding company, subject to regulation and supervision by the
Office of Thrift Supervision. The Office of Thrift

                                       70
<PAGE>

Supervision has enforcement authority over Sound Federal Bancorp and its
non-savings institution subsidiaries. Among other things, this authority permits
the Office of Thrift Supervision to restrict or prohibit activities that are
determined to be a risk to Sound Federal Savings.

      Under prior law, a unitary savings and loan holding company generally had
no regulatory restrictions on the types of business activities in which it may
engage, provided that its subsidiary savings bank was a qualified thrift lender.
The Gramm-Leach-Bliley Act of 1999, however, restricts unitary savings and loan
holding companies not existing or applied for before May 4, 1999 to those
activities permissible for financial holding companies or for multiple savings
and loan holding companies. Sound Federal Bancorp will not be a grandfathered
unitary savings and loan holding company and, therefore, will be limited to the
activities permissible for financial holding companies or for multiple savings
and loan holding companies. A financial holding company may engage in activities
that are financial in nature, including underwriting equity securities and
insurance, incidental to financial activities or complementary to a financial
activity. A multiple savings and loan holding company is generally limited to
activities permissible for bank holding companies under Section 4(c)(8) of the
Bank Holding Company Act, subject to the prior approval of the Office of Thrift
Supervision, and certain additional activities authorized by Office of Thrift
Supervision regulations.

      Federal law prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring control of
another savings institution or holding company thereof, without prior written
approval of the Office of Thrift Supervision. It also prohibits the acquisition
or retention of, with specified exceptions, more than 5% of the equity
securities of a company engaged in activities that are not closely related to
banking or financial in nature or acquiring or retaining control of an
institution that is not federally insured. In evaluating applications by holding
companies to acquire savings institutions, the Office of Thrift Supervision must
consider the financial and managerial resources, future prospects of the savings
institution involved, the effect of the acquisition on the risk to the insurance
fund, the convenience and needs of the community and competitive factors.

SARBANES-OXLEY ACT OF 2002

      On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of
2002 (the "Sarbanes-Oxley Act"). The Sarbanes-Oxley Act represents a
comprehensive revision of laws affecting corporate governance, accounting
obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all
companies with equity or debt securities registered under the Securities
Exchange Act of 1934. In particular, the Sarbanes-Oxley Act establishes: (i) new
requirements for audit committees, including independence, expertise, and
responsibilities; (ii) additional responsibilities regarding financial
statements for the Chief Executive Officer and Chief Financial Officer of the
reporting company; (iii) new standards for auditors and regulation of audits;
(iv) increased disclosure and reporting obligations for the reporting company
and their directors and executive officers; and (v) new and increased civil and
criminal penalties for violation of the securities laws. Many of the provisions
became effective immediately while other provisions become effective over a
period of 30 to 270 days and are subject to rulemaking by the Securities and
Exchange Commission. Although we anticipate that we will incur additional
expense in complying with the provisions of the Sarbanes-Oxley Act and the
resulting regulations, management does not expect that such compliance will have
a material impact on our results of operations or financial condition.

FEDERAL SECURITIES LAWS

      Sound Federal Bancorp has filed with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933 for the
registration of the common stock to be issued pursuant to the conversion. Upon
completion of the conversion, Sound Federal Bancorp common stock will continue
to be registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934. Sound Federal Bancorp will continue to be
subject to the information, proxy solicitation, insider trading restrictions and
other requirements under the Securities Exchange Act of 1934.

      The registration under the Securities Act of 1933 of shares of common
stock to be issued in the conversion does not cover the resale of those shares.
Shares of common stock purchased by persons who are not affiliates of Sound
Federal Bancorp may be resold without registration. Shares purchased by an
affiliate of Sound Federal Bancorp will be subject to the resale restrictions of
Rule 144 under the Securities Act of 1933. If Sound Federal

                                       71
<PAGE>

Bancorp meets the current public information requirements of Rule 144 under the
Securities Act of 1933, each affiliate of Sound Federal Bancorp that complies
with the other conditions of Rule 144, including those that require the
affiliate's sale to be aggregated with those of other persons, would be able to
sell in the public market, without registration, a number of shares not to
exceed, in any three-month period, the greater of 1% of the outstanding shares
of Sound Federal Bancorp, or the average weekly volume of trading in the shares
during the preceding four calendar weeks. In the future, Sound Federal Bancorp
may permit affiliates to have their shares registered for sale under the
Securities Act of 1933.

                                    TAXATION

FEDERAL TAXATION

      GENERAL. Sound Federal Bancorp and Sound Federal Savings are subject to
federal income taxation in the same general manner as other corporations, with
some exceptions discussed below. The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax matters and is
not a comprehensive description of the tax rules applicable to Sound Federal
Bancorp and Sound Federal Savings.

      METHOD OF ACCOUNTING. For federal income tax purposes, Sound Federal
Savings currently reports its income and expenses on the accrual method of
accounting and uses a tax year ending December 31 for filing its federal income
tax returns as part of the Sound Federal Bancorp consolidated group. The Small
Business Job Protection Act of 1996 eliminated the use of the reserve method of
accounting for bad debt reserves by savings institutions, effective for taxable
years beginning after December 31, 1995.

      BAD DEBT RESERVES. Prior to the Small Business Job Protection Act of 1996,
Sound Federal Savings was permitted to establish a reserve for bad debts and to
make annual additions to the reserve. These additions could, within specified
formula limits, be deducted in arriving at Sound Federal Savings' taxable
income. As a result of the Act, Sound Federal Savings must use the specific
charge off method in computing its bad debt deduction. In addition, the federal
legislation requires the recapture (over a six-year period) of the excess of tax
bad debt reserves at December 31, 1995 over those established as of December 31,
1987. The amount of such reserve subject to recapture as of June 30, 2002, was
approximately $464,000.

      TAXABLE DISTRIBUTIONS AND RECAPTURE. Prior to the Small Business
Protection Job Act of 1996, bad debt reserves created prior to January 1, 1988
were subject to recapture into taxable income should Sound Federal Savings fail
to meet certain thrift asset and definitional tests. New federal legislation
eliminated these thrift related recapture rules. However, under current law,
pre-1988 reserves remain subject to recapture should Sound Federal Savings make
certain nondividend distributions, redeem its shares, liquidate or cease to
maintain a bank charter. At June 30, 2002, Sound Federal Savings' total federal
pre-1988 reserve was approximately $9.0 million. This reserve reflects the
cumulative effects of federal tax deductions by Sound Federal Savings for which
no federal income tax provision has been made.

      MINIMUM TAX. The Code imposes an alternative minimum tax ("AMT") at a rate
of 20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable to the
extent such AMTI is in excess of an exemption amount. Certain payments of
alternative minimum tax may be used as credits against regular tax liabilities
in future years. Sound Federal Savings has not been subject to the alternative
minimum tax and has no such amounts available as credits for carryover.

      NET OPERATING LOSS CARRYOVERS. A financial institution may carry back net
operating losses to the preceding five taxable years (for losses incurred in
2001 and 2002) and forward to the succeeding 20 taxable years. At March 31,
2002, Sound Federal Savings had no net operating loss carryforwards for federal
income tax purposes.

                                       72
<PAGE>

STATE TAXATION

      NEW YORK STATE TAXATION. Sound Federal Bancorp and Sound Federal Savings
report income on a consolidated calendar year basis to New York State. New York
State franchise tax on corporations is imposed in an amount equal to the greater
of (a) 8.0% (for 2002) and 7.5% (for 2003 and forward) of "entire net income"
allocable to New York State, (b) 3% of "alternative entire net income" allocable
to New York State, (c) 0.01% of the average value of assets allocable to New
York State, or (d) nominal minimum tax. Entire net income is based on Federal
taxable income, subject to certain modifications. Alternative entire net income
is equal to entire net income without certain modifications.

                       MANAGEMENT OF SOUND FEDERAL BANCORP

DIRECTORS

      The Board of Directors of Sound Federal Bancorp currently consists of
eight members. Approximately one-third of the directors are elected annually.
Directors are generally elected to serve for three-year periods.

      The table below sets forth certain information regarding the composition
of the Board of Directors of Sound Federal Bancorp as of November __, 2002
including the terms of office of Board members.

<TABLE>
<CAPTION>
                                                                                       CURRENT TERM TO
         NAMES              AGE               POSITIONS HELD       DIRECTOR SINCE (1)       EXPIRE
         -----              ---               --------------       -----------------        ------

<S>                         <C>           <C>                             <C>                <C>
Bruno J. Gioffre            68            Chairman of the Board           1975               2005
Richard P. McStravick       54               President, Chief             1996               2005
                                          Executive Officer and
                                                 Director
Joseph Dinolfo              68                   Director                 1985               2004
Donald H. Heithaus          68                   Director                 1978               2003
Joseph A. Lanza             55                   Director                 1998               2003
Eldorus Maynard             67                   Director                 2000               2004
James Staudt                50                   Director                 1987               2005
Samuel T. Telerico          66                   Director                 2001               2004
</TABLE>

--------------------------------
(1)   Reflects initial appointment to the Board of Directors of Sound Federal
      Bancorp or Sound Federal Savings and its predecessor.

      The principal occupation during the past five years of each director and
executive officer of Sound Federal Bancorp is set forth below. All directors and
executive officers have held their present positions for at least five years
unless otherwise stated.

      DIRECTORS

      BRUNO J. GIOFFRE is the Chairman of the Board of Directors and has been so
since December 1997. Mr. Gioffre was formerly general counsel to Sound Federal
Savings. Mr. Gioffre is of counsel to the law firm of Gioffre & Gioffre,
Professional Corporation and is a retired Senior Justice for the Town of Rye,
New York.

      RICHARD P. MCSTRAVICK is President and Chief Executive Officer of Sound
Federal Savings. Mr. McStravick has been employed by Sound Federal Savings in
various capacities since 1977. Mr. McStravick was appointed to the Board of
Directors in 1996.

      JOSEPH DINOLFO is the retired President of the Dinolfo Wilson Agency, Inc.
an insurance agency.

      DONALD H. HEITHAUS is the President of the Happiness Laundry Service, Inc.

      JOSEPH A. LANZA is the President of Lanza Electric, a private electrical
contractor.

      ELDORUS MAYNARD is the retired Chairman of the Board and Chief Executive
Officer of Peekskill Financial Corporation. Mr. Maynard was employed by
Peekskill Financial Corporation since 1958 and became a member of Sound Federal
Bancorp's Board of Directors in July 2000.

                                       73
<PAGE>

      JAMES STAUDT is a partner with the law firm of McCullough, Goldberger &
Staudt. Mr. Staudt is also general counsel to Sound Federal Savings.

      SAMUEL T. TELERICO is a principal with Teledan Enterprises International,
an international trade and consulting firm. Mr. Telerico was previously employed
by American Can Company from 1960 until 1990.

EXECUTIVE OFFICER WHO IS NOT A DIRECTOR

      ANTHONY J. FABIANO is Senior Vice President, Chief Financial Officer and
Corporate Secretary of Sound Federal Bancorp. He joined Sound Federal Savings in
July 1998. Prior to joining Sound Federal Savings, he was the Chief Financial
Officer at MSB Bancorp, Inc.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

      The business of Sound Federal Bancorp's Board of Directors is conducted
through meetings and activities of the Board and its committees. During the
fiscal year ended March 31, 2002, the Board of Directors of Sound Federal
Bancorp held 13 regular and special meetings. During the year ended March 31,
2002, no director attended fewer than 75 percent of the total meetings of the
Board of Directors of Sound Federal Bancorp or Sound Federal Savings and
committees on which such director served.

      The Compensation Committee meets periodically to review the performance of
officers and employees and determine compensation programs and adjustments. It
is comprised of Directors Gioffre, Staudt, Heithaus, and Dinolfo. The
Compensation Committee met once during the year ended March 31, 2002.

      The Board of Directors serves as the Nominating Committee. During the year
ended March 31, 2002, one meeting of the Nominating Committee was held.

      The Audit Committee consists of Directors Heithaus, Maynard and Telerico.
This committee meets on a quarterly basis and as otherwise required to review
audit programs and reports as well as other regulatory compliance issues. The
Audit Committee recommends to the Board of Directors the appointment of
independent auditors for the upcoming fiscal year. The Audit Committee met five
times during the year ended March 31, 2002.

BENEFITS

      DIRECTORS DEFERRED FEE PLAN. The Directors Deferred Fee Plan is a
non-qualified deferred compensation plan into which directors can defer up to
100% of their board fees earned during the calendar year. All amounts deferred
by a director are fully vested at all times. Amounts credited to a deferred fee
account are assumed to be invested, without charge, at a 6% interest rate. Upon
cessation of a director's service with Sound Federal Savings, Sound Federal
Savings will pay the director the amounts credited to the director's deferred
fee account. The amounts will be paid in substantially equal annual
installments, as selected by the director. The date of the first installment
payment also will be selected by the director. The Directors' Plan permits each
director to determine whether to invest all or a portion of such Director's
account in common stock of Sound Federal Bancorp. If a director elects to invest
all or a portion of his or her account in common stock, the amount so invested
will be credited with earnings and appreciation (or depreciation) equivalent to
that which would be earned on such investment and the amount not invested in
common stock will continue to earn interest at a 6% interest rate.

      If the director dies before all payments have been made, the remaining
payments will be made to the beneficiary designated by the director in the same
form that payments were made to the director. If a director dies before
receiving any payments, Sound Federal Savings shall pay the director's account
to the director's beneficiary, commencing within 30 days of the director's
death, over the period initially elected by the director. At the request of the
beneficiary, and with the approval of the Board, the director's benefits may be
paid to the beneficiary in a lump sum. The director may request a hardship
distribution of all or part of his or her benefits if the director suffers an
unforeseeable emergency, defined as a severe financial hardship to the director
resulting from a sudden and unexpected illness or accident of the director or
his or her dependent, loss of the director's property due to casualty,

                                       74
<PAGE>

or other similar extraordinary and unforeseeable circumstances arising as a
result of events beyond the director's control.

      EXECUTIVE AGREEMENTS. Sound Federal Savings has employment agreements with
Messrs. McStravick and Fabiano. The agreements with Messrs. McStravick and
Fabiano have a term of three years and may be extended for an additional 12
months on each anniversary date so that the remaining term shall be 36 months.
If the agreement is not renewed, the agreement will expire 36 months following
the anniversary date. Under the agreements, the base salaries for Messrs.
McStravick and Fabiano are $178,000 and $148,000, respectively. In addition to
the base salary, each agreement provides for, among other things, participation
in retirement plans, stock option plans and other employee and fringe benefits
applicable to other employees. The agreements provide for termination by Sound
Federal Savings for cause at any time, in which event, the executive would have
no right to receive compensation or other benefits for any period after
termination. In the event Sound Federal Savings terminates the executive's
employment for reasons other than disability or for cause, or in the event of
the executive's termination of employment for good reason upon (i) failure by
Sound Federal Savings to comply with any material provision of the agreement,
which failure has not been cured within 10 days after a notice of noncompliance
is issued by the executive, (ii) following a change in control (as defined) at
any time during the term of the agreement, or (iii) any purported termination of
the executive's employment which is not pursuant to a valid notice of
termination, the executive would be entitled to severance pay in an amount equal
to three times the average annual compensation (computed on the basis of the
most recent five (5) taxable years) includable in gross income for federal
income tax purposes. Messrs. McStravick and Fabiano would receive an aggregate
of approximately $486,000 and $383,000, respectively, pursuant to their
employment agreements upon a change in control of Sound Federal Savings, based
upon current levels of compensation. Sound Federal Savings would also continue,
at Sound Federal Savings' expense, the executive's life, health, dental and
other applicable benefit plan coverage until the executive attains the age of 70
years, provided, however, that Sound Federal Savings' obligation terminates if
the executive receives equivalent medical or dental coverage from a new
employer. The executive is entitled to participate in Sound Federal Savings'
medical, dental and life insurance coverage and reimbursement plans to the
extent that such plans exist, until the executive's death. Under each agreement,
if the executive becomes disabled or incapacitated to the extent that the
executive is unable to perform his duties, he will be entitled to 100% of his
compensation for the first six months, and 60% thereafter for the remaining term
of the agreement. Any disability payment is reduced to the extent benefits are
received under disability insurance, workers' compensation or other similar
program.

      In November 2001, Sound Federal Bancorp entered into employment agreements
with Messrs. McStravick and Fabiano. Sound Federal Bancorp's employment
agreements with each executive contain substantially similar provisions to Sound
Federal Savings' employment agreements, except that Sound Federal Bancorp's
employment agreements provide each executive indemnification against any excise
taxes which may be owed by the executive for any payments made in connection
with a change in control which would constitute "excess parachute payments"
under Section 280G of the Internal Revenue Code. The indemnification payment
would be the amount necessary to ensure that the amount of such payments and the
value of such benefits received by the executive equal to the amount of such
payments and the value of such benefits as the executive would receive in the
absence of such excise tax, including any federal, state and local taxes on
Sound Federal Bancorp's payment to the executive attributable to such taxes. The
agreements with Sound Federal Bancorp do not provide for additional compensation
to either executive.

      DIRECTOR EMERITUS PLAN. The Director Emeritus Plan is a non-qualified
retirement plan. Under the Director Emeritus Plan, any director who attains the
age of 70 years after the completion of 15 years of service as a director
qualifies for director emeritus status. A director who has completed five years
of service as a director qualifies for director emeritus status if termination
of service is due to the merger, consolidation, takeover or dissolution of Sound
Federal Savings. Under the Director Emeritus Plan, a director emeritus is
entitled to the same compensation that the Director received when he or she
retired as a director, without the obligation of attendance at meetings of the
Board of Directors. Compensation is paid to the director emeritus from the date
of attainment of such status until age eighty-five, or for fifteen years or
death whichever comes first.

      DEFINED BENEFIT PENSION PLAN. Sound Federal Savings maintains two defined
benefit pension plans, one of which was assumed at the time Sound Federal
Bancorp completed the acquisition of Peekskill Financial Corporation. Employees
age 21 or older who have worked at Sound Federal Savings for a period of one
year and

                                       75
<PAGE>

have been credited with 1,000 or more hours of service with Sound Federal
Savings during the year are eligible to accrue benefits under these retirement
plans. Sound Federal Savings contributes each year, if necessary, an amount to
the Retirement Plans to satisfy the actuarially determined minimum funding
requirements in accordance with the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). For the year ended March 31, 2002, Sound Federal
Savings made contributions to the retirement plans of approximately $401,000. At
March 31, 2002, the total market value of the assets in the retirement plans
trust funds was approximately $6.8 million.

      In the event of retirement on or after the normal retirement date (i.e.,
the first day of the calendar month coincident with or next following the later
of age 65 or the 5th anniversary of participation in the retirement plans, or,
for a participant prior to January 1, 1992, age 65), the plans are designed to
provide a single life annuity. For a married participant, the normal form of
benefit is an actuarially reduced joint and survivor annuity where, upon the
participant's death, the participant's spouse is entitled to receive a benefit
equal to 50% of that paid during the participant's lifetime. Alternatively, a
participant may elect (with proper spousal consent, if necessary) from various
other options, including a joint and 100% survivor annuity, joint and 66-2/3%
survivor annuity, joint and 50% survivor annuity, years certain option and
social security option. The normal retirement benefit provided is an amount
equal to the difference between 4% of final earnings (as defined in the plan)
and 0.65% of the final average compensation (average earnings during the last
three (3) calendar years of service) up to the Social Security taxable wage
base, multiplied by the participant's years of credited service (up to a maximum
of 15 years). Retirement benefits are also payable upon retirement due to early
and late retirement or death. A reduced benefit is payable upon early retirement
at age 55 and the completion of 5 years of vested service with Sound Federal
Savings. Fifty percent of the normal retirement benefit will be paid to a
surviving spouse if the participant dies while in active service and has
attained age 50 with 10 years of vested service. The preretirement death benefit
is reduced by 1.96% for each year the spouse is more than 10 years younger than
the participant. If the participant has not attained age 50 with 10 years of
service, but has completed 5 years of service, the spouse will be eligible for a
reduced benefit payable as a joint and 50% annuity. Upon termination of
employment other than as specified above, a participant who has five years of
vested service is eligible to receive his or her accrued benefit commencing,
generally, on the employee's normal retirement date, or, if elected, on or after
reaching age 55.

      The following table indicates the annual retirement benefit that would be
payable under the retirement plans upon retirement at age 65 in calendar year
2001, expressed in the form of a single life annuity for the final average
salary and benefit service classifications specified below.

                            YEARS OF SERVICE AND BENEFIT PAYABLE AT RETIREMENT
        FINAL AVERAGE      ----------------------------------------------------
        COMPENSATION           15           20           25             30
        ------------       ---------    ----------   ----------     ----------

         $  50,000         $ 26,372     $ 26,372     $ 26,372       $ 26,372
         $  75,000         $ 41,372     $ 41,372     $ 41,372       $ 41,372
         $ 100,000         $ 56,372     $ 56,372     $ 56,372       $ 56,372
         $ 125,000         $ 71,372     $ 71,372     $ 71,372       $ 71,372
         $ 150,000         $ 86,372     $ 86,372     $ 86,372       $ 86,372
         $ 170,000         $ 98,372     $ 98,372     $ 98,372       $ 98,372

      As of March 31, 2002, Mr. McStravick and Mr. Fabiano had 24 years and four
years, respectively, of credited service (I.E., benefit service) under the
retirement plans.

      401(K) PLAN. Sound Federal Savings maintains the Sound Federal Savings and
Loan Association 401(k) Savings Plan in RSI Retirement Trust which is a
qualified, tax-exempt profit sharing plan with a salary deferral feature under
Section 401(k) of the Internal Revenue Code. Employees who have attained age 21
and have completed one year of employment and have been credited with 1,000 or
more hours of service during the year are eligible to participate, provided,
however, that leased employees, employees paid on an hourly or contract basis,
employees covered by a collective bargaining agreement and owner employees (as
defined in the plan) are not eligible to participate. Eligible employees are
entitled to enter the 401(k) Plan on a monthly basis.

      Under the 401(k) Plan, participants are permitted to make salary reduction
contributions (in whole percentages) equal to the lesser of (i) from 1% to 10%
of compensation or (ii) $10,000 for 2001 (as indexed

                                       76
<PAGE>

annually). For these purposes, "compensation" includes wages, salary, fees and
other amounts received for personal services prior to reduction for the
participant contribution to the 401(k) plan, commissions, compensation based on
profits, overtime, bonuses, wage continuation payments due to illness or
disability of a short-term nature, amounts paid or reimbursed for moving
expenses, and the value of any nonqualified stock option granted to the extent
includable in gross income for the year granted. Compensation does not include
contributions made by Sound Federal Savings to any other pension, deferred
compensation, welfare or other employee benefit plan, amounts realized from the
exercise of a nonqualified stock option or the sale of a qualified stock option,
and other amounts which received special tax benefits. Compensation does not
include compensation in excess of Internal Revenue Code Section 401(a)(17)
limits (i.e., $200,000 in 2002). Prior to January 1, 1999, Sound Federal Savings
matched 50% of the first 10% of salary that a participant contributes to the
401(k) Plan. Sound Federal Savings ceased matching contributions on February 1,
1999. All contributions and earnings are fully and immediately vested. A
participant may withdraw salary reduction contributions, rollover contributions
and matching contributions in the event the participant suffers a financial
hardship. A participant may make a withdrawal from his accounts for any reason
after age 59 1/2.

      The 401(k) Plan permits employees to direct the investment of his or her
own accounts into various investment options including an "Employer Stock Fund."
Participants are entitled to direct the trustee as to how to vote his or her
allocable shares of common stock in the Employer Stock Fund.

      Plan benefits will be paid to each participant in the form of a single
cash payment at normal retirement age unless earlier payment is selected. If a
participant dies prior to receipt of the entire value of his or her 401(k) Plan
accounts, payment will generally be made to the beneficiary in a single cash
payment as soon as possible following the participant's death. Payment will be
deferred if the participant had previously elected a later payment date. If the
beneficiary is not the participant's spouse, payment will be made within one
year of the date of death. If the spouse is the designated beneficiary, payment
will be made no later than the date the participant would have attained age 70
1/2. Normal retirement age under the 401(k) Plan is age 65. Early retirement age
is age 55.

      At March 31, 2002, the total market value of the assets in the 401(k) Plan
was approximately $1.9 million.

      STOCK OPTION PLAN. During the year ended March 31, 2000, Sound Federal
Bancorp adopted, and Sound Federal Bancorp's stockholders approved, the 1999
Stock Option Plan. Pursuant to the stock option plan, options to purchase 94,500
shares were granted to non-employee directors (including two directors emeriti)
at an exercise price of $9.125 per share, the fair market value of the
underlying shares on the date of the award. The term of the options is ten years
from the date of grant, and the shares subject to awards will be adjusted in the
event of any merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, combination or exchange of shares or other change in the
corporate structure of Sound Federal Bancorp. The awards included an equal
number of reload options, limited stock appreciation rights and dividend
equivalent rights. A limited right gives the option holder the right, upon a
change in control of Sound Federal Bancorp or Sound Federal Savings, to receive
the excess of the market value of the shares represented by the limited rights
on the date exercised over the exercise price. The limited rights are subject to
the same terms and conditions as the stock options. Payment upon exercise of
limited rights will be in cash, or in the event of a merger transaction, for
shares of the acquiring corporation or its parent, as applicable. The dividend
equivalent rights entitle the option holder to receive an amount of cash at the
time that certain extraordinary dividends are declared equal to the amount of
the extraordinary dividend multiplied by the number of options that the person
holds. For these purposes, an extraordinary dividend is defined as any dividend
where the rate of dividend exceeds Sound Federal Savings' weighted average cost
of funds on interest-bearing liabilities for the current and preceding three
quarters. The reload options entitle the option holder, who has delivered shares
that he or she owns as payment of the exercise price for option stock, to a new
option to acquire additional shares equal in amount to the shares he or she has
traded in. Reload options may also be granted to replace option shares retained
by the employer for payment of the option holder's withholding tax. The option
price at which additional shares of stock can be purchased by the option holder
through the exercise of a reload option is equal to the market value of the
previously owned stock at the time it was surrendered. The option period during
which the reload option may be exercised expires at the same time as that of the
original option that the holder has exercised.

                                       77
<PAGE>

      Set forth below is certain information concerning options outstanding to
the Named Executive Officers at March 31, 2002. No options were granted to the
Named Executive Officers during fiscal year 2002. No options were exercised by
the Named Executive Officers during fiscal year 2002.

<TABLE>
<CAPTION>
====================================================================================================================
                                               FISCAL YEAR-END OPTION VALUES
====================================================================================================================
                                                                                            VALUE OF UNEXERCISED
                                                                  NUMBER OF UNEXERCISED     IN-THE-MONEY OPTIONS AT
                                                                   OPTIONS AT YEAR-END           YEAR-END (1)
                                                                ------------------------- --------------------------
                             SHARES ACQUIRED       VALUE             EXERCISABLE/              EXERCISABLE/
           NAME               UPON EXERCISE       REALIZED         UNEXERCISABLE (#)          UNEXERCISABLE ($)
---------------------------- ---------------- ----------------- ------------------------- --------------------------

<S>                                <C>               <C>             <C>                      <C>
Richard P. McStravick              --                $--             27,600/18,400            $171,810/$114,540
---------------------------- ---------------- ----------------- ------------------------- --------------------------

Anthony J.  Fabiano                --                $--             24,000/16,000            $149,400/$99,600
============================ ================ ================= ========================= ==========================
</TABLE>

(1)   Based on a market value of $15.35 per share at March 31, 2002 and an
      exercise price of $9.125.

      RECOGNITION AND RETENTION PLAN. During the fiscal year ended March 31,
2000 Sound Federal Bancorp adopted, and Sound Federal Bancorp's stockholders
approved, the 1999 Recognition and Retention Plan. Pursuant to the recognition
plan, 5,268 shares of stock were awarded to each non-employee director, except
for Messrs. Maynard and Telerico who did not receive awards, and 21,000 and
14,000 shares were awarded to Mr. McStravick and Mr. Fabiano, respectively.

      EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. Sound Federal Savings established
an employee stock ownership plan for eligible employees, effective January 1,
1998. Employees age 21 or older who have worked at Sound Federal Savings for a
period of one year and have been credited with 1,000 or more hours of service
during the year are eligible to participate. The employee stock ownership plan
borrowed funds from Sound Federal Bancorp and used those funds to purchase
192,129 shares of Sound Federal Bancorp common stock. The loan is collateralized
by the common stock purchased by the employee stock ownership plan. Sound
Federal Savings will contribute to the employee stock ownership plan sufficient
funds to pay the principal and interest on the loan over ten years. The loan
bears interest at a floating rate equal to the prime interest rate published in
the Wall Street Journal. Shares purchased by the employee stock ownership plan
are held in a suspense account for allocation among participants as the loan is
repaid.

      Shares are released from the suspense account in an amount proportional to
the repayment of the employee stock ownership plan loan and are allocated among
employee stock ownership plan participants on the basis of compensation in the
year of allocation. Participants in the employee stock ownership plan received
credit for service prior to the effective date of the employee stock ownership
plan. A participant vests in 100% of his or her account balance after 5 years of
credited service. A participant who terminates employment for reasons other than
death, retirement, disability or following a change in control prior to five
years of credited service will forfeit the nonvested portion of his or her
benefits under the employee stock ownership plan. Benefits are payable in the
form of common stock and cash upon death, retirement, disability or separation
from service. Alternatively, a participant may request that the benefits be paid
entirely in the form of common stock. Sound Federal Bancorp recognized an
expense of $246,000 to the employee stock ownership plan in fiscal year 2002 and
allocated 19,213 shares of common stock to participants.

      In connection with the establishment of the employee stock ownership plan,
Sound Federal Savings established a committee of non-employee directors to
administer the employee stock ownership plan and appointed an independent
financial institution to serve as trustee of the employee stock ownership plan.
The employee stock ownership plan committee may instruct the trustee regarding
investment of funds contributed to the employee stock ownership plan. The
employee stock ownership plan trustee, subject to its fiduciary duty, must vote
all allocated shares held in the employee stock ownership plan in accordance
with the instructions of participating employees provided such action does not
violate ERISA standards. Under the employee stock ownership plan, nondirected
shares, and shares held in the suspense account, will be voted in a manner
calculated to most accurately reflect the instructions it has received from
participants regarding the allocated stock so long as such vote is in accordance
with the provisions of ERISA.

                                       78
<PAGE>

COMPENSATION OF DIRECTORS

      Directors of Sound Federal Bancorp receive an annual retainer of $500,
except for the Chairman of the Board who receives $1,000. Directors of Sound
Federal Savings receive $1,500 for each meeting attended, except for the
Chairman of the Board who receives $3,000.

EXECUTIVE COMPENSATION

      The following table sets forth information as to annual and other
compensation for services in all capacities for executive officers who earned
more than $100,000 in salary and bonuses during the fiscal year ended March 31,
2002.

<TABLE>
<CAPTION>
==============================================================================================================================

                                                      SUMMARY COMPENSATION TABLE
==============================================================================================================================

                                ANNUAL COMPENSATION                                         LONG-TERM
                                                                                       COMPENSATION AWARDS
------------------------- ---------- ------------ ---------- -------------- --------------- --------- --------

                                OTHER RESTRICTED
                                                                ANNUAL          STOCK       OPTIONS              ALL OTHER
        NAME AND          FISCAL       SALARY       BONUS    COMPENSATION      AWARD(S)      /SARS              COMPENSATION
   PRINCIPAL POSITION       YEAR         ($)         ($)        ($) (1)         ($)(3)       (#)(4)   PAYOUTS     ($) (2)
------------------------- ---------- ------------ ---------- -------------- --------------- --------- -------- ---------------

<S>                         <C>        <C>         <C>         <C>             <C>            <C>       <C>        <C>
Richard P. McStravick       2002       171,875     12,000      18,500            --           --        --         3,800
President and Chief         2001       155,690      9,000      18,675            --           --        --         3,718
Executive Officer           2000       143,259      8,408      21,900          191,625       46,000     --         3,718

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

Anthony J. Fabiano          2002       124,500      9,000         --             --           --        --          --
Vice President and          2001       106,167      7,800         --             --           --        --          --
Chief Financial Officer     2000       96,250       5,741         --           127,750       40,000     --          --
========================= ========== ============ ========== ============== =============== ========= ======== ===============
</TABLE>

(1)   Represents director's fees for service on Sound Federal Bancorp's and
      Sound Federal Savings' Board of Directors.
(2)   Consists of the use of Sound Federal Savings' automobile.
(3)   Amount reflects dollar value of award of 21,000 shares and 14,000 shares
      of restricted stock granted to Messrs. McStravick and Fabiano,
      respectively. The dollar value per share of such award on the date of
      grant was $9.125.
(4)   On October 20, 1999, pursuant to the Sound Federal Bancorp 1999 Stock
      Option Plan, Sound Federal Bancorp granted these options to purchase
      shares of common stock of Sound Federal Bancorp at an exercise price of
      $9.125, the market value per share on the date of the grant.

TRANSACTIONS WITH CERTAIN RELATED PERSONS

      Sound Federal Savings offers to directors, officers, and employees loans
which are made to such persons in the ordinary course of business on
substantially the same terms (other than interest rate), including collateral,
as those prevailing at the time for comparable transactions with other persons,
and which do not involve more than the normal risk of collectibility or present
other unfavorable features. All such loans were performing in accordance with
their terms as of the date of this proxy statement. Federal regulations permit
executive officers and directors to participate in loan programs that are
available to other employees, so long as the director or executive officer is
not given preferential treatment compared to other participating employees. The
interest rate on loans to directors and officers is the same as that offered to
Sound Federal Savings' other employees.

      Loans made to directors and named executives of Sound Federal Bancorp
amounted to $1.5 million at May 31, 2002, with the largest amount of
indebtedness during the past fiscal year amounting to $1.5 million.

      Bruno J. Gioffre, in addition to his duties as Chairman of the Board of
Sound Federal Bancorp, is counsel to the law firm of Gioffre & Gioffre,
Professional Corporation which represents Sound Federal Savings in mortgage loan
transactions. Prior to January 1, 1999, Mr. Gioffre also acted as general
counsel to Sound Federal Savings. For the year ended March 31, 2002, Sound
Federal Savings paid Gioffre & Gioffre, Professional Corporation fees of

                                       79
<PAGE>

$179,000. The terms and conditions of these fees and services are substantially
the same as those for similar transactions with other parties.

      James Staudt, in addition to his duties as a Director of Sound Federal
Bancorp, is a partner in the law firm of McCullough, Goldberger & Staudt which
also represents Sound Federal Savings in mortgage loan transactions. Effective
January 1, 1999, Mr. Staudt is also general counsel to Sound Federal Bancorp.
For the year ended March 31, 2002, Sound Federal Savings paid McCullough,
Goldberger & Staudt fees of $62,000 and paid Mr. Staudt legal fees of $25,000
for his services as general counsel.

BENEFITS TO BE CONSIDERED FOLLOWING COMPLETION OF THE CONVERSION

      STOCK OPTION PLAN. We intend to submit a new stock option plan for
stockholder approval no earlier than six months after the completion of the
conversion. If approved by the stockholders, the new stock option plan would
reserve 10% of the shares sold in the offering for issuance when options granted
to recipients are exercised. Ten percent of the shares issued in the offering
would amount to 500,089 shares, 588,340 shares, 676,591 shares or 778,074 shares
at the minimum, midpoint, maximum and adjusted maximum of the offering range,
respectively. No options would be granted under the new stock option plan until
stockholder approval of the plan is received. In the event that shares
underlying options come from authorized but unissued shares, stockholders would
experience dilution of approximately 5.6% in their ownership interest in Sound
Federal Bancorp at the midpoint of the offering range.

      The exercise price of the options granted under the new stock option plan
will be equal to the fair market value of Sound Federal Bancorp common stock on
the date of grant of the stock options. If the stock option plan is adopted
within one year following the conversion, options may vest no faster than 20%
per year beginning 12 months after the date of grant. Options granted under the
stock option plan would be adjusted for capital changes such as stock splits and
stock dividends. Awards will be 100% vested upon a change in control of Sound
Federal Savings or Sound Federal Bancorp, or upon termination of employment due
to death or disability. If the stock option plan is adopted more than one year
after the conversion, awards would be 100% vested upon normal retirement. Under
Office of Thrift Supervision rules, if the stock option plan is adopted within
one year of the conversion, no individual officer may receive more than 25% of
the awards under the plan, no non-employee director may receive more than 5% of
the awards under the plan, and all non-employee directors as a group may receive
in the aggregate no more than 30% of the awards under the plan.

      The stock option plan would be administered by a committee of non-employee
members of the Sound Federal Bancorp's Board of Directors. Options granted under
the stock option plan to employees may be "incentive" stock options, which are
designed to result in a beneficial tax treatment to the employee but no tax
deduction to Sound Federal Bancorp. Non-qualified stock options may also be
granted to employees under the stock option plan, and will be granted to the
non-employee directors who receive stock options. In the event an option
recipient terminated his employment or service as an employee or director, the
options would terminate during certain specified periods.

      STOCK RECOGNITION AND RETENTION PLAN. We also intend to request
stockholder approval of a new stock recognition and retention plan, no earlier
than six months after the completion of the conversion. If approved by
stockholders, the new stock recognition and retention plan would, if implemented
within one year of conversion, reserve 4% of the shares sold in the offering
(assuming Sound Federal Savings has a tangible capital to assets ratio in excess
of 10%) or 200,036 shares, 235,336 shares, 270,636 shares or 311,229 shares at
the minimum, midpoint, maximum and adjusted maximum of the offering range,
respectively. We must recognize expense for shares awarded over their vesting
period at the fair market value of the shares on the date they are awarded. The
recipients will be awarded common stock under the stock recognition and
retention plan at no cost to them. No awards would be made under the stock
recognition and retention plan until the plan is approved by stockholders. If
the shares awarded under the stock recognition and retention plan come from
authorized but unissued shares totaling 4% of the shares sold in the offering,
stockholders would experience dilution of approximately 2.3% in their ownership
interest in Sound Federal Bancorp at the midpoint of the offering range.

                                       80
<PAGE>

      Awards under the stock recognition and retention plan would be
nontransferable and nonassignable. Under Office of Thrift Supervision
regulations, if the stock recognition and retention plan is adopted within one
year following the conversion, the shares which are subject to an award may vest
no faster than 20% per year beginning 12 months after the date of grant of the
award. Awards would be adjusted for capital changes such as stock dividends and
stock splits. Awards would be 100% vested upon a change in control of Sound
Federal Savings or Sound Federal Bancorp, or termination of employment or
service due to death or disability. If the stock recognition and retention plan
is adopted more than one year after the conversion, awards would be 100% vested
upon normal retirement. If employment or service were to terminate for other
reasons, the award recipient would forfeit any nonvested award. If employment or
service were to terminate for cause (as defined), shares not already delivered
would be forfeited. Under Office of Thrift Supervision rules, if the stock
recognition and retention plan is adopted within one year of the conversion, no
individual officer may receive more than 25% of the awards under the plan, no
non-employee director may receive more than 5% of the awards under the plan, and
all non-employee directors as a group may receive no more than 30% of the awards
under the plan in the aggregate.

      The recipient of an award will recognize income equal to the fair market
value of the stock earned, determined as of the date of vesting, unless the
recipient makes an election under Section 83(b) of the Internal Revenue Code to
be taxed earlier. The amount of income recognized by the recipient would be a
deductible expense for tax purposes for Sound Federal Bancorp. If the stock
recognition and retention plan is adopted within one year following the
conversion, dividends and other earnings will accrue and be payable to the award
recipient when the shares vest. If the stock recognition and retention plan is
adopted within one year following the conversion, shares not yet vested will be
voted by the trustee of the stock recognition and retention plan, taking into
account the best interests of the award recipients. If the stock recognition and
retention plan is adopted more than one year following the conversion, dividends
declared on unvested shares will be distributed to the recipient when paid and
the recipient will be entitled to vote the unvested shares.





                                       81
<PAGE>

                      BENEFICIAL OWNERSHIP OF COMMON STOCK

      The following table provides the beneficial ownership of our common stock
held by our directors and executive officers, individually and as a group as of
November __, 2002. The business address of each director and executive officer
is 300 Mamaroneck Avenue, Mamaroneck, New York 10543.

<TABLE>
<CAPTION>
<S>                                                                           <C>

                                       NUMBER OF SHARES OF COMMON
                                        STOCK BENEFICIALLY OWNED    PERCENT OF ALL COMMON
NAME OF BENEFICIAL OWNER                         (1) (2)             STOCK OUTSTANDING (3)
------------------------------------   --------------------------   ---------------------

Bruno J. Gioffre
Richard P. McStravick
Joseph Dinolfo
Donald H. Heithaus
Joseph A. Lanza
Eldorus Maynard
James Staudt
Samuel T. Telerico
Anthony J. Fabiano

All directors and executive
officers as a group (9 persons)

Sound Federal, MHC and all directors
and executive officers as a group
</TABLE>

----------------------------
(1)   In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
      person is deemed to be the beneficial owner for purposes of this table of
      any shares of common stock if he has sole or shared voting or investment
      power with respect to such security, or has a right to acquire beneficial
      ownership at any time within 60 days from the date as of which beneficial
      ownership is being determined. As used herein, "voting power" is the power
      to vote or direct the voting of shares and "investment power" is the power
      to dispose or direct the disposition of shares. Includes all shares held
      directly as well as by spouses and minor children, in trust and other
      indirect ownership, over which shares the named individuals effectively
      exercise sole or shared voting and investment power.
(2)   The shares of common stock in this column include _______ shares in total
      and by individual the following shares which may be acquired by the
      persons indicated pursuant to the exercise of stock options within 60 days
      of November __, 2002: ________________________________
(3)   Calculated by dividing the number of shares by the total shares of common
      stock outstanding at November __, 2002 (_________ shares) plus the number
      of shares which each individual may acquire pursuant to the exercise of
      stock options within 60 days of November __, 2002.
*     Less than 1%.

                SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS

      The table below sets forth, for each of Sound Federal Bancorp's directors
and executive officers and for all of the directors and executive officers as a
group, the following information:

      (1)   the number of exchange shares to be held upon consummation of the
            conversion, based upon their beneficial ownership of Sound Federal
            Bancorp common stock as of November __, 2002;

      (2)   the proposed purchases of subscription shares, assuming sufficient
            shares are available to satisfy their subscriptions; and

      (3)   the total amount of Sound Federal Bancorp common stock to be held
            upon consummation of the conversion.


                                       82
<PAGE>

      In each case, it is assumed that subscription shares are sold and the
exchange ratio is calculated at the midpoint of the offering range. See "The
Conversion--Limitations on Common Stock Purchases."

<TABLE>
<CAPTION>
                                                 PROPOSED PURCHASES OF STOCK IN
                                                        THE OFFERING (1)           TOTAL COMMON STOCK TO BE HELD
                                                 ------------------------------- --------------------------------
                                 NUMBER OF                                                         PERCENTAGE OF
                              EXCHANGE SHARES      NUMBER OF                        NUMBER OF          TOTAL
 NAME OF BENEFICIAL OWNER      TO BE HELD (2)       SHARES           AMOUNT           SHARES        OUTSTANDING
---------------------------  -----------------   -------------   --------------- --------------  ----------------

<S>                                               <C>              <C>
Bruno J. Gioffre                                                   $
Richard P. McStravick
Joseph Dinolfo
Donald H. Heithaus
Joseph A. Lanza
Eldorus Maynard
James Staudt
Samuel T. Telerico
Anthony J. Fabiano
                                                  -------------    ------------
   Total                                                           $
                                                  =============    ============
</TABLE>
---------------------------
*     Less than 1%.
(1)   Includes proposed subscriptions, if any, by associates.
(2)   Based on information presented in "Beneficial Ownership of Common Stock,"
      and includes options exercisable within 60 days of November ______, 2002.

                                 THE CONVERSION

      The Boards of Directors of Sound Federal Bancorp and Sound Federal, MHC
have approved the plan of conversion. The plan of conversion must also be
approved by the members of Sound Federal, MHC (depositors and certain borrowers
of Sound Federal Savings) and the stockholders of Sound Federal Bancorp. A
special meeting of members and a special meeting of stockholders have been
called for this purpose. The Office of Thrift Supervision also has conditionally
approved the plan; however, such approval does not constitute a recommendation
or endorsement of the plan of conversion by that agency.

GENERAL

      The respective Boards of Directors of Sound Federal, MHC and Sound Federal
Bancorp adopted the plan of conversion on June 13, 2002. Pursuant to the plan of
conversion, our organization will convert from the mutual holding company form
of organization to the fully public form. Sound Federal, MHC, the mutual holding
company parent of Sound Federal Bancorp, will be merged into Sound Federal
Savings, and Sound Federal, MHC will no longer exist. Pursuant to the plan,
Sound Federal Bancorp, which owns 100% of Sound Federal Savings, also will be
succeeded by a new Delaware corporation with the same name. As part of the
conversion, shares of common stock of Sound Federal Bancorp representing the
ownership interest of Sound Federal, MHC, will be offered for sale in the
offering. When the conversion is completed, all of the capital stock of Sound
Federal Savings will be owned by Sound Federal Bancorp. A diagram of our
corporate structure before and after the conversion is set forth in the Summary
of this prospectus.

      Under the plan of conversion, at the conclusion of the conversion and
offering, each share of Sound Federal Bancorp common stock owned by persons
other than Sound Federal, MHC will be converted automatically into the right to
receive new shares of Sound Federal Bancorp common stock determined pursuant to
the exchange ratio. The exchange ratio will ensure that immediately after the
conversion and exchange of existing shares of Sound Federal Bancorp for new
shares, the public stockholders of Sound Federal Bancorp common stock will own
the same aggregate percentage of new Sound Federal Bancorp common stock that
they owned immediately prior to the conversion, excluding any shares purchased
in the offering.

      We intend to retain 50% of the net proceeds of the offering and to
contribute the balance of the net proceeds to Sound Federal Savings. The
conversion will be effected only upon completion of the sale of at least the
minimum number of shares of our common stock to be offered pursuant to the plan
of conversion.

                                       83
<PAGE>

      The plan of conversion provides generally that we will offer shares of
common stock for sale in the subscription offering to eligible account holders,
our tax-qualified benefit plans, including the employee stock ownership plan,
supplemental eligible account holders and other members. Subject to the prior
rights of these holders of subscription rights, we will offer common stock for
sale in a community offering to members of the general public, with a preference
given in the following order:

      (1)   First, to public stockholders of Sound Federal Bancorp common stock
            as of October _________, 2002; and

      (2)   Second, to natural persons residing in the New York Counties of
            Westchester, Rockland and Putnam and the Connecticut County of
            Fairfield.

      We have the right to accept or reject, in whole or in part, any orders to
purchase shares of the common stock received in the community offering. The
community offering may begin at the same time as the subscription offering and
must be completed within 45 days after the completion of the subscription
offering unless otherwise extended by the Office of Thrift Supervision. See
"--Community Offering."

      We determined the number of shares of common stock to be offered in the
offering based upon an independent appraisal of the estimated pro forma market
value of Sound Federal Bancorp. All shares of common stock to be sold in the
offering will be sold at $10.00 per share. The independent valuation will be
updated and the final number of the shares to be issued in the offering will be
determined at the completion of the offering. See "--Stock Pricing and Number of
Shares to be Issued" for more information as to the determination of the
estimated pro forma market value of the common stock.

      The following is a brief summary of the conversion and is qualified in its
entirety by reference to the provisions of the plan of conversion. A copy of the
plan of conversion is available for inspection at each branch of Sound Federal
Savings and at the Northeast Regional and Washington, D.C. offices of the Office
of Thrift Supervision. The plan of conversion is also filed as an exhibit to the
application to convert from mutual to stock form of which this prospectus is a
part, copies of which may be obtained from the Office of Thrift Supervision. See
"Additional Information."

REASONS FOR THE CONVERSION

      The primary reasons for the conversion are to (i) obtain additional
capital to support internal growth by increasing our lending in the communities
we serve, (ii) continue our expansion within our market area and the contiguous
counties, (iii) enhance stockholder returns through higher earnings and capital
management strategies and (iv) facilitate acquisitions of other financial
institutions as opportunities arise.

      As a fully converted stock holding company, we will have greater
flexibility in structuring mergers and acquisitions, including the form of
consideration paid in a transaction. In our current mutual holding company
structure, our ability to offer our common stock as consideration for a merger
or acquisition has been limited. Potential sellers often want stock for at least
part of the purchase price. Our new stock holding company structure will enhance
our ability to compete with other bidders when acquisition opportunities arise
by enabling us to offer stock or cash consideration, or a combination thereof.
We do not currently have any specific acquisition or expansion plans.

APPROVALS REQUIRED

      The affirmative vote of a majority of the total eligible votes of the
members of Sound Federal, MHC at the special meeting of members is required to
approve the plan of conversion. By their approval of the plan of conversion, the
members of Sound Federal, MHC will also be deemed to approve the merger of Sound
Federal, MHC into Sound Federal Savings. The affirmative vote of the holders of
at least two-thirds of the outstanding shares of common stock of Sound Federal
Bancorp and a majority of the votes cast by the public stockholders of Sound
Federal Bancorp common stock also are required to approve the plan of
conversion. The plan of conversion also must be approved by the Office of Thrift
Supervision, which has given its conditional approval.

                                       84
<PAGE>

SHARE EXCHANGE RATIO

      Office of Thrift Supervision regulations provide that in a conversion of a
mutual holding company to fully stock form, the public stockholders will be
entitled to exchange their shares for common stock of the converted holding
company, provided that the mutual holding company demonstrates to the
satisfaction of the Office of Thrift Supervision that the basis for the exchange
is fair and reasonable. The Board of Directors of Sound Federal Bancorp has
determined that each publicly held share of Sound Federal Bancorp common stock
will, on the effective date of the conversion, be converted automatically into
and become the right to receive a number of new shares of Sound Federal Bancorp
common stock. The number of new shares of common stock will be determined
pursuant to the exchange ratio which ensures that the public stockholders of
Sound Federal Bancorp common stock will own the same percentage of new common
stock in Sound Federal Bancorp after the conversion as they held in Sound
Federal Bancorp immediately prior to the conversion, exclusive of their purchase
of additional shares, and the receipt of cash in lieu of fractional shares. At
June 30, 2002, there were 4,778,292 shares of Sound Federal Bancorp common stock
outstanding (net of treasury stock), and 1,967,782 shares were publicly held.
The exchange ratio is not dependent on the market value of Sound Federal Bancorp
common stock. It is calculated based on the percentage of Sound Federal Bancorp
common stock held by the public, the independent appraisal of Sound Federal
Bancorp prepared by FinPro, Inc. and the number of shares sold in the offering.
The exchange ratio is expected to range from approximately 1.7782 exchange
shares for each publicly held share of Sound Federal Bancorp at the minimum of
the offering range to 2.7667 exchange shares for each publicly held share of
Sound Federal Bancorp at the adjusted maximum of the offering range.

      If you are now a stockholder of Sound Federal Bancorp, your existing
shares will be cancelled and exchanged for new shares of Sound Federal Bancorp.
The number of shares you receive will be based on the exchange ratio determined
as of the closing of the conversion. The actual number of shares you receive
will depend upon the number of shares we sell in the offering, which in turn
will depend upon the final appraised value of Sound Federal Bancorp. The
following table shows how the exchange ratio will adjust, based on the number of
shares sold in the offering. The table also shows how many shares an owner of
Sound Federal Bancorp common stock would receive in the exchange, adjusted for
the number of shares sold in the offering.

<TABLE>
<CAPTION>
                                                 NEW SHARES TO BE
                                              EXCHANGED FOR EXISTING
                    NEW SHARES TO BE SOLD    SHARES OF SOUND FEDERAL                                    NEW SHARES TO
                       IN THIS OFFERING              BANCORP             TOTAL SHARES OF                 BE RECEIVED
                     --------------------     ----------------------     COMMON STOCK TO   EXCHANGE        FOR 100
                       AMOUNT     PERCENT      AMOUNT        PERCENT     BE OUTSTANDING      RATIO     EXISTING SHARES
                     ---------    -------     --------      ---------   -----------------  ---------   ----------------

<S>                  <C>           <C>        <C>             <C>            <C>             <C>             <C>
Minimum...........   5,000,890     58.8%      3,499,110       41.2%          8,500,000       1.7782          177
Midpoint..........   5,883,400     58.8%      4,116,600       41.2%        10,000,000        2.0920          209
Maximum...........   6,765,910     58.8%      4,734,090       41.2%        11,500,000        2.4058          240
 15% above Maximum   7,780,737     58.8%      5,444,263       41.2%        13,225,000        2.7667          276
</TABLE>

      Options to purchase shares of Sound Federal Bancorp common stock also will
be converted into and become options to purchase Sound Federal Bancorp common
stock. The number of shares of common stock to be received upon exercise of
these options will be determined pursuant to the exchange ratio. The aggregate
exercise price, duration and vesting schedule of these options will not be
affected. At June 30, 2002, there were 199,738 outstanding options to purchase
Sound Federal Bancorp common stock, 123,043 of which were vested.

EFFECTS OF CONVERSION ON DEPOSITORS, BORROWERS AND MEMBERS

      CONTINUITY. While the conversion is being accomplished, the normal
business of Sound Federal Savings of accepting deposits and making loans will
continue without interruption. Sound Federal Savings will continue to be a
federally chartered savings bank and will continue to be regulated by the Office
of Thrift Supervision. After the conversion, Sound Federal Savings will continue
to offer existing services to depositors, borrowers and other customers. The
directors serving Sound Federal Bancorp at the time of the conversion will serve
as directors of Sound Federal Bancorp after the conversion.

      EFFECT ON DEPOSIT ACCOUNTS. Under the plan of conversion, each depositor
in Sound Federal Savings at the time of the conversion will automatically
continue as a depositor after the conversion, and each of the deposit

                                       85

<PAGE>

accounts will remain the same with respect to deposit balance, interest rate and
other terms. Each such account will be insured by the Federal Deposit Insurance
Corporation to the same extent as before the conversion. Depositors will
continue to hold their existing certificates, passbooks and other evidences of
their accounts.

      EFFECT ON LOANS. No loan outstanding from Sound Federal Savings will be
affected by the conversion, and the amount, interest rate, maturity and security
for each loan will remain as it was contractually fixed prior to the conversion.

      EFFECT ON VOTING RIGHTS OF MEMBERS. At present, all depositors are members
of, and have voting rights in, Sound Federal, MHC as to all matters requiring
membership action. Upon completion of the conversion, depositors will cease to
be members of Sound Federal, MHC and will no longer have voting rights. Upon
completion of the conversion, all voting rights in Sound Federal Savings will be
vested in Sound Federal Bancorp as the sole stockholder of Sound Federal
Savings. The stockholders of Sound Federal Bancorp will possess exclusive voting
rights with respect to Sound Federal Bancorp common stock.

      TAX EFFECTS. Sound Federal Bancorp will receive an opinion of counsel or
tax advisor with regard to federal and state income taxation to the effect that
the conversion will not be taxable for federal or state income tax purposes to
Sound Federal, MHC, Sound Federal Bancorp, the public stockholders of Sound
Federal Bancorp, members of Sound Federal, MHC, eligible account holders,
supplemental eligible account holders, or Sound Federal Savings. See "--Tax
Aspects."

      EFFECT ON LIQUIDATION RIGHTS. Each depositor in Sound Federal Savings has
both a deposit account in Sound Federal Savings and a pro rata ownership
interest in the net worth of Sound Federal, MHC based upon the balance in his or
her account. This interest may only be realized in the event of a complete
liquidation of Sound Federal, MHC and Sound Federal Savings. However, this
ownership interest is tied to the depositor's account and has no tangible market
value separate from the deposit account. Any depositor who opens a deposit
account obtains a pro rata ownership interest in Sound Federal, MHC without any
additional payment beyond the amount of the deposit. A depositor who reduces or
closes his account receives a portion or all of the balance in the deposit
account but nothing for his ownership interest in the net worth of Sound
Federal, MHC, which is lost to the extent that the balance in the account is
reduced or closed.

      Consequently, depositors in a stock subsidiary of a mutual holding company
normally have no way of realizing the value of their ownership interest, which
has realizable value only in the unlikely event that Sound Federal, MHC and
Sound Federal Savings are liquidated. If this occurs, the depositors of record
at that time, as owners, would share pro rata in any residual surplus and
reserves of Sound Federal, MHC after other claims, including claims of
depositors to the amounts of their deposits, are paid.

      In the unlikely event that Sound Federal Savings were to liquidate after
the conversion, all claims of creditors, including those of depositors, also
would be paid first, followed by distribution of the "liquidation account" to
depositors as of March 31, 2001 and September 30, 2002 who continue to maintain
their deposit accounts as of the date of liquidation, with any assets remaining
thereafter distributed to Sound Federal Bancorp as the holder of Sound Federal
Savings' capital stock. Pursuant to the rules and regulations of the Office of
Thrift Supervision, a post-conversion merger, consolidation, sale of bulk assets
or similar combination or transaction with another insured savings institution
would not be considered a liquidation and, in such a transaction, the
liquidation account would be assumed by the surviving institution. See
"--Liquidation Rights."

STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED

      The plan of conversion and federal regulations require that the aggregate
purchase price of the common stock sold in the offering must be based on the
appraised pro forma market value of the common stock, as determined by an
independent valuation. Sound Federal Savings and Sound Federal Bancorp have
retained FinPro, Inc. to make this valuation. For its services in preparing the
initial valuation, FinPro, Inc. will receive a fee of $16,000. This amount does
not include a fee of $15,000 to be paid to FinPro, Inc. for assistance in the
preparation of a business plan. Sound Federal Savings and Sound Federal Bancorp
have agreed to indemnify FinPro, Inc. and its employees and affiliates against
specified losses, including any losses in connection with claims under the
federal

                                       86
<PAGE>

securities laws, arising out of its services as appraiser, except where FinPro,
Inc.'s liability results from its negligence or bad faith.

      The appraisal considered the pro forma impact of the offering. Consistent
with the Office of Thrift Supervision appraisal guidelines, the appraisal
applied three primary methodologies: the pro forma price-to-book value approach
applied to both reported book value and tangible book value; the pro forma
price-to-earnings approach applied to reported and core earnings; and the pro
forma price-to-assets approach. The market value ratios applied in the three
methodologies were based upon the current market valuations of the peer group
companies, subject to valuation adjustments applied by FinPro, Inc. to account
for differences between Sound Federal Bancorp and the peer group. FinPro, Inc.
placed the greatest emphasis on the price-to-tangible book and price-to-earnings
approaches in estimating pro forma market value.

      The independent valuation was prepared by FinPro, Inc. in reliance upon
the information contained in this prospectus, including the consolidated
financial statements. FinPro, Inc. also considered the following factors, among
others:

      o     the present and projected operating results and financial condition
            of Sound Federal Bancorp;

      o     the economic and demographic conditions in Sound Federal Bancorp's
            existing market area;

      o     certain historical, financial and other information relating to
            Sound Federal Bancorp;

      o     a comparative evaluation of the operating and financial
            characteristics of Sound Federal Bancorp with those of other
            similarly situated publicly traded savings institutions located in
            New York and other regions of the United States;

      o     the aggregate size of the offering of the common stock;

      o     the impact of the conversion on Sound Federal Bancorp's
            stockholders' equity and earnings potential;

      o     the proposed dividend policy of Sound Federal Bancorp; and

      o     the trading market for securities of comparable institutions and
            general conditions in the market for such securities.

      Included in FinPro, Inc.'s report were certain assumptions as to the pro
forma earnings of Sound Federal Bancorp after the conversion that were utilized
in determining the appraised value. These assumptions included estimated
expenses, an assumed after-tax rate of return on the net conversion proceeds and
purchases in the open market of 4% of the common stock issued in the offering by
the recognition and retention plan at the $10.00 purchase price. See "Pro Forma
Data" for additional information concerning theses assumptions. The use of
different assumptions may yield different results.

      The independent valuation states that as of September 10, 2002, the
estimated pro forma market value, or valuation range, of Sound Federal Bancorp
ranged from a minimum of $85.0 million to a maximum of $115.0 million, with a
midpoint of $100.0 million. The Board of Directors decided to offer the shares
for a price of $10.00 per share. The aggregate offering price of the shares will
be equal to the valuation range multiplied by the percentage of Sound Federal
Bancorp common stock owned by Sound Federal, MHC. The number of shares offered
will be equal to the aggregate offering price of the shares divided by the price
per share. Based on the valuation range, the percentage of Sound Federal Bancorp
common stock owned by Sound Federal, MHC and the $10.00 price per share, the
minimum of the offering range will be 5,000,890 shares, the midpoint of the
offering range will be 5,883,400 shares and the maximum of the offering range
will be 6,765,910 shares.

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<PAGE>

      The Board of Directors reviewed the independent valuation and, in
particular, considered the following:

      o     Sound Federal Bancorp's financial condition and results of
            operations;

      o     comparison of financial performance ratios of Sound Federal Bancorp
            to those of other financial institutions of similar size;

      o     stock market conditions generally and in particular for financial
            institutions; and

      o     the historical trading price of the publicly held shares of Sound
            Federal Bancorp common stock.

      All of these factors are set forth in the independent valuation. The Board
also reviewed the methodology and the assumptions used by FinPro, Inc. in
preparing the independent valuation and the Board believes that such assumptions
are reasonable. The offering range may be amended with the approval of the
Office of Thrift Supervision, if required, as a result of subsequent
developments in the financial condition of Sound Federal Bancorp or Sound
Federal Savings or market conditions generally. In the event the independent
valuation is updated to amend the pro forma market value of Sound Federal
Bancorp to less than $85.0 million or more than $132.3 million, the appraisal
will be filed with the Securities and Exchange Commission by post-effective
amendment.

      THE INDEPENDENT VALUATION IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING OUR COMMON
STOCK. FINPRO, INC. DID NOT INDEPENDENTLY VERIFY OUR CONSOLIDATED FINANCIAL
STATEMENTS AND OTHER INFORMATION THAT WE PROVIDED TO THEM, NOR DID FINPRO, INC.
INDEPENDENTLY VALUE OUR ASSETS OR LIABILITIES. THE INDEPENDENT VALUATION
CONSIDERS SOUND FEDERAL SAVINGS AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED
AS AN INDICATION OF THE LIQUIDATION VALUE OF SOUND FEDERAL SAVINGS. MOREOVER,
BECAUSE THE VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A
NUMBER OF MATTERS, ALL OF WHICH MAY CHANGE FROM TIME TO TIME, NO ASSURANCE CAN
BE GIVEN THAT PERSONS PURCHASING OUR COMMON STOCK IN THE OFFERING WILL
THEREAFTER BE ABLE TO SELL THEIR SHARES AT PRICES AT OR ABOVE THE $10.00 PRICE.

      Following commencement of the subscription offering, the maximum of the
valuation range may be increased by up to 15% to up to $132.3 million, which
will result in a corresponding increase of up to 15% in the maximum of the
offering range to up to 7,780,737 shares, to reflect changes in the market and
financial conditions, without resoliciting subscribers. We will not decrease the
minimum of the valuation range and the minimum of the offering range without a
resolicitation of subscribers. The subscription price of $10.00 per share will
remain fixed. See "--Limitations on Common Stock Purchases" as to the method of
distribution and allocation of additional shares that may be issued in the event
of an increase in the offering range to fill unfilled orders in the offering.

      If the update to the independent valuation at the conclusion of the
offering results in an increase in the maximum of the valuation range to more
than $132.3 million and a corresponding increase in the offering range to more
than 7,780,737 shares, or a decrease in the minimum of the valuation range to
less than $85.0 million and a corresponding decrease in the offering range to
fewer than 5,000,890 shares, then, after consulting with the Office of Thrift
Supervision, we may terminate the plan of conversion, cancel withdrawal
authorizations and return by check all funds received promptly with interest at
Sound Federal Savings' passbook savings rate of interest. Alternatively, we may
hold a new offering, establish a new offering range, extend the offering period
and commence a resolicitation of subscribers or take other actions as permitted
by the Office of Thrift Supervision in order to complete the conversion. In the
event that a resolicitation is commenced, unless we receive an affirmative
response within a reasonable period of time, we will return all funds promptly
to investors as described above. Any resolicitation following the conclusion of
the subscription and community offerings would not exceed 45 days unless further
extended by the Office of Thrift Supervision for periods of up to 90 days.

      An increase in the number of shares to be issued in the offering would
decrease both a subscriber's ownership interest and Sound Federal Bancorp's pro
forma earnings and stockholders' equity on a per share basis while increasing
pro forma earnings and stockholders' equity on an aggregate basis. A decrease in
the number of shares to be issued in the offering would increase both a
subscriber's ownership interest and Sound Federal Bancorp's pro forma earnings
and stockholders' equity on a per share basis, while decreasing pro forma
earnings and

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stockholders' equity on an aggregate basis. For a presentation of the effects of
these changes, see "Pro Forma Data."

      Copies of the appraisal report of FinPro, Inc. and the detailed memorandum
of the appraiser setting forth the method and assumptions for the appraisal are
available for inspection at the main office of Sound Federal Savings and as
specified under "Additional Information."

EXCHANGE OF STOCK CERTIFICATES

      The conversion of existing outstanding shares of Sound Federal Bancorp
common stock into the right to receive new shares of Sound Federal Bancorp
common stock will occur automatically on the effective date of the conversion.
As soon as practicable after the effective date of the conversion, we or a bank
or trust company designated by us in the capacity of exchange agent, will send a
transmittal form to each public stockholder of Sound Federal Bancorp who holds
stock certificates. The transmittal forms are expected to be mailed within five
business days after the effective date of the conversion and will contain
instructions on how to exchange old shares of Sound Federal Bancorp common stock
for new shares of Sound Federal Bancorp common stock. We expect that stock
certificates for new shares of Sound Federal Bancorp common stock will be
distributed within five business days after we receive properly executed
transmittal forms and other required documents. Shares held by public
stockholders in street name will be exchanged automatically upon the effective
date; no transmittal forms will be mailed relating to these shares.

      New shares of Sound Federal Bancorp issued in exchange for existing shares
are considered acquired in an initial public offering. Accordingly, such new
shares offering cannot be owned on margin for 30 days after the offering. If a
shareholder currently owns our stock on margin, the shares would have to be
moved to a cash account prior to exchanging the old stock certificates for new
stock certificates.

      No fractional shares of Sound Federal Bancorp common stock will be issued
to any public stockholder of Sound Federal Bancorp when the conversion is
completed. For each fractional share that would otherwise be issued to
stockholders who hold certificates, we will pay by check an amount equal to the
product obtained by multiplying the fractional share interest to which the
holder would otherwise be entitled to by $10.00. Payment for fractional shares
will be made as soon as practicable after the receipt by the exchange agent of
surrendered Sound Federal Bancorp stock certificates. If your shares are held in
street name, you will automatically receive cash in lieu of fractional shares.

      YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES UNTIL YOU HAVE RECEIVED
TRANSMITTAL FORMS, WHICH WILL INCLUDE FORWARDING INSTRUCTIONS.

      Until your existing certificates representing Sound Federal Bancorp common
stock are surrendered for exchange after the conversion in compliance with the
terms of the transmittal form, you will not receive new shares of Sound Federal
Bancorp common stock and you will not be paid dividends on the new Sound Federal
Bancorp common stock. When you surrender your certificates, any unpaid dividends
will be paid without interest. For all other purposes, however, each certificate
which represents shares of Sound Federal Bancorp common stock outstanding at the
effective date of the conversion will be considered to evidence ownership of new
shares of Sound Federal Bancorp common stock into which those shares have been
converted by virtue of the conversion.

      All new shares of Sound Federal Bancorp common stock that we issue to you
in exchange for existing shares of Sound Federal Bancorp common stock will be
considered to have been issued in full satisfaction of all rights pertaining to
such shares, subject, however, to our obligation to pay any dividends or make
any other distributions with a record date prior to the effective date of the
conversion which may have been declared by us on or prior to the effective date
and which remain unpaid at the effective date.

      If a certificate for Sound Federal Bancorp common stock has been lost,
stolen or destroyed, the exchange agent will issue a new stock certificate upon
receipt of appropriate evidence as to the loss, theft or destruction,
appropriate evidence as to the ownership of the certificate by the claimant, and
appropriate and customary

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indemnification, which is normally effected by the purchase of a bond from a
surety company at the shareholder's expense.

SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS

      In accordance with the plan of conversion, rights to subscribe for the
purchase of common stock in the subscription offering have been granted under
the plan of conversion in the following descending order of priority. The
filling of all subscriptions that we receive will depend on the availability of
common stock after satisfaction of all subscriptions of all persons having prior
rights in the subscription offering and to the maximum, minimum and overall
purchase limitations set forth in the plan of conversion and as described below
under "--Limitations on Common Stock Purchases."

      PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Sound Federal Savings depositor
with aggregate deposit account balances, including demand deposit accounts, of
$50 or more (a "Qualifying Deposit") on March 31, 2001 ("Eligible Account
Holders") will receive, without payment therefor, nontransferable subscription
rights to purchase up to 50,000 shares of common stock, subject to the overall
purchase limitations. See "--Limitations on Common Stock Purchases." If there
are not sufficient shares available to satisfy all subscriptions, shares will
first be allocated so as to permit each subscribing Eligible Account Holder to
purchase a number of shares sufficient to make his total allocation equal to the
lesser of 100 shares or the number of shares for which he subscribed.
Thereafter, unallocated shares will be allocated to each subscribing Eligible
Account Holder whose subscription remains unfilled in the proportion that the
amount of his Qualifying Deposit bears to the total amount of Qualifying
Deposits of all subscribing Eligible Account Holders whose subscriptions remain
unfilled. If an amount so allocated exceeds the amount subscribed for by any one
or more Eligible Account Holders, the excess shall be reallocated among those
Eligible Account Holders whose subscriptions are not fully satisfied until all
available shares have been allocated.

      To ensure proper allocation of stock, each Eligible Account Holder must
list on his stock order form all deposit accounts in which he has an ownership
interest on March 31, 2001. Failure to list an account could result in fewer
shares being allocated than if all accounts had been disclosed. The subscription
rights of Eligible Account Holders who are also directors or officers of Sound
Federal Bancorp or their associates will be subordinated to the subscription
rights of other Eligible Account Holders to the extent attributable to increased
deposits in the twelve months preceding March 31, 2001.

      PRIORITY 2: TAX-QUALIFIED PLANS. Our tax-qualified employee stock benefit
plans will receive, without payment therefor, nontransferable subscription
rights to purchase in the aggregate up to 10% of the common stock sold in the
offering (although we anticipate our employee stock ownership plan will purchase
8% of the common stock sold in the offering).

      PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent that
there are sufficient shares remaining after satisfaction of subscriptions by
Eligible Account Holders and our tax-qualified employee stock benefit plans,
each Sound Federal Savings depositor with a Qualifying Deposit on September 30,
2002 who is not an Eligible Account Holder ("Supplemental Eligible Account
Holder") will receive, without payment therefor, nontransferable subscription
rights to purchase up to 50,000 shares of common stock, subject to the overall
purchase limitations. See "--Limitations on Common Stock Purchases." If there
are not sufficient shares available to satisfy all subscriptions, shares will be
allocated so as to permit each subscribing Supplemental Eligible Account Holder
to purchase a number of shares sufficient to make his total allocation equal to
the lesser of 100 shares or the number of shares for which he subscribed.
Thereafter, unallocated shares will be allocated to each subscribing
Supplemental Eligible Account Holder whose subscription remains unfilled in the
proportion that the amount of his Qualifying Deposit bears to the total amount
of Qualifying Deposits of all subscribing Supplemental Eligible Account Holders
whose subscriptions remain unfilled.

      To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his stock order form all deposit accounts in which he has an
ownership interest at September 30, 2002. Failure to list an account could
result in less shares being allocated than if all accounts had been disclosed.

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      PRIORITY 4: OTHER MEMBERS. To the extent that there are shares remaining
after satisfaction of subscriptions by Eligible Account Holders, our
tax-qualified employee stock benefit plans, and Supplemental Eligible Account
Holders, each member of Sound Federal, MHC (depositor of Sound Federal Savings
or borrower of Sound Federal Savings as of October 8, 1998 whose borrowings
remain outstanding as of _________, 2002) on the voting record date of October
_________, 2002 who is not an Eligible Account Holder or Supplemental Eligible
Account Holder ("Other Members") will receive, without payment therefor,
nontransferable subscription rights to purchase up to 50,000 shares of common
stock, subject to the overall purchase limitations. See "--Limitations on Common
Stock Purchases." If there are not sufficient shares available to satisfy all
subscriptions, available shares will be allocated on a pro rata basis based on
the size of the order of each Other Member.

      EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING.

      The Subscription Offering will expire at 12:00 noon, New York Time, on
December ____, 2002, unless extended by us for up to 45 days or such additional
periods with the approval of the Office of Thrift Supervision, if necessary. We
may decide to extend the subscription offering and/or the community offering for
any reason, whether or not subscriptions have been received for shares at the
minimum, midpoint or maximum of the offering range. Subscription rights which
have not been exercised prior to the expiration date will become void.

      We will not execute orders until at least the minimum number of shares of
common stock have been subscribed for or otherwise sold. If at least 5,000,890
shares have not been subscribed for or sold within 45 days after the expiration
date, unless the period is extended with the consent of the Office of Thrift
Supervision, all funds delivered to us pursuant to the offering will be returned
promptly to the subscribers with interest and all withdrawal authorizations will
be cancelled. If an extension beyond the 45-day period following the expiration
date is granted, we will notify subscribers of the extension of time and of the
rights of subscribers to modify or rescind their subscriptions. Extensions may
not go beyond December __, 2004 which is two years after the special meeting of
members of Sound Federal, MHC to approve the conversion.

COMMUNITY OFFERING

      To the extent that shares remain available for purchase after satisfaction
of all subscriptions of the Eligible Account Holders, our tax-qualified employee
stock benefit plans, Supplemental Eligible Account Holders and Other Members, we
may offer shares pursuant to the plan of conversion to members of the general
public in a community offering. Shares may be offered with the following
preferences:

      (1)   First, to public stockholders of Sound Federal Bancorp common stock
            as of October _________, 2002; and

      (2)   Second, to natural persons residing in the New York Counties of
            Westchester, Rockland and Putnam and the Connecticut County of
            Fairfield.

      Subscribers in the community offering may purchase up to 50,000 shares of
common stock, subject to the overall purchase limitations. See "--Limitations on
Common Stock Purchases." The minimum purchase is 25 shares. THE OPPORTUNITY TO
PURCHASE SHARES OF COMMON STOCK IN THE COMMUNITY OFFERING CATEGORY IS SUBJECT TO
OUR RIGHT, IN OUR SOLE DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS IN WHOLE
OR IN PART EITHER AT THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE
FOLLOWING THE EXPIRATION DATE.

      If we do not have sufficient shares available to fill the orders of public
stockholders of Sound Federal Bancorp as of October _________, 2002, we will
allocate the remaining available shares among those persons in a manner that
permits each of them, to the extent possible, to purchase the lesser of 100
shares or the number of shares subscribed for by each such person. Thereafter,
unallocated shares will be allocated among public stockholders whose orders
remain unsatisfied based on the size of the unfilled order of each public
stockholder of Sound Federal Bancorp relative to the size of the aggregate
unfilled orders of other public stockholders. If oversubscription occurs due to
the orders of natural persons residing in the New York counties of Westchester,
Rockland and Putnam and the Connecticut County of Fairfield, the allocation
procedures described above will apply to the stock orders of such persons. If
oversubscription occurs due to the orders of members of the general public, the
allocation procedures described above will apply to the stock orders of such
persons.

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      The term "residing" or "resident" as used in this prospectus means any
person who occupies a dwelling within the New York counties of Westchester,
Rockland and Putnam and the Connecticut County of Fairfield, has a present
intent to remain within this community for a period of time, and manifests the
genuineness of that intent by establishing an ongoing physical presence within
the community, together with an indication that this presence within Sound
Federal Savings' community is something other than merely transitory in nature.
We may utilize deposit or loan records or other evidence provided to us to
decide whether a person is a resident. In all cases, however, the determination
shall be in our sole discretion.

      The community offering may begin with or during the subscription offering
and is expected to terminate at the same time as the subscription offering, and
must terminate no more than 45 days following the subscription offering. Sound
Federal Bancorp may decide to extend the community offering for any reason and
is not required to give purchasers notice of any such extension. If 5,000,890
shares have not been subscribed for or sold within 45 days after the expiration
date, unless this period is extended with the consent of the Office of Thrift
Supervision, all funds delivered to us will be returned promptly to the
purchasers with interest and all withdrawal authorizations will be cancelled. If
an extension beyond the 45-day period following the expiration date is granted,
we will notify purchasers of the extension of time and of the rights of
purchasers to modify or rescind their orders. These extensions may not go beyond
December __, 2004, which is two years after the special meeting of members of
Sound Federal, MHC to approve the conversion.

      We have the right to reject any order submitted in the offering by a
person who we believe is making false representations or who we otherwise
believe, either alone or acting in concert with others, is violating, evading,
circumventing, or intends to violate, evade or circumvent the terms and
conditions of the plan of conversion.

SYNDICATED COMMUNITY OFFERING

      If feasible, our Board of Directors may decide to offer for sale all
shares of common stock not subscribed for or purchased in the subscription and
community offerings in a syndicated community offering, subject to such terms,
conditions and procedures as we may determine, in a manner that will achieve the
widest distribution of the common stock. However, we retain the right to accept
or reject in whole or in part any orders in the syndicated community offering.
In the syndicated community offering, any person may purchase up to 50,000
shares of common stock, subject to the overall maximum purchase limitations.
Unless the syndicated community offering begins during the community offering,
the syndicated community offering will begin as soon as possible after the
completion of the subscription and community offerings.

      If for any reason we cannot effect a syndicated community offering of
shares not sold in the subscription and community offerings, or in the event
that there is an insignificant number of unsold shares remaining after the
subscription and community offerings or in the syndicated community offering, we
will try to make other arrangements for the sale of unsubscribed shares, if
possible. The Office of Thrift Supervision must approve any such arrangements.

LIMITATIONS ON COMMON STOCK PURCHASES

      The plan of conversion includes the following limitations on the number of
shares of common stock that may be purchased during the conversion:

      (1)   No person may purchase fewer than 25 shares of common stock or more
            than 50,000 shares;

      (2)   Our tax-qualified employee stock benefit plans, including our
            employee stock ownership plan, may purchase in the aggregate up to
            10% of the shares issued in the offering, including shares issued in
            the event of an increase in the offering range of up to 15%. We
            expect our employee stock ownership plan to subscribe for 8% of the
            shares sold in the offering;

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      (3)   Except for the employee stock ownership plan, as described above, no
            person or entity, together with associates or persons acting in
            concert with such person or entity, may purchase more than 50,000
            shares in all categories of the offering combined;

      (4)   Current stockholders of Sound Federal Bancorp are subject to an
            ownership limitation. As previously described, current stockholders
            of Sound Federal Bancorp will receive new shares of Sound Federal
            Bancorp common stock in exchange for their existing shares of Sound
            Federal Bancorp common stock. The number of shares that a
            stockholder may purchase in the offering, together with associates
            or persons acting in concert with such stockholder, when combined
            with the shares that the stockholder and his associates will receive
            in exchange for existing Sound Federal Bancorp common stock, may not
            exceed 2% of the shares issued in the conversion, or 230,000 shares
            at the maximum of the offering range; and

      (5)   The maximum number of shares of common stock that may be purchased
            in all categories of the offering by officers and directors of Sound
            Federal Savings and their associates, in the aggregate, when
            combined with new shares of common stock issued in exchange for
            existing shares, may not exceed 25% of the shares issued in the
            conversion.

      Depending upon market or financial conditions, our Board of Directors,
with the approval of the Office of Thrift Supervision and without further
approval of members of Sound Federal, MHC, may decrease or increase the purchase
and ownership limitations. If a purchase limitation is increased, subscribers in
the subscription offering who ordered the maximum amount will be, and some other
large subscribers who through their subscriptions evidence a desire to purchase
the maximum allowable number of shares, in our sole discretion, may be given the
opportunity to increase their subscriptions up to the then applicable limit. The
effect of this type of resolicitation will be an increase in the number of
shares owned by subscribers who choose to increase their subscriptions. Our
Board of Directors may, in its sole discretion, increase the maximum purchase
limitations up to 9.99% of the shares issued in the conversion, provided that
orders for shares exceeding 5% of the shares being issued shall not exceed, in
the aggregate, 10% of the total issued.

      In the event of an increase in the total number of shares offered in the
offering, due to an increase in the offering range of up to 15%, shares will be
allocated in the following order of priority in accordance with the plan of
conversion:

      (1)   to fill the employee stock ownership plan's subscription for 8% of
            the total number of shares sold;

      (2)   in the event that there is an oversubscription at the Eligible
            Account Holder, Supplemental Eligible Account Holder or Other Member
            levels, to fill unfulfilled subscriptions of these subscribers
            according to their respective priorities; and

      (3)   to fill unfulfilled subscriptions in the community offering, with
            preference given first to Sound Federal Bancorp public stockholders
            as of October ___, 2002, and then to natural persons residing in the
            New York Counties of Westchester, Rockland and Putnam and the
            Connecticut County of Fairfield.

      The term "associate" of a person means:

      (1)   any corporation or organization, other than Sound Federal Bancorp,
            Sound Federal Savings or a majority-owned subsidiary of Sound
            Federal Savings, of which the person is an officer, partner or 10%
            stockholder;(1)

      (2)   any trust or other estate in which the person has a substantial
            beneficial interest or serves as a director or in a similar
            fiduciary capacity; provided, however, it does not include any
            employee stock benefit plan in which the person has a substantial
            beneficial interest or serves as director or in a similar fiduciary
            capacity; and

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      (3)   any relative or spouse of the person, or any relative of the spouse,
            who either has the same home as the person or who is a director or
            officer of Sound Federal Bancorp or Sound Federal Savings.

      The term "acting in concert" means:

      (1)   knowing participation in a joint activity or interdependent
            conscious parallel action towards a common goal whether or not
            pursuant to an express agreement; or

      (2)   a combination or pooling of voting or other interests in the
            securities of an issuer for a common purpose pursuant to any
            contract, understanding, relationship, agreement or other
            arrangement, whether written or otherwise.

      A person or company which acts in concert with another person or company
("other party") shall also be deemed to be acting in concert with any person or
company who is also acting in concert with that other party, except that any
tax-qualified employee stock benefit plan will not be deemed to be acting in
concert with its trustee or a person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the plan will be aggregated.

      Our directors are not treated as associates of each other solely because
of their membership on our Board of Directors. We have the right to determine
whether prospective purchasers are associates or acting in concert. For a
further discussion of limitations on purchases of our stock at the time of
conversion and thereafter, see "Certain Restrictions on Purchase or Transfer of
Our Shares after Conversion" and "Restrictions on Acquisition of Sound Federal
Bancorp."

PLAN OF DISTRIBUTION; SELLING AGENT COMPENSATION

      Offering materials have been distributed by mail to those with
subscription rights at the last known address on our records as of the
eligibility dates of the offering. Subscription rights expire whether or not
eligible subscribers can be located.

      To assist in the marketing of the common stock, we have retained Keefe,
Bruyette & Woods, Inc., which is a broker/dealer registered with the National
Association of Securities Dealers, Inc. Keefe, Bruyette & Woods, Inc. will
assist us in the offering by:

      (1)   providing its employees to assist in staffing the Stock Information
            Center to assist our customers and internal stock purchasers and to
            assist in records management for orders of shares of common stock;

      (2)   targeting our sales efforts, including assisting in the preparation
            of marketing materials;

      (3)   soliciting orders for common stock; and

      (4)   assisting in soliciting proxies of our members and current
            stockholders.

      For these services, Keefe, Bruyette & Woods, Inc., will receive a
management fee of $50,000 and a marketing fee equal to 1.35% of the dollar
amount of common stock sold in the subscription and community offerings other
than shares purchased by officers, directors and employees or their immediate
families and any common stock purchased by our tax-qualified and non-qualified
employee benefit plans, for which no fee need be paid. The marketing fee will be
reduced by the $50,000 management fee, assuming the offering is completed
successfully. In the event that Keefe, Bruyette & Woods, Inc. sells common stock
through a group of broker-dealers in a syndicated community offering, it will be
paid a fee not to exceed 5.5% of the dollar amount of total shares sold in the
syndicated community offering. From this fee, Keefe, Bruyette & Woods, Inc. will
pass on to selected broker-dealers who assist in the syndicated community
offering an amount competitive with gross underwriting discounts charged at such
time for comparable amounts of stock sold at a comparable price per share in a
similar marketing environment. Keefe, Bruyette & Woods, Inc. will also be
reimbursed for allocable expenses in an amount not to exceed $15,000, and for
attorney's fees and expenses in an amount not to exceed $35,000.

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      We have made an advance payment to Keefe, Bruyette & Woods, Inc. in the
amount of $12,500. We will indemnify Keefe, Bruyette & Woods, Inc. against
liabilities and expenses, including legal fees, incurred in connection with
certain claims or litigation arising out of or based upon untrue statements or
omissions contained in the offering materials for the common stock, including
liabilities under the Securities Act of 1933.

      Some of our directors and executive officers may participate in the
solicitation of offers to purchase common stock. These persons will be
reimbursed for their reasonable out-of-pocket expenses incurred in connection
with the solicitation. Other regular, full-time employees of Sound Federal
Savings may assist in the offering, but only in ministerial capacities, and may
provide clerical work in effecting a sales transaction. No offers or sales may
be made by tellers or at the teller counters. All sales activity will be
conducted in a segregated or separately identifiable area of Sound Federal
Savings' main offices apart from the area accessible to the general public.
Other questions of prospective purchasers will be directed to executive officers
or registered representatives of Keefe, Bruyette & Woods, Inc. Our other
employees have been instructed not to solicit offers to purchase common stock or
provide advice regarding the purchase of common stock. We will rely on Rule
3a4-1 under the Securities Exchange Act of 1934, and sales of common stock will
be conducted within the requirements of Rule 3a4-1, so as to permit officers,
directors and employees to participate in the sale of common stock. None of our
officers, directors or employees will be compensated in connection with their
participation in the offering.

PROCEDURE FOR PURCHASING SHARES

      EXPIRATION DATE. The offering will terminate at 12:00 noon, New York Time,
on December ____, 2002, unless we extend it, with the approval of the Office of
Thrift Supervision, if required. This extension may be approved by us, in our
sole discretion, without further approval or additional notice to purchasers in
the offering. Any extension of the offering beyond 45 days after the expiration
date of the offering would require the Office of Thrift Supervision's approval,
and potential purchasers would be given the right to increase, decrease or
rescind their orders for common stock. If we have not sold the minimum number of
shares offered in the offering by the expiration date or any extension thereof,
we may terminate the offering and promptly refund all orders for common stock.
If the number of shares offered is reduced below the minimum of the offering
range, or increased above the adjusted maximum of the offering range, purchasers
will be given an opportunity to increase, decrease or rescind their orders.

      To ensure that each purchaser receives a prospectus at least 48 hours
before the expiration date of the offering in accordance with Rule 15c2-8 of the
Securities Exchange Act of 1934, no prospectus will be mailed any later than
five days prior to this date or hand delivered any later than two days prior to
this date. Execution of an order form will confirm receipt of delivery in
accordance with Rule 15c2-8. Order forms will be distributed only with a
prospectus. Subscription funds will be maintained in a special escrow account at
Sound Federal Savings.

      We reserve the right in our sole discretion to terminate the offering at
any time and for any reason, in which case we will cancel any withdrawal orders
and return all funds submitted, plus interest at Sound Federal Savings' current
passbook savings rate from the date of receipt.

      USE OF ORDER FORMS. In order to purchase shares of the common stock in the
subscription offering and community offering, you must complete an order form
and remit payment. Incomplete order forms or order forms that are not signed are
not required to be accepted. We will not be required to accept orders submitted
on photocopied or facsimiled stock order forms. All order forms must be received
prior to 12:00 noon, New York Time on December ____, 2002. We are not required
to accept order forms that are not received by that time, are executed
defectively or are received without full payment or without appropriate
withdrawal instructions. We are not required to notify subscribers of incomplete
or improperly executed order forms, and we have the right to waive or permit the
correction of incomplete or improperly executed order forms. We do not
represent, however, that we will do so and we have no affirmative duty to notify
any prospective subscriber of any such defects. You may submit your order form
and payment by mail using the return envelope provided, by bringing your order
form to our stock information center, or by overnight delivery to the indicated
address on the back of the order form. Order forms may be delivered in person to
Sound Federal Savings branches. Once tendered, an order form cannot be modified
or revoked without our consent. We reserve the absolute right, in our sole
discretion, to reject orders received in the community offering, in whole or in
part, at the time of receipt or at any time prior to completion of the offering.
If you are

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ordering shares, you must represent that you are purchasing shares for your own
account and that you have no agreement or understanding with any person for the
sale or transfer of the shares. Our interpretation of the terms and conditions
of the plan of conversion and of the acceptability of the order forms will be
final.

      By signing the order form, you will be acknowledging that the common stock
is not a deposit or savings account that is federally insured or otherwise
guaranteed by Sound Federal Savings or the Federal Government, and that you
received a copy of this prospectus. However, signing the order form will not
result in you waiving your rights under the Securities Act of 1933 or the
Securities Exchange Act of 1934.

      PAYMENT FOR SHARES. Payment for all shares will be required to accompany
all completed order forms for the purchase to be valid. Payment for shares may
be made by:

      (1)   personal check, bank check or bank draft, made payable to Sound
            Federal Bancorp; or

      (2)   authorization of withdrawal from Sound Federal Savings deposit
            accounts (except checking accounts) designated on the stock order
            form.

      Appropriate means for designating withdrawals from deposit accounts at
Sound Federal Savings are provided in the order forms. The funds designated must
be available in the account(s) at the time the order form is received. A hold
will be placed on these funds, making them unavailable to the depositor. Funds
authorized for withdrawal will continue to earn interest within the account at
the contract rate until the offering is completed, at which time the designated
withdrawal will be made. Interest penalties for early withdrawal applicable to
certificate accounts will not apply to withdrawals authorized for the purchase
of shares of common stock; however, if a withdrawal results in a certificate
account with a balance less than the applicable minimum balance requirement, the
certificate will be cancelled at the time of withdrawal without penalty and the
remaining balance will earn interest at the current passbook rate subsequent to
the withdrawal. In the case of payments made by check or money order, these
funds must be available in the account(s) and will be immediately cashed and
placed in a segregated escrow account at Sound Federal Savings and interest will
be paid at the current passbook savings rate from the date payment is received
until the offering is completed or terminated. Once we receive your executed
order form, it may not be modified, amended or rescinded without our consent,
unless the offering is not completed by the expiration date, in which event
purchasers may be given the opportunity to increase, decrease or rescind their
orders for a specified period of time.

      If you are interested in using your individual retirement account funds to
purchase common stock, you must do so through a self-directed individual
retirement account. Sound Federal Savings, by law, cannot maintain self-directed
individual retirement accounts. Therefore, if you wish to use your funds that
are currently in a Sound Federal Savings individual retirement account, you may
not designate on the order form that you wish funds to be withdrawn from the
account for the purchase of common stock. The funds you wish to use for the
purchase of common stock will have to be transferred to a brokerage account.
There will be no early withdrawal or Internal Revenue Service interest penalties
for these transfers. Depositors interested in using funds in an individual
retirement account or any other retirement account to purchase common stock
should contact the stock information center as soon as possible, preferably at
least two weeks prior to the end of the offering period, because processing such
transactions takes additional time, and whether such funds can be used may
depend on limitations imposed by the institutions where such funds are currently
held. We cannot guarantee that you will be able to use such funds.

      Sound Federal Bancorp shall have the right, in its sole discretion, to
permit institutional investors to submit irrevocable orders together with the
legally binding commitment for payment and to thereafter pay for the shares of
common stock for which they subscribe in the community offering at any time
prior to 48 hours before the completion of the reorganization. This payment may
be made under wire transfer.

      If our employee stock ownership plan purchases shares in the offering, it
will not be required to pay for such shares until consummation of the offering,
provided there is a loan commitment from an unrelated financial institution or
Sound Federal Bancorp to lend to the employee stock ownership plan the necessary
amount to fund the purchase.

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      Regulations prohibit Sound Federal Savings from lending funds or extending
credit to any persons to purchase common stock in the offering.

      DELIVERY OF STOCK CERTIFICATES. Certificates representing common stock
issued in the offering and Sound Federal Savings checks representing any
applicable refund and/or interest paid on subscriptions made by check, money
order or bank draft will be mailed to the persons entitled thereto at the
certificate registration address noted on the order form, as soon as practicable
following consummation of the offering and receipt of all necessary regulatory
approvals. Any certificates returned as undeliverable will be held by the
transfer agent until claimed by persons legally entitled thereto or otherwise
disposed of in accordance with applicable law. UNTIL CERTIFICATES FOR THE COMMON
STOCK ARE AVAILABLE AND DELIVERED TO PURCHASERS, PURCHASERS MAY NOT BE ABLE TO
SELL THE SHARES OF STOCK WHICH THEY ORDERED, EVEN THOUGH THE COMMON STOCK WILL
HAVE BEGUN TRADING.

      OTHER RESTRICTIONS. Notwithstanding any other provision of the plan of
conversion, no person is entitled to purchase any common stock to the extent the
purchase would be illegal under any federal or state law or regulation,
including state "blue sky" registrations, or would violate regulations or
policies of the National Association of Securities Dealers, Inc., particularly
those regarding free riding and withholding. We may ask for an acceptable legal
opinion from any purchaser as to the legality of his or her purchase and we may
refuse to honor any purchase order if an opinion is not timely furnished.

RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES

      OFFICE OF THRIFT SUPERVISION CONVERSION REGULATIONS PROHIBIT ANY PERSON
WITH SUBSCRIPTION RIGHTS, INCLUDING THE ELIGIBLE ACCOUNT HOLDERS, SUPPLEMENTAL
ELIGIBLE ACCOUNT HOLDERS AND OTHER MEMBERS, FROM TRANSFERRING OR ENTERING INTO
ANY AGREEMENT OR UNDERSTANDING TO TRANSFER THE LEGAL OR BENEFICIAL OWNERSHIP OF
THE SUBSCRIPTION RIGHTS ISSUED UNDER THE PLAN OF CONVERSION OR THE SHARES OF
COMMON STOCK TO BE ISSUED UPON THEIR EXERCISE. THESE RIGHTS MAY BE EXERCISED
ONLY BY THE PERSON TO WHOM THEY ARE GRANTED AND ONLY FOR HIS OR HER ACCOUNT.
EACH PERSON EXERCISING SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY THAT HE
OR SHE IS PURCHASING SHARES SOLELY FOR HIS OR HER OWN ACCOUNT AND THAT HE OR SHE
HAS NO AGREEMENT OR UNDERSTANDING REGARDING THE SALE OR TRANSFER OF SUCH SHARES.
THE REGULATIONS ALSO PROHIBIT ANY PERSON FROM OFFERING OR MAKING AN ANNOUNCEMENT
OF AN OFFER OR INTENT TO MAKE AN OFFER TO PURCHASE SUBSCRIPTION RIGHTS OR SHARES
OF COMMON STOCK TO BE ISSUED UPON THEIR EXERCISE PRIOR TO COMPLETION OF THE
OFFERING.

      WE WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT WE
BECOME AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS, AND WE WILL NOT HONOR
ORDERS THAT WE BELIEVE INVOLVE THE TRANSFER OF SUBSCRIPTION RIGHTS.

STOCK INFORMATION CENTER

      If you have any questions regarding the offering, please call the stock
information center at (___) ___-____, between 8:30 a.m. and 3:00 p.m. Monday
through Wednesday and Friday and between 8:30 a.m. and 6:00 p.m. on Thursday,
New York Time.

LIQUIDATION RIGHTS

      In the unlikely event of a complete liquidation of Sound Federal Bancorp
prior to the conversion, all claims of creditors of Sound Federal Bancorp,
including those of depositors to the extent of their deposit balances, would be
paid first. Thereafter, if there were any assets of Sound Federal Bancorp
remaining, these assets would be distributed to stockholders, including Sound
Federal, MHC. In the unlikely event that Sound Federal, MHC and Sound Federal
Bancorp liquidated prior to the conversion, all claims of creditors would be
paid first. Then, if there were any assets of Sound Federal, MHC remaining,
members of Sound Federal, MHC would receive those remaining assets, pro rata,
based upon the deposit balances in their deposit account in Sound Federal
Savings immediately prior to liquidation. In the unlikely event that Sound
Federal Savings were to liquidate after the conversion, all claims of creditors,
including those of depositors, would be paid first, followed by distribution of
the "liquidation account" to certain depositors, with any assets remaining
thereafter distributed to Sound Federal Bancorp as the holder of Sound Federal
Savings capital stock. Pursuant to the rules and regulations of the Office of
Thrift Supervision, a post-conversion merger, consolidation, sale of bulk assets
or similar combination or transaction

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with another insured savings institution would not be considered a liquidation
and, in these types of transactions, the liquidation account would be assumed by
the surviving institution.

      The plan of conversion provides for the establishment, upon the completion
of the conversion, of a special "liquidation account" for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders (as those
terms are defined in the plan of conversion) in an amount equal to the greater
of:

      (1)   Sound Federal, MHC's ownership interest in the retained earnings of
            Sound Federal Bancorp as of the date of its latest balance sheet
            contained in this prospectus; or

      (2)   the retained earnings of Sound Federal Savings at the time that
            Sound Federal Savings reorganized into Sound Federal, MHC in 1998.

      The purpose of the liquidation account is to provide Eligible Account
Holders and Supplemental Eligible Account Holders who maintain their deposit
accounts with Sound Federal Savings after the conversion with an interest in the
unlikely event of the complete liquidation of Sound Federal Savings after the
conversion. Each Eligible Account Holder and Supplemental Eligible Account
Holder that continues to maintain his or her deposit account at Sound Federal
Savings, would be entitled, on a complete liquidation of Sound Federal Savings
after the conversion, to an interest in the liquidation account prior to any
payment to the stockholders of Sound Federal Bancorp. Each Eligible Account
Holder and Supplemental Eligible Account Holder would have an initial interest
in the liquidation account for each deposit account, including savings accounts,
transaction accounts such as negotiable order of withdrawal accounts, money
market deposit accounts, and certificates of deposit, with a balance of $50 or
more held in Sound Federal Savings on March 31, 2001 or September 30, 2002. Each
Eligible Account Holder and Supplemental Eligible Account Holder would have a
pro rata interest in the total liquidation account for each such deposit
account, based on the proportion that the balance of each such deposit account
on March 31, 2001 or September 30, 2002 bears to the balance of all deposit
accounts in Sound Federal Savings on such dates.

      If, however, on any December 31 annual closing date commencing after the
effective date of the conversion, the amount in any such deposit account is less
than the amount in the deposit account on March 31, 2001 or September 30, 2002
or any other annual closing date, then the interest in the liquidation account
relating to such deposit account would be reduced from time to time by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is closed. In addition, no interest in the liquidation account
would ever be increased despite any subsequent increase in the related deposit
account. Payment pursuant to liquidation rights of Eligible Account Holders and
Supplemental Eligible Account Holders would be separate and apart from the
payment of any insured deposit accounts to such depositor. Any assets remaining
after the above liquidation rights of Eligible Account Holders and Supplemental
Eligible Account Holders are satisfied would be distributed to Sound Federal
Bancorp as the sole stockholder of Sound Federal Savings.

TAX ASPECTS

      Consummation of the conversion is expressly conditioned upon the prior
receipt of an opinion of counsel or tax advisor with respect to federal and
state income taxation that indicates that the conversion will not be a taxable
transaction to Sound Federal, MHC, Sound Federal Bancorp, Sound Federal Savings,
Eligible Account Holders, Supplemental Eligible Account Holders, and other
members of Sound Federal, MHC. Unlike private letter rulings, opinions of
counsel or tax advisors are not binding on the Internal Revenue Service or any
state taxing authority, and such authorities may disagree with such opinions. In
the event of such disagreement, there can be no assurance that Sound Federal
Bancorp or Sound Federal Savings would prevail in a judicial proceeding.

      Sound Federal, MHC and Sound Federal Bancorp have received an opinion of
counsel, Luse Gorman Pomerenk & Schick, P.C., regarding all of the material
federal income tax consequences of the conversion which includes the following:

      1.    The conversion of Sound Federal Bancorp to a federally chartered
            interim stock savings bank will qualify as a tax-free reorganization
            within the meaning of Section 368(a)(1)(F) of the Code and the

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            merger of Sound Federal Bancorp with and into Sound Federal Savings
            qualifies as a tax-free reorganization within the meaning of Section
            368(a)(1)(A) of the Code.

      2.    None of Sound Federal Bancorp, Sound Federal Savings, nor the
            shareholders of Sound Federal Bancorp will recognize any gain or
            loss upon the transfer of assets and liabilities of Sound Federal
            Bancorp to Sound Federal Savings in exchange for shares of common
            stock of Sound Federal Savings which will be constructively
            distributed to Sound Federal Bancorp's shareholders.

      3.    The basis of the assets of Sound Federal Bancorp and the holding
            period of such assets to be received by Sound Federal Savings will
            be the same as the basis and holding period in such assets in the
            hands of Sound Federal Bancorp immediately before the exchange.

      4.    The conversion of Sound Federal, MHC, to a federally chartered
            interim stock savings bank will qualify as a tax-free reorganization
            within the meaning of Section 368(a)(1)(F) of the Code and the
            merger of Sound Federal, MHC with and into Sound Federal Savings
            qualifies as a tax-free reorganization within the meaning of Section
            368(a)(1)(A) of the Code.

      5.    The exchange of Eligible Account Holders' and Supplemental Account
            Holders' interests in Sound Federal, MHC for interests in a
            liquidation account established in Sound Federal Savings will
            satisfy the continuity of interest requirement of Section 1.368-1(b)
            of the Federal Income Tax Regulations.

      6.    None of Sound Federal, MHC, Sound Federal Savings nor eligible
            account holders, supplemental eligible account holders or other
            members will recognize any gain or loss on the transfer of the
            assets and liabilities of Sound Federal, MHC to Sound Federal
            Savings in exchange for an interest in a liquidation account
            established in Sound Federal Savings that is constructively
            distributed to eligible account holders and supplemental eligible
            account holders who remain depositors of Sound Federal Savings.

      7.    Current stockholders of Sound Federal Bancorp will not recognize any
            gain or loss upon their constructive exchange of Sound Federal
            Bancorp common stock for shares of Sound Federal Savings which will
            in turn be exchanged for new shares of Sound Federal Bancorp common
            stock.

      8.    Each stockholder's aggregate basis in new shares of Sound Federal
            Bancorp common stock (including fractional share interests) received
            in the conversion will be the same as the aggregate basis of Sound
            Federal Bancorp common stock surrendered in exchange therefor.

      9.    Each stockholder's holding period in his or her Sound Federal
            Bancorp common stock received in the exchange will include the
            period during which Sound Federal Bancorp common stock surrendered
            was held, provided that the Sound Federal Bancorp common stock
            surrendered is a capital asset in the hands of the stockholder on
            the date of the exchange.

      10.   Cash received by any current stockholder of Sound Federal Bancorp in
            lieu of a fractional share interest in new shares of Sound Federal
            Bancorp common stock will be treated as having been received as a
            distribution in full payment in exchange for a fractional share
            interest of new Sound Federal Bancorp common stock, which such
            stockholder would otherwise be entitled to receive. Accordingly, a
            shareholder will recognize gain or loss equal to the difference
            between the cash received and the basis of the fractional share. If
            the common stock is held by the shareholder as a capital asset, the
            gain or loss will be capital gain or loss.

      11.   It is more likely than not that the fair market value of the
            nontransferable subscription rights to purchase common stock is
            zero. Accordingly, no gain or loss will be recognized by eligible
            account holders, supplemental eligible account holders or other
            members upon distribution to them of nontransferable subscription
            rights to purchase shares of Sound Federal Bancorp common stock and

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            such persons will not realize any taxable income as a result of the
            exercise by them of the nontransferable subscription rights.

      12.   It is more likely than not that the basis of the Sound Federal
            Bancorp common stock purchased in the offering will be its purchase
            price. The holding period of the Sound Federal Bancorp common stock
            purchased pursuant to the exercise of nontransferable subscription
            rights will commence on the date on which the right to acquire such
            stock was exercised.

      13.   No gain or loss will be recognized by Sound Federal Bancorp on the
            receipt of money in exchange for Sound Federal Bancorp common stock
            sold in the offering.

      The tax opinions as to 11 and 12 above are based on the position that
nontransferable subscription rights to be received by eligible account holders
and supplemental eligible account holders do not have any economic value at the
time of distribution or the time the subscription rights are exercised. In this
regard, Luse Gorman Pomerenk & Schick, P.C. noted that the subscription rights
will be granted at no cost to the recipients, will be legally non-transferable
and of short duration, and will provide the recipient with the right only to
purchase shares of common stock at the same price to be paid by members of the
general public in any community offering. The firm also noted that the Internal
Revenue Service has not in the past concluded that the subscription rights have
value. Based on the foregoing, Luse Gorman Pomerenk & Schick, P.C. believes that
it is more likely than not that the nontransferable subscription rights to
purchase common stock have no value. However, the issue of whether or not the
subscription rights have value is based on all the facts and circumstances. If
the nontransferable subscription rights granted to eligible subscribers are
subsequently found to have an ascertainable value greater than zero, income may
be recognized by various recipients of the nontransferable subscription rights
(in certain cases, whether or not the rights are exercised) and we could
recognize gain on the distribution of the nontransferable subscription rights.
Eligible account holders and supplemental eligible account holders are
encouraged to consult with their own tax advisors as to the tax consequences in
the event that subscription rights are deemed to have an ascertainable value.
Unlike private rulings, an opinion of Luse Gorman Pomerenk & Schick, P.C., is
not binding on the Internal Revenue Service and the Internal Revenue Service
could disagree with the conclusions reached therein.

      The federal tax opinion has been filed with the Securities and Exchange
Commission as an exhibit to Sound Federal Bancorp's registration statement. An
opinion regarding the New York state income tax consequences consistent with the
federal tax opinion has been issued by KPMG LLP, tax advisors to Sound Federal,
MHC and Sound Federal Bancorp.

CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF OUR SHARES AFTER CONVERSION

      All shares purchased in the offering by a director or an executive officer
of Sound Federal Savings generally may not be sold for a period of one year
following the conversion, except in the event of the death of the director or
executive officer. Each certificate for restricted shares will bear a legend
giving notice of this restriction on transfer, and instructions will be issued
to the effect that any transfer within this time period of any certificate or
record ownership of the shares other than as provided above is a violation of
the restriction. Any shares of common stock issued at a later date as a stock
dividend, stock split, or otherwise, with respect to the restricted stock will
be similarly restricted. The directors and executive officers of Sound Federal
Savings also will be restricted by the insider trading rules promulgated
pursuant to the Securities Exchange Act of 1934.

      Purchases of shares of our common stock by any of our directors, executive
officers and their associates, during the three-year period following the
conversion may be made only through a broker or dealer registered with the
Securities and Exchange Commission, except with the prior written approval of
the Office of Thrift Supervision. This restriction does not apply, however, to
negotiated transactions involving more than 1% of our outstanding common stock
or to purchases of our common stock by our stock option plan or any of our
tax-qualified employee stock benefit plans or nontax-qualified employee stock
benefit plans, including any recognition and retention plans or restricted stock
plans.

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      Office of Thrift Supervision regulations prohibit Sound Federal Bancorp
from repurchasing its common stock during the first year following conversion
unless compelling business reasons exist for such repurchases. After one year,
the Office of Thrift Supervision does not impose any repurchase restrictions.

                       COMPARISON OF STOCKHOLDERS' RIGHTS

      GENERAL. As a result of the conversion, our existing Sound Federal Bancorp
stockholders will become stockholders of Sound Federal Bancorp, a Delaware
corporation. There are certain differences in stockholder rights arising from
distinctions between Sound Federal Bancorp's federal stock charter and bylaws
and Sound Federal Bancorp's Delaware certificate of incorporation and bylaws,
and from distinctions between laws applicable to Delaware and federally
chartered corporations.

      This discussion is not intended to be a complete statement of the
differences affecting the rights of stockholders, but rather summarizes the
material differences and similarities affecting the rights of stockholders. This
discussion is qualified in its entirety by reference to the certificate of
incorporation and bylaws of Sound Federal Bancorp and the Delaware General
Corporation Law. See "Additional Information" for procedures for obtaining a
copy of Sound Federal Bancorp's certificate of incorporation and bylaws.

      AUTHORIZED CAPITAL STOCK. Our authorized capital stock currently consists
of 20,000,000 shares of common stock, par value $0.10 per share, and 10,000,000
shares of preferred stock. After the conversion, our authorized capital stock as
a Delaware corporation will consist of 24,000,000 shares of common stock, $0.01
par value per share, and 1,000,000 shares of preferred stock, par value $0.01
per share. We authorized more capital stock than that which will be issued in
the conversion in order to provide our Board of Directors with flexibility to
effect, among other transactions, financings, acquisitions, stock dividends,
stock splits and stock option grants. However, these additional authorized
shares may also be used by our Board of Directors consistent with its fiduciary
duty to deter future attempts to gain control of Sound Federal Bancorp. Our
Board of Directors also has sole authority to determine the terms of any one or
more series of preferred stock, including voting rights, conversion rates and
liquidation preferences. As a result of the ability to fix voting rights for a
series of preferred stock, our Board has the power, to the extent consistent
with its fiduciary duty, to issue a series of preferred stock to persons
friendly to management in order to attempt to block a hostile tender offer,
merger or other transaction by which a third party seeks control, and thereby
assist management to retain its position. We currently have no plans for the
issuance of additional shares, other than the issuance of additional shares
through our stock benefit plans.

      ISSUANCE OF CAPITAL STOCK. Pursuant to applicable laws and regulations,
Sound Federal, MHC is required to own not less than a majority of the
outstanding Sound Federal Bancorp common stock. There will be no such
restriction applicable to Sound Federal Bancorp following consummation of the
conversion.

      Sound Federal Bancorp's Delaware certificate of incorporation does not
contain restrictions on the issuance of shares of capital stock to directors,
officers or controlling persons, whereas Sound Federal Bancorp's federal stock
charter restricts such issuances to general public offerings, or to directors
for qualifying shares, unless the share issuance or the plan under which they
would be issued has been approved by a majority of the total votes eligible to
be cast at a legal stockholders' meeting. Thus, stock related compensation
plans, such as stock option plans and recognition and retention plans, may be
adopted by Sound Federal Bancorp without stockholder approval and shares of
Sound Federal Bancorp capital stock may be issued directly to directors or
officers without stockholder approval. The bylaws of the National Association of
Securities Dealers, Inc., however, generally require corporations with
securities that are quoted on the Nasdaq National Market System to obtain
stockholder approval of most stock compensation plans for directors, officers
and key employees of the corporation. Moreover, although generally not required,
stockholder approval of stock-related compensation plans may be sought in
certain instances in order to qualify such plans for favorable federal income
tax and securities law treatment under current laws and regulations.

      VOTING RIGHTS. Neither Sound Federal Bancorp's federal stock charter or
bylaws nor Sound Federal Bancorp's Delaware certificate of incorporation or
bylaws provide for cumulative voting for the election of directors. For
additional information regarding voting rights, see "--Limitations on Voting
Rights of Greater-than-10% Stockholders" below.

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      PAYMENT OF DIVIDENDS. The ability of Sound Federal Bancorp to pay
dividends on its capital stock is restricted by Office of Thrift Supervision
regulations and by federal income tax considerations related to savings banks
such as Sound Federal Savings. See "Supervision and Regulation--Federal Banking
Regulation--Capital Distributions." Although Sound Federal Bancorp is not
subject to these restrictions as a Delaware corporation, such restrictions will
indirectly affect Sound Federal Bancorp because dividends from Sound Federal
Savings will be a primary source of funds of Sound Federal Bancorp for the
payment of dividends to stockholders of Sound Federal Bancorp.

      Certain restrictions generally imposed on Delaware corporations may also
have an impact on Sound Federal Bancorp's ability to pay dividends. Delaware law
generally provides that Sound Federal Bancorp is limited to paying dividends in
an amount equal to the excess of its net assets (total assets minus total
liabilities) over its statutory capital or, if no such excess exists, equal to
its net profits for the current year and/or the immediately preceding fiscal
year.

      BOARD OF DIRECTORS. Sound Federal Bancorp's federal stock charter and
bylaws and Sound Federal Bancorp's Delaware certificate of incorporation and
bylaws each require the Board of Directors to be divided into three classes and
that the members of each class shall be elected for a term of three years and
until their successors are elected and qualified, with one class being elected
annually.

      Under Sound Federal Bancorp's federal bylaws, any vacancies on the Board
of Directors of Sound Federal Bancorp may be filled by the affirmative vote of a
majority of the remaining directors although less than a quorum of the Board of
Directors. Persons elected by the directors of Sound Federal Bancorp to fill
vacancies may only serve until the next annual meeting of stockholders. Under
Sound Federal Bancorp's Delaware certificate of incorporation, any vacancy
occurring in the Board of Directors of Sound Federal Bancorp, including any
vacancy created by reason of an increase in the number of directors, may be
filled by the remaining directors, and any director so chosen shall hold office
for the remainder of the term to which the director has been elected and until
his or her successor is elected and qualified.

      Under Sound Federal Bancorp's federal bylaws, any director may be removed
for cause by the holders of a majority of the outstanding voting shares. Sound
Federal Bancorp's Delaware certificate of incorporation provides that any
director may be removed for cause by the holders of at least 80% of the
outstanding voting shares of Sound Federal Bancorp.

      LIMITATIONS ON LIABILITY. The federal stock charter and bylaws of Sound
Federal Bancorp do not limit the personal liability of directors.

      Sound Federal Bancorp's Delaware certificate of incorporation provides
that the directors of Sound Federal Bancorp will not be personally liable for
monetary damages to Sound Federal Bancorp for certain actions as directors,
except for actions or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law by the director, the authorization of
illegal distributions or receipt of an improper personal benefit from their
positions as directors. This provision might, in certain instances, discourage
or deter shareholders or management from bringing a lawsuit against directors
for a breach of their duties even though such an action, if successful, might
have benefited Sound Federal Bancorp.

      INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. Sound
Federal Bancorp's federal stock charter and bylaws do not contain any provision
relating to indemnification of directors and officers of Sound Federal Bancorp
Under current Office of Thrift Supervision regulations, however, Sound Federal
Bancorp shall indemnify its directors, officers and employees for any costs
incurred in connection with any litigation involving such person's activities as
a director, officer or employee if such person obtains a final judgment on the
merits in his or her favor. In addition, indemnification is permitted in the
case of a settlement, a final judgment against such person or final judgment
other than on the merits, if a majority of disinterested directors determines
that such person was acting in good faith within the scope of his or her
employment as he or she could reasonably have perceived it under the
circumstances and for a purpose he or she could reasonably have believed under
the circumstances was in the best interests of Sound Federal Bancorp or its
stockholders. Sound Federal Bancorp also is permitted to pay ongoing expenses
incurred by a director, officer or employee if a majority of disinterested
directors concludes that

                                      102
<PAGE>

such person may ultimately be entitled to indemnification. Before making any
indemnification payment, Sound Federal Bancorp is required to notify the Office
of Thrift Supervision of its intention and such payment cannot be made if the
Office of Thrift Supervision objects to such payment.

      The officers, directors, agents and employees of Sound Federal Bancorp are
indemnified with respect to certain actions pursuant to Sound Federal Bancorp's
Delaware certificate of incorporation, which complies with Delaware law
regarding indemnification. Delaware law allows Sound Federal Bancorp to
indemnify the aforementioned persons for expenses, liabilities, settlements,
judgments and fines in suits in which such person has been made a party by
reason of the fact that he or she is or was a director or officer of Sound
Federal Bancorp. No such indemnification may be given if the acts or omissions
of the person are adjudged to be in violation of law, if such person is liable
to the corporation for an unlawful distribution, or if such person personally
received a benefit to which he or she was not entitled. The right to
indemnification includes the right to be paid the expenses incurred in advance
of final disposition of a proceeding.

      SPECIAL MEETINGS OF STOCKHOLDERS. Sound Federal Bancorp's federal bylaws
provide that special meetings of Sound Federal Bancorp's stockholders may be
called by the Chairman, the President, a majority of the Board of Directors or
the holders of not less than one-tenth of the outstanding capital stock of Sound
Federal Bancorp entitled to vote at the meeting. Sound Federal Bancorp's
Delaware certificate of incorporation provides that special meetings of the
stockholders of Sound Federal Bancorp may be called only by a majority vote of
the total authorized directors.

      STOCKHOLDER NOMINATIONS AND PROPOSALS. Sound Federal Bancorp's federal
bylaws generally provide that stockholders may submit nominations for election
of directors at an annual meeting of stockholders and any new business to be
taken up at such a meeting by filing the proposal in writing with Sound Federal
Bancorp at least five days before the date of any such meeting.

      Sound Federal Bancorp's Delaware bylaws generally provide that any
stockholder desiring to make a nomination for the election of directors or a
proposal for new business at a meeting of stockholders must submit written
notice to Sound Federal Bancorp 90 days prior to the anniversary date of the
mailing of proxy materials by Sound Federal Bancorp in connection with the
immediately preceding annual meeting of stockholders. However, if the date of
the annual meeting is advanced more than 30 days prior to or delayed by more
than 30 days after the anniversary of the preceding year's annual meeting,
stockholders must submit such written notice no later than the tenth day
following the date on which notice of the meeting is mailed to stockholders or
such public disclosure was made. Failure to comply with these advance notice
requirements will preclude such nominations or new business from being
considered at the meeting. Management believes that it is in the best interests
of Sound Federal Bancorp and its stockholders to provide sufficient time to
enable management to disclose to stockholders information about a dissident
slate of nominations for directors. This advance notice requirement may also
give management time to solicit its own proxies in an attempt to defeat any
dissident slate of nominations, should management determine that doing so is in
the best interests of stockholders generally. Similarly, adequate advance notice
of stockholder proposals will give management time to study such proposals and
to determine whether to recommend to the stockholders that such proposals be
adopted. In certain instances, such provisions could make it more difficult to
oppose management's nominees or proposals, even if stockholders believe such
nominees or proposals are in their best interests.

      STOCKHOLDER ACTION WITHOUT A MEETING. The federal bylaws of Sound Federal
Bancorp provide that any action to be taken or which may be taken at any annual
or special meeting of stockholders may be taken if a consent in writing, setting
forth the actions so taken, is given by the holders of all outstanding shares
entitled to vote. Sound Federal Bancorp's Delaware certificate of incorporation
specifically denies the authority of stockholders to act without a meeting.

      STOCKHOLDER'S RIGHT TO EXAMINE BOOKS AND RECORDS. A federal regulation,
which is applicable to Sound Federal Bancorp, provides that stockholders may
inspect and copy specified books and records of a federally chartered savings
institution after proper written notice for a proper purpose. Delaware law
similarly provides that a stockholder may inspect books and records upon written
demand stating the purpose of the inspection, if such purpose is reasonably
related to such person's interest as a stockholder.

                                      103
<PAGE>

      LIMITATIONS ON VOTING RIGHTS OF GREATER-THAN-10% STOCKHOLDERS. Sound
Federal Bancorp's Delaware certificate of incorporation provides that no record
or beneficial owner, directly or indirectly, of more than 10% of the outstanding
shares of common stock will be permitted to vote any shares in excess of such
10% limit.

      MERGERS, CONSOLIDATIONS AND SALES OF ASSETS. A federal regulation requires
the approval of two-thirds of the Board of Directors of Sound Federal Bancorp
and the holders of two-thirds of the outstanding stock of Sound Federal Bancorp
entitled to vote thereon for mergers, consolidations and sales of all or
substantially all of Sound Federal Bancorp's assets. Such regulation permits
Sound Federal Bancorp to merge with another corporation without obtaining the
approval of its stockholders if:

      (1)   it does not involve an interim savings institution;

      (2)   Sound Federal Bancorp's federal stock charter is not changed;

      (3)   each share of Sound Federal Bancorp's stock outstanding immediately
            prior to the effective date of the transaction will be an identical
            outstanding share or a treasury share of Sound Federal Bancorp after
            such effective date; and

      (4)   either:

            (a)   no shares of voting stock of Sound Federal Bancorp and no
                  securities convertible into such stock are to be issued or
                  delivered under the plan of combination; or

            (b)   the authorized unissued shares or the treasury shares of
                  voting stock of Sound Federal Bancorp to be issued or
                  delivered under the plan of combination, plus those initially
                  issuable upon conversion of any securities to be issued or
                  delivered under such plan, do not exceed 15% of the total
                  shares of voting stock of Sound Federal Bancorp outstanding
                  immediately prior to the effective date of the transaction.

      Sound Federal Bancorp's Delaware certificate of incorporation requires the
approval of the holders of at least 80% of Sound Federal Bancorp's outstanding
shares of voting stock to approve certain "Business Combinations" involving an
"Interested Stockholder" except where (i) the proposed transaction has been
approved by two-thirds of the members of the Board of Directors who are
unaffiliated with the Interested Stockholder and who were directors prior to the
time when the Interested Stockholder became an Interested Stockholder, or (ii)
certain "fair price" provisions are complied with. The term "Interested
Stockholder" includes any individual, corporation, partnership or other entity,
other than Sound Federal Bancorp or its subsidiary, which owns beneficially or
controls, directly or indirectly, 10% or more of the outstanding shares of
voting stock of Sound Federal Bancorp or an affiliate of such person or entity.
This provision of the certificate of incorporation applies to any "Business
Combination," which is defined to include, among other things:

      (1)   any merger or consolidation of Sound Federal Bancorp with or into
            any Interested Stockholder;

      (2)   any sale, lease, exchange, mortgage, transfer, or other disposition
            of 25% or more of the assets of Sound Federal Bancorp and its
            subsidiaries to an Interested Stockholder;

      (3)   the issuance or transfer of any securities of Sound Federal Bancorp
            or a subsidiary of Sound Federal Bancorp to an Interested
            Stockholder having a value exceeding 25% of the combined fair market
            value of the outstanding securities of Sound Federal Bancorp;

      (4)   the adoption of any plan or proposal for the liquidation or
            dissolution of Sound Federal Bancorp proposed by or on behalf of an
            Interested Stockholder or any Affiliate of an Interested
            Stockholder; or

      (5)   any reclassification of securities, any recapitalization, or any
            merger with a subsidiary or other transaction that has the effect of
            increasing an Interested Stockholder's proportional share of any
            class of securities of Sound Federal Bancorp.

                                      104
<PAGE>

      Under Delaware law, absent this provision, business combinations,
including mergers, consolidations and sales of substantially all of the assets
of a corporation must, subject to certain exceptions, be approved by the vote of
the holders of a majority of the outstanding shares of common stock of Sound
Federal Bancorp and any other affected class of stock. One exception under
Delaware law to the majority approval requirement applies to stockholders owning
15% or more of the common stock of a corporation for a period of less than three
years. Such 15% stockholder, in order to obtain approval of a business
combination, must obtain the approval of two-thirds of the outstanding stock,
excluding the stock owned by such 15% stockholder, or satisfy other requirements
under Delaware law relating to board of director approval of his or her
acquisition of the shares of Sound Federal Bancorp The increased stockholder
vote required to approve a business combination may have the effect of
preventing mergers and other business combinations which a majority of
stockholders deem desirable and placing the power to prevent such a merger or
combination in the hands of a minority of stockholders.

      Sound Federal Bancorp's Delaware certificate of incorporation provides
that the Sound Federal Bancorp's Board of Directors may consider certain factors
in addition to the amount of consideration to be paid when evaluating certain
business combinations or a tender or exchange offer. These additional factors
include the social and economic effects of the transaction on its customers and
employees and the communities served by Sound Federal Bancorp.

      DISSENTERS' RIGHTS OF APPRAISAL. Office of Thrift Supervision regulations
generally provide that a stockholder of a federally chartered savings
institution that engages in a merger, consolidation or sale of all or
substantially all of its assets shall have the right to demand from such
institution payment of the fair or appraised value of his or her stock in the
institution, subject to specified procedural requirements. However, if the
federally chartered savings institution's stock is listed on a national
securities exchange or quoted on the Nasdaq Stock Market, stockholders are not
entitled to dissenters' rights in connection with a merger if the stockholders
are required to accept cash or shares of stock which will be listed on a
national securities exchange or quoted on the Nasdaq Stock Market, or any
combination thereof.

      Under Delaware law, except for cash merger transactions, shareholders of
Sound Federal Bancorp generally will not have dissenters' appraisal rights in
connection with a plan of merger or consolidation to which Sound Federal Bancorp
is a party because the common stock is expected to be listed on the Nasdaq
National Market.

      AMENDMENT OF GOVERNING INSTRUMENTS. No amendment of Sound Federal
Bancorp's federal stock charter may be made unless it is first proposed by the
Board of Directors of Sound Federal Bancorp, then preliminarily approved by the
Office of Thrift Supervision, and thereafter approved by the holders of a
majority of the total votes eligible to be cast at a legal meeting. Sound
Federal Bancorp's Delaware certificate of incorporation may be amended by the
vote of the holders of a majority of the outstanding shares of Sound Federal
Bancorp common stock, except that the provisions of the certificate of
incorporation governing the calling of meetings of stockholders and the
prohibition of action by written consent of stockholders, stockholder
nominations and proposals, limitations on voting rights of 10% stockholders, the
number and staggered terms of directors, vacancies on the Board of Directors and
removal of directors, approval of certain business combinations, indemnification
of officers and directors, and the manner of amending the certificate of
incorporation and bylaws, may not be repealed, altered, amended or rescinded
except by the vote of the holders of at least 80% of the outstanding shares of
Sound Federal Bancorp.

      The federal bylaws of Sound Federal Bancorp may be amended by a majority
vote of the full Board of Directors of Sound Federal Bancorp or by a majority
vote of the votes cast by the stockholders of Sound Federal Bancorp at any legal
meeting. Sound Federal Bancorp's Delaware bylaws may only be amended by a
majority vote of the Board of Directors of Sound Federal Bancorp or by the
holders of at least 80% of the outstanding stock of Sound Federal Bancorp.

      RESIDENCY REQUIREMENT FOR DIRECTORS. Sound Federal Bancorp's Delaware
bylaws provide that only persons who reside or work in a county in which Sound
Federal Savings maintains an office or in a county contiguous to a county in
which Sound Federal Savings maintains an office will be qualified to be
appointed or elected to the Board of Directors of Sound Federal Bancorp. Sound
Federal Bancorp's federal bylaws have no similar provision.

                                      105
<PAGE>

      PURPOSE AND ANTI-TAKEOVER EFFECTS OF SOUND FEDERAL BANCORP'S DELAWARE
CERTIFICATE OF INCORPORATION AND BYLAWS. Our Board of Directors believes that
the provisions described above are prudent and will reduce our vulnerability to
takeover attempts and certain other transactions that have not been negotiated
with and approved by our Board of Directors. These provisions will also assist
us in the orderly deployment of the conversion proceeds into productive assets
during the initial period after the conversion. Our Board of Directors believes
these provisions are in the best interests of Sound Federal Bancorp and its
stockholders. Our Board of Directors believes that it will be in the best
position to determine the true value of Sound Federal Bancorp and to negotiate
more effectively for what may be in the best interests of its stockholders.
Accordingly, our Board of Directors believes that it is in the best interests of
Sound Federal Bancorp and its stockholders to encourage potential acquirers to
negotiate directly with the Board of Directors of Sound Federal Bancorp and that
these provisions will encourage such negotiations and discourage hostile
takeover attempts. It is also the view of our Board of Directors that these
provisions should not discourage persons from proposing a merger or other
transaction at a price reflective of the true value of Sound Federal Bancorp and
that is in the best interests of all stockholders.

      Takeover attempts that have not been negotiated with and approved by our
Board of Directors present the risk of a takeover on terms that may be less
favorable than might otherwise be available. A transaction that is negotiated
and approved by our Board of Directors, on the other hand, can be carefully
planned and undertaken at an opportune time in order to obtain maximum value of
Sound Federal Bancorp for our stockholders, with due consideration given to
matters such as the management and business of the acquiring corporation and
maximum strategic development of Sound Federal Bancorp's assets.

      Although a tender offer or other takeover attempt may be made at a price
substantially above the current market price, such offers are sometimes made for
less than all of the outstanding shares of a target company. As a result,
stockholders may be presented with the alternative of partially liquidating
their investment at a time that may be disadvantageous, or retaining their
investment in an enterprise that is under different management and whose
objectives may not be similar to those of the remaining stockholders.

      Despite our belief as to the benefits to stockholders of these provisions
of Sound Federal Bancorp's Delaware certificate of incorporation and bylaws,
these provisions may also have the effect of discouraging a future takeover
attempt that would not be approved by our Board, but pursuant to which
stockholders may receive a substantial premium for their shares over then
current market prices. As a result, stockholders who might desire to participate
in such a transaction may not have any opportunity to do so. Such provisions
will also make it more difficult to remove our Board of Directors and
management. Our Board of Directors, however, has concluded that the potential
benefits outweigh the possible disadvantages.

      Following the conversion, pursuant to applicable law and, if required,
following the approval by stockholders, we may adopt additional anti-takeover
charter provisions or other devices regarding the acquisition of our equity
securities that would be permitted for a Delaware business corporation.

      The cumulative effect of the restriction on acquisition of Sound Federal
Bancorp contained in the Delaware certificate of incorporation and bylaws of
Sound Federal Bancorp and in Delaware law may be to discourage potential
takeover attempts and perpetuate incumbent management, even though certain
stockholders of Sound Federal Bancorp may deem a potential acquisition to be in
their best interests, or deem existing management not to be acting in their best
interests.

              RESTRICTIONS ON ACQUISITION OF SOUND FEDERAL BANCORP

      The following discussion is a summary of certain provisions of federal law
and regulations relating to stock ownership and transfers, the Board of
Directors and business combinations, all of which may be deemed to have
"anti-takeover" effects. The description of these provisions is necessarily
general and reference should be made to the actual law and regulations.

                                      106
<PAGE>

CONVERSION REGULATIONS

      Office of Thrift Supervision regulations prohibit any person from making
an offer, announcing an intent to make an offer or participating in any other
arrangement to purchase stock or acquiring stock or subscription rights in a
converting institution or its holding company from another person prior to
completion of its conversion. Further, without the prior written approval of the
Office of Thrift Supervision, no person may make such an offer or announcement
of an offer to purchase shares or actually acquire shares in the converting
institution or its holding company for a period of three years from the date of
the completion of the conversion if, upon the completion of such offer,
announcement or acquisition, that person would become the beneficial owner of
more than 10% of the outstanding stock of the institution or its holding
company. The Office of Thrift Supervision has defined "person" to include any
individual, group acting in concert, corporation, partnership, association,
joint stock company, trust, unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution. However, offers made
exclusively to an bank or its holding company, or an underwriter or member of a
selling group acting on the converting institution's or its holding company's
behalf for resale to the general public are excepted. The regulation also
provides civil penalties for willful violation or assistance in any such
violation of the regulation by any person connected with the management of the
converting institution or its holding company or who controls more than 10% of
the outstanding shares or voting rights of a converted institution or its
holding company.

CHANGE OF CONTROL REGULATIONS

      Under the Change in Bank Control Act, no person may acquire control of an
insured federal savings bank or its parent holding company unless the Office of
Thrift Supervision has been given 60 days' prior written notice and has not
issued a notice disapproving the proposed acquisition. In addition, Office of
Thrift Supervision regulations provide that no company may acquire control of a
savings bank without the prior approval of the Office of Thrift Supervision. Any
company that acquires such control becomes a "savings and loan holding company"
subject to registration, examination and regulation by the Office of Thrift
Supervision.

      Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings bank's
directors, or a determination by the Office of Thrift Supervision that the
acquiror has the power to direct, or directly or indirectly to exercise a
controlling influence over, the management or policies of the institution.
Acquisition of more than 10% of any class of a savings bank's voting stock, if
the acquiror is also subject to any one of eight "control factors," constitutes
a rebuttable determination of control under the regulations. Such control
factors include the acquiror being one of the two largest stockholders. The
determination of control may be rebutted by submission to the Office of Thrift
Supervision, prior to the acquisition of stock or the occurrence of any other
circumstances giving rise to such determination, of a statement setting forth
facts and circumstances which would support a finding that no control
relationship will exist and containing certain undertakings. The regulations
provide that persons or companies which acquire beneficial ownership exceeding
10% or more of any class of a savings bank's stock who do not intend to
participate in or seek to exercise control over a savings bank's management or
policies may qualify for a safe harbor by filing with the Office of Thrift
Supervision a certification form that states, among other things, that the
holder is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the Office of Thrift Supervision, as applicable. There are also
rebuttable presumptions in the regulations concerning whether a group "acting in
concert" exists, including presumed action in concert among members of an
"immediate family."

      The Office of Thrift Supervision may prohibit an acquisition of control if
it finds, among other things, that:

      (1)   the acquisition would result in a monopoly or substantially lessen
            competition;

      (2)   the financial condition of the acquiring person might jeopardize the
            financial stability of the institution; or

                                      107
<PAGE>

      (3)   the competence, experience or integrity of the acquiring person
            indicates that it would not be in the interest of the depositors or
            the public to permit the acquisition of control by such person.

              DESCRIPTION OF CAPITAL STOCK OF SOUND FEDERAL BANCORP
                            FOLLOWING THE CONVERSION

GENERAL

      At the effective date, Sound Federal Bancorp will be authorized to issue
24,000,000 shares of common stock having a par value of $0.01 per share and
1,000,000 shares of preferred stock. Sound Federal Bancorp currently expects to
issue in the offering up to 6,765,910 shares of common stock, subject to
adjustment, and up to 4,734,090 shares, subject to adjustment, in exchange for
the publicly held shares of Sound Federal Bancorp. Sound Federal Bancorp will
not issue shares of preferred stock in the conversion. Each share of Sound
Federal Bancorp common stock will have the same relative rights as, and will be
identical in all respects with, each other share of common stock. Upon payment
of the subscription price for the common stock, in accordance with the plan of
conversion, all of the common stock will be duly authorized, fully paid and
nonassessable.

      The common stock of Sound Federal Bancorp will represent nonwithdrawable
capital, will not be an account of an insurable type, and will not be insured by
the Federal Deposit Insurance Corporation or any other government agency.

COMMON STOCK

      DIVIDENDS. Sound Federal Bancorp may pay dividends out of statutory
surplus or from net earnings if, as and when declared by its Board of Directors.
The payment of dividends by Sound Federal Bancorp is subject to limitations that
are imposed by law and applicable regulation. The holders of common stock of
Sound Federal Bancorp will be entitled to receive and share equally in dividends
as may be declared by the Board of Directors of Sound Federal Bancorp out of
funds legally available therefor. If Sound Federal Bancorp issues preferred
stock, the holders thereof may have a priority over the holders of the common
stock with respect to dividends.

      VOTING RIGHTS. When the conversion is completed, the holders of common
stock of Sound Federal Bancorp will have exclusive voting rights in Sound
Federal Bancorp. They will elect Sound Federal Bancorp's Board of Directors and
act on other matters as are required to be presented to them under Delaware law
or as are otherwise presented to them by the Board of Directors. Generally, each
holder of common stock will be entitled to one vote per share and will not have
any right to cumulate votes in the election of directors. If Sound Federal
Bancorp issues preferred stock, holders of the preferred stock may also possess
voting rights. Certain matters require an 80% stockholder vote.

      As a federal stock savings bank, corporate powers and control of Sound
Federal Savings are vested in its Board of Directors, who elect the officers of
Sound Federal Savings and who fill any vacancies on the Board of Directors.
Voting rights of Sound Federal Savings are vested exclusively in the owners of
the shares of capital stock of Sound Federal Savings, which will be Sound
Federal Bancorp, and voted at the direction of Sound Federal Bancorp's Board of
Directors. Consequently, the holders of the common stock of Sound Federal
Bancorp will not have direct control of Sound Federal Savings.

      LIQUIDATION. In the event of any liquidation, dissolution or winding up of
Sound Federal Savings, Sound Federal Bancorp, as the holder of 100% of Sound
Federal Savings' capital stock, would be entitled to receive, after payment or
provision for payment of all debts and liabilities of Sound Federal Savings,
including all deposit accounts and accrued interest thereon, and after
distribution of the balance in the special liquidation account to Eligible
Account Holders and Supplemental Eligible Account Holders, all assets of Sound
Federal Savings available for distribution. In the event of liquidation,
dissolution or winding up of Sound Federal Bancorp, the holders of its common
stock would be entitled to receive, after payment or provision for payment of
all its debts and liabilities, all of the assets of Sound Federal Bancorp
available for distribution. If preferred stock is issued, the holders thereof
may have a priority over the holders of the common stock in the event of
liquidation or dissolution.

                                      108
<PAGE>

      PREEMPTIVE RIGHTS. Holders of the common stock of Sound Federal Bancorp
will not be entitled to preemptive rights with respect to any shares that may be
issued. The common stock is not subject to redemption.

PREFERRED STOCK

      None of the shares of Sound Federal Bancorp's authorized preferred stock
will be issued in the conversion. Preferred stock may be issued with preferences
and designations as our Board of Directors may from time to time determine. Our
Board of Directors may, without stockholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.

                                 TRANSFER AGENT

      The transfer agent and registrar for Sound Federal Bancorp common stock is
Registrar and Transfer Company, Cranford, New Jersey.

                                     EXPERTS

      The consolidated financial statements of Sound Federal Bancorp and
subsidiary as of March 31, 2002 and 2001, and for each of the years in the
three-year period ended March 31, 2002, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. The audit report covering the March 31, 2002
consolidated financial statements refers to a change in accounting for goodwill.

      FinPro, Inc. has consented to the publication herein of the summary of its
report to Sound Federal Bancorp setting forth its opinion as to the estimated
pro forma market value of the common stock upon completion of the stock offering
and its letter with respect to subscription rights.

                                  LEGAL MATTERS

      The legality of the common stock has been opined upon for Sound Federal
Bancorp by Luse Gorman Pomerenk & Schick, P.C., Washington, D.C., special
counsel to Sound Federal Bancorp. Certain legal matters will be passed upon for
Keefe, Bruyette & Woods, Inc. by Thacher Proffitt & Wood, Washington, D.C.

                             ADDITIONAL INFORMATION

      Sound Federal Bancorp has filed with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933 with
respect to the common stock offered hereby. As permitted by the rules and
regulations of the Securities and Exchange Commission, this prospectus does not
contain all the information set forth in the registration statement. Such
information, including the appraisal report which is an exhibit to the
registration statement, can be examined without charge at the public reference
facilities of the Securities and Exchange Commission located at 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of such material can be
obtained from the SEC at prescribed rates. The Securities and Exchange
Commission telephone number is 1-800-SEC-0330. In addition, the SEC maintains a
web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC, including Sound Federal Bancorp. The statements contained in this
prospectus as to the contents of any contract or other document filed as an
exhibit to the Registration Statement are, of necessity, brief descriptions of
the material terms of, and should be read in conjunction with, such contract or
document.

      Sound Federal, MHC has filed an Application on Form AC with respect to the
conversion. This prospectus omits certain information contained in the
Application. The Application may be examined at the principal office of the
Office of Thrift Supervision, 1700 G Street, N.W., Washington, D.C. 20552, and
at the Northeast Regional Office of the Office of Thrift Supervision, 10
Exchange Place, 18th Floor, Jersey City, New Jersey 07302.

                                      109
<PAGE>

      IN CONNECTION WITH THE STOCK OFFERING, SOUND FEDERAL BANCORP WILL REGISTER
ITS COMMON STOCK WITH THE SEC UNDER SECTION 12 OF THE SECURITIES EXCHANGE ACT OF
1934 AND, UPON SUCH REGISTRATION, SOUND FEDERAL BANCORP AND THE HOLDERS OF ITS
STOCK WILL BECOME SUBJECT TO THE PROXY SOLICITATION RULES, REPORTING
REQUIREMENTS AND RESTRICTIONS ON STOCK PURCHASES AND SALES BY DIRECTORS,
OFFICERS AND GREATER THAN 10% STOCKHOLDERS, THE ANNUAL AND PERIODIC REPORTING
AND CERTAIN OTHER REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934. UNDER THE
STOCK ISSUANCE PLAN, SOUND FEDERAL BANCORP HAS UNDERTAKEN THAT IT WILL NOT
TERMINATE SUCH REGISTRATION FOR A PERIOD OF AT LEAST THREE YEARS FOLLOWING THE
STOCK OFFERING.














                                      110

<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                  Page
                                                                                                  ----

<S>                                                                                               <C>
Independent Auditors' Report...................................................................   F-2

Consolidated Balance Sheets at March 31, 2002 and 2001 (audited) and at
    June 30, 2002 (unaudited)..................................................................   F-3

Consolidated Statements of Income for the Years Ended March 31, 2002, 2001 and
    2000 (audited) and for the three-month periods ended June 30,
    2002 and 2001 (unaudited)..................................................................   F-4

Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
    March 31, 2002, 2001 and 2000 (audited) and for the three-month
    period ended June 30, 2002 (unaudited).....................................................   F-5

Consolidated Statements of Cash Flows for the Years Ended March 31, 2002, 2001
    and 2000 (audited) and for the three-month periods ended June 30,
    2002 and 2001 (unaudited)..................................................................   F-6

Notes to Consolidated Financial Statements.....................................................   F-7
</TABLE>


All schedules are omitted because the required information is not applicable or
is included in the consolidated financial statements and related notes.



                                      F-1

<PAGE>





                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Sound Federal Bancorp:

We have audited the accompanying consolidated balance sheets of Sound Federal
Bancorp and subsidiary (the "Company") as of March 31, 2002 and 2001, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the years in the three-year period ended March 31, 2002.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sound Federal
Bancorp and subsidiary as of March 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS, as of April 1, 2001 and as a result ceased amortizing
goodwill.


                                          /s/ KPMG LLP


New York, New York
April 30, 2002, except for Note 1,
    which is as of June 13, 2002



                                      F-2
<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                        AT MARCH 31,
                                                                              AT JUNE 30,       -------------------------
                                                                                 2002               2002           2001
                                                                                 ----               ----           ----
                                                                              (UNAUDITED)
<S>                                                                          <C>                <C>            <C>
ASSETS
 Cash and due from banks................................................     $    6,651         $    6,931     $    5,849
 Federal funds sold and other overnight deposits........................         35,370             19,847         35,000
                                                                               --------            -------      ---------
         Total cash and cash equivalents................................         42,021             26,778         40,849
                                                                               --------            -------      ---------
 Securities:
     Available for sale, at fair value (including $35,995, $35,779 and
        $15,722 pledged as collateral for borrowings under repurchase
        agreements at the respective dates) (Notes 4 and 9).............        143,842            150,231        157,526
     Held to maturity, at amortized cost (fair value of $28,317 at
        March 31, 2001) (Note 5)........................................             --                 --         28,215
                                                                               --------            -------      ---------
          Total securities..............................................        143,842            150,231        185,741
                                                                               --------            -------      ---------
 Loans, net (Note 6):
     Mortgage loans.....................................................        437,283            419,120        293,954
     Consumer loans.....................................................          2,432              1,469          1,900
     Allowance for loan losses..........................................         (2,296)           (2,221)         (2,047)
                                                                               ---------           -------      ----------
          Total loans, net..............................................        437,419            418,368        293,807
                                                                               --------            -------      ---------

 Other interest-earning assets..........................................             --                 --          2,491
 Accrued interest receivable............................................          3,465              3,241          3,448
 Federal Home Loan Bank stock...........................................          4,141              4,141          3,745
 Premises and equipment, net (Note 7)...................................          5,489              5,459          5,850
 Deferred income taxes (Note 10)........................................            573                942            373
 Goodwill (Note 2)......................................................         13,970             13,970         13,970
 Other assets...........................................................            545                855          2,660
                                                                               --------            -------      ---------

           Total assets.................................................     $  651,465         $  623,985     $  552,934
                                                                               ========            =======      =========

LIABILITIES AND STOCKHOLDERS' EQUITY
  Liabilities:
      Deposits (Note 8).................................................     $  544,626         $  519,905     $  473,546
      Borrowings (Note 9)...............................................         34,967             34,922         14,698
      Mortgage escrow funds.............................................          4,402              5,021          4,486
      Accrued expenses and other liabilities............................          3,650              3,122          3,275
                                                                               --------            -------      ---------
          Total liabilities.............................................        587,645            562,970        496,005
                                                                               --------            -------      ---------
  Commitments and contingencies (Note 12)
  Stockholders' equity (Notes 1 and 13):
     Preferred stock ($0.10 par value; 10,000,000 shares
        authorized; none issued and outstanding)..................                   --                 --             --
     Common  stock  ($0.10  par  value;  20,000,000  shares  authorized;
        5,223,218,                                                                  522                522            521
        5,220,218 and 5,212,218 shares issued at the respective dates)..
     Additional paid-in capital.........................................         22,596             22,525         22,399
     Treasury  stock, at cost (444,926 shares at June 30, 2002 and March
        31, 2002,   and 399,926 shares at March 31, 2001)...............         (4,350)           (4,350)        (3,867)
     Common stock held by Employee  Stock  Ownership Plan ("ESOP") (Note         (1,057)           (1,105)        (1,297)
     11)................................................................
     Common stock awards under the Recognition and Retention
        Plan ("RRP") (Note 11) .........................................           (208)             (244)          (392)
     Retained earnings..................................................         44,589             42,566         37,313
     Accumulated other comprehensive income, net of taxes (Note 14).....          1,728              1,101          2,252
                                                                               --------            -------      ---------
          Total stockholders' equity....................................         63,820             61,015         56,929
                                                                               --------            -------      ---------
          Total liabilities and stockholders' equity....................     $  651,465         $  623,985     $  552,934
                                                                               ========            =======      =========
</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED JUNE 30,                YEARS ENDED MARCH 31,
                                                ------------------------------  ---------------------------------------------
                                                      2002           2001            2002             2001           2000
                                                      ----           ----            ----             ----           ----
                                                        (UNAUDITED)
<S>                                               <C>            <C>            <C>              <C>             <C>
   INTEREST AND DIVIDEND INCOME
   Loans....................................      $      7,614   $     5,813    $     25,560     $     19,837    $     12,427
   Mortgage-backed and other securities.....             2,040         3,147          10,838           11,337           5,796
    Federal funds sold and other overnight
      deposits..............................               105           307             777            1,577           1,472
   Other earning assets.....................                65            98             270              825             841
                                                   -----------    -----------    -----------      -----------     -----------
   Total interest and dividend income.......             9,824         9,365          37,445           33,576          20,536
                                                   -----------    -----------    -----------      -----------     -----------

   INTEREST EXPENSE
   Deposits (Note 8)........................             3,103         5,054          17,403           18,008           9,821
   Borrowings...............................               416           269           1,065              927               8
   Other interest-bearing liabilities.......                20            16              71               73              39
                                                   -----------    -----------    -----------      -----------     -----------
   Total interest expense...................             3,539         5,339          18,539           19,008           9,868
                                                   -----------    ----------     -----------      -----------     -----------

   Net interest income......................             6,285         4,026          18,906           14,568          10,668
   Provision for loan losses (Note 6).......                75            25             175              208             100
                                                   -----------    ----------     -----------      -----------     -----------
   Net interest income after provision for
      loan losses...........................             6,210         4,001          18,731           14,360          10,568
                                                   -----------    ----------     -----------      -----------     -----------

   NON-INTEREST INCOME
   Service charges and fees.................               170           139             662              354             192
   Gains on sales of real estate owned......                --            57              69               28             102
                                                   -----------    ----------     -----------      -----------     -----------
   Total non-interest income................               170           196             731              382             294
                                                   -----------    ----------     -----------      -----------     -----------

   NON-INTEREST EXPENSE
    Compensation and benefits (Note 11).....             1,428         1,225           5,137            4,653           3,419
    Occupancy and equipment.................               444           321           1,572            1,643             935
    Data processing service fees............               229           192             866              636             425
    Advertising and promotion...............               148           156             553              599             498
    Goodwill amortization (Note 2)..........                --            --              --              765              --
    Other...................................               594           440           2,188            1,737           1,750
                                                   -----------    ----------     ------------     -----------     -----------
    Total non-interest expense..............             2,843         2,334          10,316           10,033           7,027
                                                   -----------    ----------     -----------      -----------     -----------

   Income before income tax expense.........             3,537         1,863           9,146            4,709           3,835
   Income tax expense (Note 10).............             1,376           688           3,376            2,050           1,443
                                                   -----------    ----------     -----------      -----------     -----------
   Net income...............................      $      2,161   $     1,175    $      5,770     $      2,659    $      2,392
                                                   ===========    ==========     ===========      ===========     ===========

   Earnings per common share (Note 15):
       Basic...............................       $       0.46   $      0.25    $       1.24     $      0.56     $       0.48
       Diluted..............................              0.46          0.25            1.23            0.56             0.48
                                                   ===========    ==========     ===========      ==========      ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>


                      SOUND FEDERAL BANCORP AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>


                                                   COMMON     ADDITIONAL       TREASURY        COMMON STOCK      COMMON STOCK
                                                   STOCK    PAID-IN CAPITAL      STOCK         HELD BY ESOP    AWARDS UNDER RRP
                                                   -----    ---------------      -----         ------------    ----------------
<S>                                              <C>          <C>             <C>             <C>                <C>
 Balance at March 31, 1999...................    $     521    $   22,430      $       --      $   (1,681)        $       --
 Net income..................................           --            --              --              --                 --
 Other comprehensive loss (Note 14)..........           --            --              --              --                 --

     Total comprehensive income..............
 Dividends declared ($0.28 per share)........           --            --              --              --                 --
 Purchases of treasury stock (207,000  shares)          --            --          (2,069)             --                 --
 Purchases and awards of RRP shares (105,369            --            --              --              --               (961)
    shares) .................................
 Vesting of RRP shares.......................           --            (1)             --              --                240
 ESOP shares allocated or committed to be
    released for                                        --           (14)             --             192                 --
                                                    ------      ---------       --------        --------           --------
    allocation...............................
 Balance at March 31, 2000...................          521        22,415          (2,069)         (1,489)              (721)

 Net income..................................           --            --              --              --                 --
 Other comprehensive income (Note 14)........           --            --              --              --                 --

    Total comprehensive income...............
 Dividends paid ($0.28 per share)............           --            --              --              --                 --
 Purchases of treasury stock (192,926 shares)           --            --          (1,798)             --                 --
 Vesting of RRP shares.......................           --            --              --              --                329
 ESOP shares allocated or committed to be
    released for                                        --           (16)             --             192                 --
                                                    ------      ---------       --------        --------           --------
    allocation...............................
 Balance at March 31, 2001...................          521        22,399          (3,867)         (1,297)              (392)

 Net income..................................           --            --              --              --                 --
 Other comprehensive loss (Note 14)..........           --            --              --              --                 --

    Total comprehensive income...............
 Dividends paid ($0.28 per share)............           --            --              --              --                 --
 Purchases of treasury stock (45,000 shares)            --            --            (483)             --                 --
 Issuance of stock pursuant to stock option plan         1            72              --              --                 --
 Vesting of RRP shares.......................           --            --              --              --                148
 ESOP shares allocated or committed to be
    released for                                        --            54              --             192                 --
                                                    ------      --------        --------        --------           --------
    allocation...............................
 Balance at March 31, 2002...................          522        22,525          (4,350)         (1,105)              (244)

 Net income (unaudited)......................           --            --              --              --                 --
 Other comprehensive income (unaudited) (Note           --            --              --              --                 --

    14)......................................
    Total comprehensive income (unaudited)...
 Dividends paid ($0.07 per share) (unaudited)           --            --              --              --                 --
 Issuance of stock pursuant to stock option             --            27              --              --                 --
    plan (unaudited).........................
 Vesting of RRP shares (unaudited)...........           --            --              --              --                 36
 ESOP shares allocated or committed to be
    released for                                        --            44              --              48                 --
                                                    ------      --------        --------        --------           --------
    allocation (unaudited)...................
 Balance at June 30, 2002 (unaudited)........    $     522    $   22,596      $   (4,350)     $   (1,057)        $     (208)    $
                                                    ======      ========        ========        ========           ========

<CAPTION>

                                                              ACCUMULATED OTHER       TOTAL
                                                  RETAINED      COMPREHENSIVE     STOCKHOLDERS'
                                                  EARNINGS      INCOME (LOSS)        EQUITY
                                                  --------      -------------        ------
<S>                                             <C>             <C>                <C>
Balance at March 31, 1999...................    $    33,846     $      (132)       $   54,984
Net income..................................          2,392              --             2,392
Other comprehensive loss (Note 14)..........             --          (1,070)           (1,070)
                                                                                     --------
    Total comprehensive income..............                                            1,322
Dividends declared ($0.28 per share)........         (1,004)             --            (1,004)
Purchases of treasury stock (207,000  shares)            --              --            (2,069)
Purchases and awards of RRP shares (105,369              --              --              (961)
   shares) .................................
Vesting of RRP shares.......................             --              --               239
ESOP shares allocated or committed to be
   released for                                          --              --               178
                                                   --------        --------          --------
   allocation...............................
Balance at March 31, 2000...................         35,234          (1,202)           52,689

Net income..................................          2,659              --             2,659
Other comprehensive income (Note 14)........             --           3,454             3,454
                                                                                     --------
   Total comprehensive income...............                                            6,113
Dividends paid ($0.28 per share)............           (580)             --              (580)
Purchases of treasury stock (192,926 shares)             --              --            (1,798)
Vesting of RRP shares.......................             --              --               329
ESOP shares allocated or committed to be
   released for                                          --              --               176
                                                   --------        --------          --------
   allocation...............................
Balance at March 31, 2001...................         37,313           2,252            56,929

Net income..................................          5,770              --             5,770
Other comprehensive loss (Note 14)..........             --          (1,151)           (1,151)
                                                                                     ---------
   Total comprehensive income...............                                            4,619
Dividends paid ($0.28 per share)............           (517)             --              (517)
Purchases of treasury stock (45,000 shares)              --              --              (483)
Issuance of stock pursuant to stock option plan          --              --                73
Vesting of RRP shares.......................             --              --               148
ESOP shares allocated or committed to be
   released for                                          --              --               246
                                                   --------        --------         ---------
   allocation...............................
Balance at March 31, 2002...................         42,566           1,101            61,015

Net income (unaudited)......................          2,161              --             2,161
Other comprehensive income (unaudited) (Note             --             627               627
                                                                                     --------
   14)......................................
   Total comprehensive income (unaudited)...                                            2,788
Dividends paid ($0.07 per share) (unaudited)           (138)             --              (138)
Issuance of stock pursuant to stock option               --              --                27
   plan (unaudited).........................
Vesting of RRP shares (unaudited)...........             --              --                36
ESOP shares allocated or committed to be
   released for                                          --              --                92
                                                   --------        --------          --------
   allocation (unaudited)...................
Balance at June 30, 2002 (unaudited)........    $    44,589     $     1,728        $   63,820
                                                   ========        ========          ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED
                                                         JUNE 30,                   YEARS ENDED MARCH 31,
                                                   ----------------------   --------------------------------------
                                                     2002         2001          2002          2001            2000
                                                     ----         ----          ----          ----            ----
                                                        (UNAUDITED)
<S>                                               <C>         <C>           <C>           <C>            <C>
OPERATING ACTIVITIES
Net income.................................       $    2,161  $   1,175     $   5,770     $   2,659      $   2,392
Adjustments to reconcile net income to net cash
   provided by operating activities:
      Provision for loan losses............               75         25           175           208            100
      Goodwill amortization................               --         --            --           765             --
      Depreciation, amortization and accretion           193       (210)          706           592            276
      ESOP and RRP expense.................              128         92           394           505            417
      Income taxes.........................              131      1,111         2,883         1,134           (112)
      Other adjustments, net...............              342       (641)          708           913           (333)
                                                    --------    --------      -------       -------        --------
        Net cash provided by operating
        activities.........................            3,030      1,552        10,636         6,776          2,740
                                                    --------    -------       --------      -------        -------

INVESTING ACTIVITIES
Purchases of securities available for sale.          (13,272)   (19,658)      (57,737)      (28,854)       (35,218)
Proceeds from payments, maturities and calls of
   securities:
   Available for sale......................           20,826     25,433        90,224        38,147          5,290
   Held to maturity........................               --         --            --         7,312          9,770
Proceeds from sales of securities available for           --         --            --        21,888          5,221
   sale
Disbursements for loan originations, net of
   principal repayments....................          (19,238)   (27,143)      (125,367)     (47,994)       (37,575)
Net decrease in certificates of deposit....               --        991         2,491         7,584            611
Purchases of Federal Home Loan Bank stock..               --         --          (396)           --           (311)
Cash paid in purchase acquisition, net of cash            --         --            --       (33,937)            --
   acquired................................
Purchases of premises and equipment........             (208)       (37)         (294)         (669)        (2,646)
Proceeds from sales of real estate owned...              114        254           405           286            459
                                                    --------    -------       -------       -------        -------
        Net cash used in investing activities        (11,778)   (20,160)      (90,674)      (36,237)       (54,399)
                                                    --------    -------       -------       -------        -------
FINANCING ACTIVITIES
Net increase (decrease) in deposits........           24,721     (2,379)       46,359        45,413         38,493
Proceeds from borrowings ..................               --         --        20,000            --             --
Repayment of borrowings....................               --         --            --        (5,000)            --
Net (decrease) increase in mortgage escrow funds        (619)      (938)          535          (292)           285
Purchases of treasury stock................               --       (483)         (483)       (1,798)        (2,069)
Purchases of RRP shares....................               --         --            --            --           (961)
Issuance of stock pursuant to stock option plan           27         --            73            --             --
Payment of cash dividends on common stock..             (138)      (140)         (517)         (580)        (1,004)
                                                    --------    -------       -------       -------        -------
        Net cash provided by (used in)
        financing activities...............           23,991     (3,940)       65,967        37,743         34,744
                                                    --------    -------       -------       -------        -------

Net increase (decrease) in cash and cash              15,243    (22,548)      (14,071)        8,282        (16,915)
   equivalents.............................
Cash and cash equivalents at beginning of period      26,778     40,849        40,849        32,567         49,482
                                                    --------    -------       -------       -------        -------
Cash and cash equivalents at end of period.       $   42,021  $  18,301     $  26,778     $  40,849      $  32,567
                                                    ========    =======       =======       =======        =======

SUPPLEMENTAL INFORMATION
Interest paid..............................       $    3,348  $   5,341     $  18,443     $  19,189      $   9,746
Income taxes paid..........................            1,250     (1,109)        1,980         1,552          1,510
Loans transferred to real estate owned.....               --        118           253           290            124
                                                    ========    =======       =======       =======        =======
Acquisition accounted for by the purchase
   method:
   Fair value of assets acquired, including
      goodwill of $14,735....................       $       --  $      --     $      --     $ 212,850      $      --
       Fair value of liabilities assumed...               --         --            --       (174,081)           --
                                                    --------   --------       -------       --------       -------
      Cash paid in acquisition.............       $       --  $      --     $      --     $  38,769      $      --
                                                    ========    =======       =======       =======        =======
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

(1)   REORGANIZATION AND CONVERSION

      INITIAL PUBLIC OFFERING

      On October 8, 1998, Sound Federal Bancorp issued shares of its common
      stock in connection with a Plan of Reorganization ("the "Reorganization")
      and related Subscription and Community Offering (the "Offering"). In the
      Reorganization, Sound Federal Savings and Loan Association (the "Bank")
      converted from a federally-chartered mutual savings association to a
      federally-chartered stock savings association (the "Conversion"). The Bank
      became the wholly-owned subsidiary of Sound Federal Bancorp, which became
      the majority-owned subsidiary of Sound Federal, MHC (the "Mutual Holding
      Company"). Collectively, Sound Federal Bancorp and the Bank are referred
      to herein as "the Company".

      Sound Federal Bancorp issued a total of 5,212,218 shares of its common
      stock in the Reorganization and Offering, consisting of 2,810,510 shares
      (or 53.92%) issued to the Mutual Holding Company and 2,401,708 shares (or
      46.08%) issued to other stockholders. The shares issued to other
      stockholders consisted of 192,129 shares purchased by the Company's
      Employee Stock Ownership Plan (the "ESOP") using $1.9 million in proceeds
      from a loan made by Sound Federal Bancorp; 102,200 shares contributed by
      the Company to establish the Sound Federal Savings and Loan Association
      Charitable Foundation (the "Charitable Foundation"); and 2,107,379 shares
      sold for cash of $21.1 million ($10.00 per share) in the Offering. After
      deducting offering costs of $1.1 million, the net cash proceeds from the
      Offering were $20.0 million.

      SECOND STEP CONVERSION

      On June 13, 2002, the respective Boards of Directors of Sound Federal
      Bancorp and the Mutual Holding Company adopted a plan to convert from the
      mutual holding company form of organization to a fully public holding
      company structure. The Mutual Holding Company will merge into the Bank,
      and will no longer exist. Sound Federal Bancorp will be succeeded by a new
      Delaware corporation with the same name. Shares of common stock of Sound
      Federal Bancorp representing the ownership interest of the Mutual Holding
      Company will be offered for sale in a subscription offering and a
      community offering, the net proceeds of which will result in additional
      capital for Sound Federal Bancorp. Shares of common stock of Sound Federal
      Bancorp owned by public shareholders (shareholders other than the Mutual
      Holding Company) will be converted into the right to receive new shares of
      Sound Federal Bancorp common stock determined pursuant to an exchange
      ratio. The exchange ratio will ensure that immediately after the
      conversion and exchange of existing shares of Sound Federal Bancorp for
      new shares, the public shareholders will own the same aggregate percentage
      of new Sound Federal Bancorp common stock that they owned immediately
      prior to the conversion, excluding any shares purchased in the offering.
      The reorganization will be accounted for at historical cost, with no
      resulting change in the historical carrying amounts of assets and
      liabilities. Costs related to the offering will be netted against the
      gross proceeds from the sale of common stock; if the reorganization and
      offering are not completed, the costs would be charged to expense. No such
      costs had been incurred as of June 30, 2002.

(2)   ACQUISITION OF PEEKSKILL FINANCIAL CORPORATION

      On July 18, 2000, the Company consummated its acquisition of Peekskill
      Financial Corporation ("Peekskill"). Peekskill and its wholly-owned
      subsidiary, First Federal Savings Bank, merged with and into the Bank,
      with the Bank as the surviving entity (the "Acquisition"). Peekskill's
      stockholders received $22 per share in cash. The transaction was valued at
      approximately $41.7 million including the "in-the-money" portion of
      outstanding stock options. At the time of the Acquisition, Peekskill had
      total assets of $201.5 million and total deposits of $152.4 million
      (historical carrying amounts before purchase accounting adjustments).

                                      F-7
<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      The Acquisition was accounted for using the purchase method of accounting
      and, accordingly, the assets acquired and liabilities assumed were
      recorded by the Company at their fair values at the consummation date.
      Related operating results are included in the Company's consolidated
      financial statements for periods after the consummation date. The excess
      of the Company's total acquisition cost over the fair value of the net
      assets acquired, or "goodwill", totaled $14.7 million and was recognized
      as an intangible asset at the consummation date. The related goodwill
      amortization expense was $765,000 for the year ended March 31, 2001, based
      on a fifteen-year amortization period, prior to adoption of the accounting
      standard described below.

      The Company adopted Statement of Financial Accounting Standards ("SFAS")
      No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, as of April 1, 2001. As a
      result, the Company ceased amortizing the goodwill recorded in the
      Acquisition, and net income and earnings per share for the year ended
      March 31, 2002 and the three months ended June 30, 2002 do not include
      goodwill amortization expense. Net income and earnings per share for the
      year ended March 31, 2001, adjusted to reflect the effects of ceasing the
      amortization of goodwill, are as follows (in thousands, except per share
      data):

           Net income, as reported..................        $   2,659
           Amortization of goodwill.................              765
                                                             --------
           Net income, as adjusted..................        $   3,424
                                                             =========

           Earnings per common share, as adjusted:
                Basic...............................        $    0.72
                Diluted.............................             0.72
                                                             ========

      Pro forma unaudited results of operations for the years ended March 31,
      2001 and 2000, assuming the Acquisition took place at the beginning of
      fiscal year 2000, are as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                              YEARS ENDED MARCH 31,
                                                                           --------------------------
                                                                             2001              2000
                                                                             ----              ----
                                                                                 (IN THOUSANDS)
<S>                                                                        <C>              <C>
      Net interest income...............................................   $  15,418        $  14,006
      Provision for loan losses.........................................         273              160
      Non-interest income...............................................         456              569
      Non-interest expense (including goodwill amortization)............      11,302           11,770
                                                                            --------         --------
           Income before taxes..........................................       4,299            2,645
      Income tax expense................................................       1,870            1,150
                                                                            --------         --------
           Net income...................................................   $   2,429        $   1,495
                                                                            ========         ========
      Earnings per common share:
           Basic........................................................   $    0.51        $    0.30
           Diluted......................................................        0.51             0.30
                                                                            ========         ========
</TABLE>

      The pro forma results of operations reflect the combination of historical
      amounts for the Company and Peekskill for the years ended March 31, 2001
      and 2000, adjusted only for the effect of purchase accounting adjustments.
      The pro forma information does not reflect any cost savings or revenue
      enhancements that resulted from the combination of the operations of the
      Company and Peekskill other than those included in the fiscal year 2001
      results of operations from the date of the merger (July 18, 2000). As a
      result, the pro forma information is not necessarily indicative of the
      results of operations that would have been achieved had the Acquisition in
      fact occurred on the date indicated, nor does it purport to be indicative
      of the results of operations that may be achieved in the future by the
      combined company.

                                      F-8
<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

(3)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      The Bank is a community-oriented savings institution whose business
      primarily consists of accepting deposits from customers within its market
      area and investing those funds in mortgage loans secured by one-to-four
      family residences and in mortgage-backed and other securities. To a
      significantly lesser extent, funds are invested in commercial mortgage,
      construction and consumer loans. The Bank's primary market area is
      Westchester County, New York where it operates eight full-service banking
      offices. Another full-service office is located in Cos Cob, Connecticut
      and an in-store branch is operated in Rockland County, New York.

      Deposits are insured up to applicable limits of the Federal Deposit
      Insurance Corporation. As a federally-chartered savings association, the
      Bank's primary regulator is the Office of Thrift Supervision ("OTS").
      Sound Federal Bancorp and the Mutual Holding Company are also subject to
      supervision and regulation by the OTS.

      BASIS OF PRESENTATION

      The consolidated financial statements include the accounts of Sound
      Federal Bancorp, the Bank, Sound REIT, First Federal REIT and Mamaroneck
      Advisors, Inc. Sound REIT (formed in April 1999) and First Federal REIT
      (formed by Peekskill prior to the Acquisition) are real estate investment
      trusts that hold a portion of the Company's mortgage-related assets.
      Mamaroneck Advisors, Inc. is a wholly-owned subsidiary of the Bank that
      was formed in February 2001. The Bank offers investment products and
      services to its customers through Mamaroneck Advisors, Inc. All
      significant intercompany accounts and transactions have been eliminated in
      consolidation.

      The consolidated financial statements have been prepared in conformity
      with accounting principles generally accepted in the United States of
      America. In preparing the consolidated financial statements, management is
      required to make estimates and assumptions that affect the reported
      amounts of assets, liabilities, income and expense. Actual results could
      differ significantly from these estimates. A material estimate that is
      particularly susceptible to near-term change is the allowance for loan
      losses, which is discussed below.

      The consolidated balance sheet at June 30, 2002, the consolidated
      statements of income and cash flows for the three-month periods ended June
      30, 2002 and 2001, and the consolidated statement of changes in
      stockholders' equity for the three-month period ended June 30, 2002 are
      unaudited but, in the opinion of management, reflect all adjustments
      (consisting only of normal recurring accruals) necessary for a fair
      presentation of financial condition, results of operations and cash flows.

      Certain reclassifications have been made to prior year amounts to conform
      to the current year presentation. For purposes of reporting cash flows,
      cash equivalents consist of federal funds sold and other overnight
      deposits.

      SECURITIES

      The Company classifies its securities as held to maturity, available for
      sale, or trading. Securities classified as held to maturity are limited to
      debt securities for which the entity has the positive intent and ability
      to hold to maturity. Trading securities are debt and equity securities
      that are bought principally for the purpose of selling them in the near
      term. All other debt and equity securities are classified as available for
      sale.

      Management determines the appropriate classification of securities at the
      purchase date. Securities classified as held to maturity are carried at
      amortized cost. Securities available for sale are carried at fair value,
      with unrealized

                                      F-9
<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      gains and losses excluded from earnings and reported on a net-of-tax basis
      as a separate component of stockholders' equity (accumulated other
      comprehensive income or loss). The Company has no trading securities.

      Premiums and discounts on debt securities are amortized to interest income
      on a level-yield basis over the terms of the securities. Realized gains
      and losses on sales of securities are determined based on the amortized
      cost of the specific securities sold. Unrealized losses on securities are
      charged to earnings when the decline in fair value of a security is judged
      to be other than temporary.

      ALLOWANCE FOR LOAN LOSSES

      The allowance for loan losses is increased by provisions for loan losses
      charged to income and by recoveries of prior charge-offs, and is decreased
      by charge-offs. Losses are charged to the allowance when all or a portion
      of a loan is deemed to be uncollectible. Recoveries of loans previously
      charged-off are credited to the allowance for loan losses when realized.
      Management's periodic determination of the allowance is based on
      continuing reviews of the portfolio, using a consistently-applied
      methodology. The allowance for loan losses consists of losses inherent in
      the loan portfolio that are both probable and estimable at the date of the
      financial statements. In determining the allowance for loan losses,
      management considers factors such as the Company's past loan loss
      experience, known and inherent risks in the portfolio, adverse situations
      affecting a borrower's ability to repay, the estimated value of underlying
      collateral, and current economic conditions.

      Determining the allowance for loan losses involves significant management
      judgments utilizing the best information available. Those judgments are
      subject to further review by various sources, including the Company's
      regulators. Changes in the allowance may be necessary in the future based
      on changes in economic and real estate market conditions, new information
      obtained regarding known problem loans, the identification of additional
      problem loans and other factors, certain of which are outside of
      management's control.

      A loan is considered to be impaired when, based on current information and
      events, it is probable that the Company will be unable to collect all
      principal and interest contractually due. The Company reviews loans to
      identify impairment for loans that are individually evaluated for
      collectibility in accordance with the Company's normal loan review
      procedures (principally loans in the multi-family, commercial mortgage and
      construction loan portfolios). The standard does not generally apply to
      smaller-balance homogeneous loans that are collectively evaluated for
      impairment, such as residential mortgage and consumer loans. The
      measurement of an impaired loan is based on (i) the present value of
      expected future cash flows discounted at the loan's effective interest
      rate, (ii) the loan's observable market price or (iii) the fair value of
      the collateral if the loan is collateral dependent. If the measure of an
      impaired loan is less than its recorded investment, an impairment loss is
      recognized as part of the allowance for loan losses.

      INTEREST AND FEES ON LOANS

      Interest is accrued monthly based on outstanding principal balances unless
      management considers the collection of interest to be doubtful (generally,
      when loans are contractually past due ninety days or more). When loans are
      placed on nonaccrual status, unpaid interest is reversed by charging
      interest income and crediting an allowance for uncollected interest.
      Interest payments received on nonaccrual loans (including impaired loans)
      are recognized as income unless future collections are doubtful. Loans are
      returned to accrual status when collectibility is no longer considered
      doubtful (generally, when all payments have been brought current).

                                      F-10
<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      Loan origination fees and certain direct loan origination costs are
      deferred and the net fee or cost is amortized to interest income, using
      the level-yield method, over the contractual term of the related loan.
      Unamortized fees and costs applicable to prepaid loans are recognized in
      interest income at the time of prepayment.

      FEDERAL HOME LOAN BANK STOCK

      As a member of the Federal Home Loan Bank ("FHLB") of New York, the Bank
      is required to hold a certain amount of FHLB stock. This stock is
      considered to be a non-marketable equity security and, accordingly, is
      carried at cost.

      REAL ESTATE OWNED

      Real estate properties acquired through foreclosure are recorded initially
      at fair value less estimated sales costs, with the resulting writedown
      charged to the allowance for loan losses. Thereafter, an allowance for
      losses on real estate owned is established by a charge to expense to
      reflect any subsequent declines in fair value. Fair value estimates are
      based on recent appraisals and other available information. Costs incurred
      to develop or improve properties are capitalized, while holding costs are
      charged to expense.

      PREMISES AND EQUIPMENT

      Premises and equipment are comprised of land (carried at cost) and
      buildings, leasehold improvements, furniture and equipment (carried at
      cost less accumulated depreciation and amortization). Depreciation expense
      is recognized on a straight-line basis over the estimated useful lives of
      the related assets. Amortization of leasehold improvements is recognized
      on a straight-line basis over the terms of the respective leases or the
      estimated useful lives of the assets, whichever is shorter. Costs incurred
      to improve or extend the life of existing assets are capitalized. Repairs
      and maintenance costs are charged to expense.

      SECURITIES REPURCHASE AGREEMENTS

      The Company is a party to securities repurchase agreements with the FHLB.
      These agreements provide for the transfer of securities to the FHLB under
      an agreement to repurchase the identical securities at a fixed price in
      the future. These agreements are accounted for as secured financings. The
      proceeds from the transaction are recorded as borrowings and the
      underlying securities are included in the Company's securities portfolio.

      INCOME TAXES

      Income taxes are accounted for under the asset and liability method.
      Deferred taxes are recognized for the estimated future tax effects
      attributable to "temporary differences" between the financial statement
      carrying amounts of existing assets and liabilities and their respective
      tax bases. Deferred tax assets and liabilities are measured using enacted
      tax rates expected to apply to taxable income in future years. The effect
      on deferred tax assets and liabilities of an enacted change in tax laws or
      rates is recognized in income tax expense in the period that includes the
      enactment date of the change.

      Deferred tax liabilities are recognized for all temporary differences that
      will result in future taxable income. Deferred tax assets are recognized
      for all temporary differences that will result in future tax deductions,
      subject to reduction of the assets by a valuation allowance in certain
      circumstances. This valuation allowance is recognized if, based on an
      analysis of available evidence, management determines that it is more
      likely than not that a portion or all of the deferred tax assets will not
      be realized. The valuation allowance is subject to adjustment based on

                                      F-11
<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      changes in circumstances that affect management's judgment about the
      realizability of the deferred tax assets. Adjustments to increase or
      decrease the valuation allowance are charged or credited, respectively, to
      income tax expense.

      STOCK-BASED COMPENSATION PLANS

      Compensation expense is recognized for the Company's employee stock
      ownership plan ("ESOP") equal to the fair value of shares committed to be
      released for allocation to participant accounts. Any difference between
      the fair value at that time and the ESOP's original acquisition cost is
      charged or credited to stockholders' equity (additional paid-in capital).
      The cost of unallocated ESOP shares (shares not yet committed to be
      released) is deducted from stockholders' equity.

      The Company accounts for its stock option plan in accordance with
      Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK
      ISSUED TO EMPLOYEES. Accordingly, compensation expense is recognized only
      if the exercise price of the option is less than the fair value of the
      underlying stock at the grant date. SFAS No. 123, ACCOUNTING FOR
      STOCK-BASED COMPENSATION, encourages entities to recognize the fair value
      of all stock-based awards (measured on the grant date) as compensation
      expense over the vesting period. Alternatively, SFAS No. 123 allows
      entities to apply the provisions of APB Opinion No. 25 and provide pro
      forma disclosures of net income and earnings per share as if the
      fair-value-based method defined in SFAS No. 123 had been applied. The
      Company has elected to apply the provisions of APB Opinion No. 25 and
      provide these pro forma disclosures.

      The Company's recognition and retention plan ("RRP") is also accounted for
      in accordance with APB Opinion No. 25. The fair value of the shares
      awarded, measured at the grant date, is recognized as unearned
      compensation (a deduction from stockholders' equity) and amortized to
      compensation expense as the shares become vested.

      EARNINGS PER SHARE

      Basic earnings per share ("EPS") is computed by dividing net income
      applicable to common stock by the weighted average number of common shares
      outstanding for the period. RRP shares are not included in outstanding
      shares until they become vested. Diluted EPS is computed in a manner
      similar to basic EPS, except that the weighted average number of common
      shares outstanding is increased to include an incremental number of
      common-equivalent shares that would have been outstanding if all
      potentially dilutive common shares (such as stock options and unvested RRP
      shares) were issued or became vested during the reporting period. For
      purposes of computing both basic and diluted EPS, outstanding shares
      include all shares issued to the Mutual Holding Company and contributed to
      the Charitable Foundation, but exclude unallocated ESOP shares that have
      not been committed to be released to participants.

      SEGMENT INFORMATION

      SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
      INFORMATION, requires public companies to report certain financial
      information about significant revenue-producing segments of the business
      for which such information is available and utilized by the chief
      operating decision maker. Specific information to be reported for
      individual operating segments includes a measure of profit and loss,
      certain revenue and expense items, and total assets. As a
      community-oriented financial institution, substantially all of the
      Company's operations involve the delivery of loan and deposit products to
      customers. Management makes operating decisions and assesses performance
      based on an ongoing review of these community banking operations, which
      constitute the Company's only operating segment for financial reporting
      purposes.

                                      F-12
<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      GOODWILL

      SFAS No. 142 requires that goodwill and intangible assets with indefinite
      useful lives no longer be amortized, but instead be tested for impairment
      at least annually using a fair-value-based approach. The Company adopted
      SFAS No.142 as of April 1, 2001. As a result, the Company ceased
      amortizing the goodwill that was recorded in the Acquisition and that had
      been amortized using the straight-line method based on a fifteen-year
      amortization period. Goodwill recorded in the July 2000 Acquisition was
      $14.7 million and the remaining balance was $14.0 million upon adoption of
      SFAS No. 142 as of April 1, 2001. The Company did not recognize any
      impairment of goodwill during the year ended March 31, 2002 or the three
      months ended June 30, 2002.












                                      F-13
<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

(4)   SECURITIES AVAILABLE FOR SALE

      The following are summaries of securities available for sale:

<TABLE>
<CAPTION>
                                                                              GROSS UNREALIZED
                                                          AMORTIZED      -------------------------        FAIR
                                                             COST           GAINS        LOSSES           VALUE
                                                             ----           -----        ------           -----
                                                                              (IN THOUSANDS)
<S>                                                      <C>             <C>           <C>             <C>
        JUNE 30, 2002
        -------------
        Pass-through securities guaranteed by:
            Ginnie Mae.............................      $   47,300      $    1,020    $      (34)     $   48,286
            Fannie Mae.............................          22,091             511           (35)         22,567
            Freddie Mac............................          17,916             602            (4)         18,514
        Collateralized mortgage obligations........          11,355             893            --          12,248
                                                           --------        --------      --------        --------
              Total mortgage-backed securities.....          98,662           3,026           (73)        101,615
        U.S. Government and agency securities......          23,349             183          (286)         23,246
        Municipal securities.......................             846             111            --             957
        Mutual fund shares.........................          18,000              24            --          18,024
                                                           --------        --------      --------        --------

              Total securities.....................      $  140,857      $    3,344    $     (359)     $  143,842
                                                           ========        ========      =========       ========

        MARCH 31, 2002
        --------------
        Pass-through securities guaranteed by:
            Ginnie Mae.............................      $   47,113      $      751    $      (70)     $   47,794
            Fannie Mae.............................          20,672             410           (66)         21,016
            Freddie Mac............................          20,613             493           (41)         21,065
        Collateralized mortgage obligations........          13,238           1,021            --          14,259
                                                           --------        --------      --------        --------
              Total mortgage-backed securities.....         101,636           2,675          (177)        104,134
        U.S. Government and agency securities......          29,788              29          (588)         29,229
        Municipal securities.......................             845              77            --             922
        Mutual fund shares.........................          16,000              10           (64)         15,946
                                                           --------        --------      ---------       --------

              Total securities.....................      $  148,269      $    2,791  $       (829)     $  150,231
                                                           ========        ========      ========        ========

        MARCH 31, 2001
        --------------
        Pass-through securities guaranteed by:
            Ginnie Mae.............................      $   38,678      $      783    $      (16)     $   39,445
            Fannie Mae.............................          17,675             513            --          18,188
            Freddie Mac............................          25,883             854           (13)         26,724
        Collateralized mortgage obligations........          29,834           1,740            --          31,574
                                                           --------        --------      --------        --------
              Total mortgage-backed securities.....         112,070           3,890           (29)        115,931
        U.S. Government and agency securities......          33,644             188          (233)         33,599
        Mutual fund shares.........................           8,000               2            (6)          7,996
                                                           --------        --------      ---------       --------

              Total securities.....................      $  153,714      $    4,080    $     (268)     $  157,526
                                                           ========        ========      =========       ========
</TABLE>

                                      F-14
<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      Debt securities available for sale at June 30, 2002 consisted of
      adjustable rate securities and fixed rate securities with amortized costs
      of $78.6 million and $44.3 million, and weighted average yields of 5.67%
      and 5.79%, respectively. Debt securities available for sale at March 31,
      2002 consisted of adjustable rate securities and fixed rate securities
      with amortized costs of $78.3 million and $54.0 million, and weighted
      average yields of 5.80% and 6.26%, respectively. Debt securities available
      for sale at March 31, 2001 consisted of adjustable rate securities and
      fixed rate securities with amortized costs of $61.2 million and $84.5
      million, and weighted average yields of 7.00% and 6.85%, respectively.

      There were no sales of securities available for sale during the three
      months ended June 30, 2002 and 2001 and the year ended March 31, 2002.

      The Company sold $21.9 million of securities available for sale during
      fiscal 2001. These securities were part of Peekskill's portfolio and were
      recorded by the Company at their fair value in accordance with the
      purchase method of accounting. The securities were sold by the Company
      immediately after the Acquisition and, as a result of the fair value
      adjustment, there was no gain or loss on the sale.

      The Company sold certain mutual fund shares during fiscal 2000 with no
      resulting gain or loss. Proceeds from the sale amounted to $5.2 million.

      The following is a summary of the amortized cost and fair value of debt
      securities available for sale, with amounts shown by remaining term to
      contractual maturity for categories other than mortgage-backed securities.
      Actual maturities may differ from these amounts because certain issuers
      have the right to call or redeem their obligations prior to contractual
      maturity.

<TABLE>
<CAPTION>
                                                              JUNE 30, 2002                   MARCH 31, 2002
                                                        -------------------------    -----------------------------
                                                          AMORTIZED      FAIR            AMORTIZED        FAIR
                                                            COST         VALUE             COST           VALUE
                                                            ----         -----             ----           -----
                                                                              (IN THOUSANDS)

<S>                                                     <C>          <C>             <C>              <C>
      Mortgage-backed securities....................    $    98,662  $   101,615     $    101,636     $    104,134
      U.S. Government and agency securities due:
         Within one year............................          5,999        6,083           13,998           13,908
         Over one to five years.....................          5,000        5,082            2,999            2,993
         Over five to ten years.....................          3,745        3,758            4,880            4,818
         Over ten years.............................          8,605        8,323            7,911            7,510
      Municipal securities due over ten years.......            846          957              845              922
                                                          ---------     --------        ---------        ---------

         Total debt securities......................    $   122,857  $   125,818     $    132,269     $    134,285
                                                          =========     ========        =========        =========
</TABLE>




                                      F-15
<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

(5)   SECURITIES HELD TO MATURITY

      The Company adopted SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
      AND HEDGING ACTIVITIES, on April 1, 2001. As permitted by SFAS No. 133,
      all securities that were classified as held to maturity were reclassified
      as available for sale. The following is a summary of securities held to
      maturity at March 31, 2001, prior to the reclassification:

<TABLE>
<CAPTION>

                                                                              GROSS UNREALIZED
                                                          AMORTIZED      -------------------------        FAIR
                                                             COST           GAINS        LOSSES           VALUE
                                                             ----           -----        ------           -----
                                                                              (IN THOUSANDS)
<S>                                                   <C>               <C>           <C>             <C>
      Pass-through securities guaranteed by:
         Ginnie Mae..............................     $      22,042     $        151  $         (59)  $      22,134
         Fannie Mae..............................             3,114               25            (12)          3,127
         Freddie Mac.............................                21               --             --              21
                                                          ---------         --------      ---------       ---------
           Total mortgage-backed securities......            25,177              176            (71)         25,282
      U.S. Government and agency securities......             3,038                3             (6)          3,035
                                                          ---------         --------      ----------      ---------

           Total securities......................     $      28,215     $        179    $       (77)  $      28,317
                                                          =========       ==========      ==========     ==========
</TABLE>

      At March 31, 2001, securities held to maturity consisted of adjustable
      rate securities of $26.8 million and fixed rate securities of $1.4
      million, with weighted average yields of 7.25% and 7.18%, respectively.

      There were no sales of securities held to maturity during the three months
      ended June 30, 2002 or during the years ended March 31, 2002, 2001 and
      2000.

(6)   LOANS

      Loans are summarized as follows:

<TABLE>
<CAPTION>
                                                                                            MARCH 31,
                                                                  JUNE 30,      ------------------------------
                                                                    2002              2002             2001
                                                                    ----              ----             ----
                                                                                 (IN THOUSANDS)
<S>                                                           <C>              <C>              <C>
         Mortgage loans:
            Residential properties:
               One-to-four family........................     $    351,509     $     334,683    $      221,617
               Home equity lines of credit...............           45,867            47,889            47,315
               Multi-family..............................            6,900             8,347             3,959
            Commercial properties........................           29,764            23,701            16,771
            Construction loans...........................            1,944             3,733             3,659
            Deferred loan origination costs, net.........            1,299               767               633
                                                                 ---------        ----------        ----------
                                                                   437,283           419,120           293,954
                                                                 ---------        ----------        ----------
         Consumer loans:
            Automobile loans.............................              427               785             1,154
            Secured personal loans.......................            1,891               660               719
            Other loans..................................              114                24                27
                                                                 ---------        ----------        ----------
                                                                     2,432             1,469             1,900
                                                                 ---------        ----------        ----------

               Total loans...............................          439,715           420,589           295,854

         Allowance for loan losses.......................           (2,296)           (2,221)           (2,047)
                                                                 ----------       -----------       -----------

               Total loans, net..........................     $    437,419     $     418,368    $      293,807
                                                                 =========        ==========        ==========
</TABLE>

                                      F-16
<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      Gross principal balances at June 30, 2002 consisted of fixed rate loans of
      $367.3 million and adjustable rate loans of $71.1 million, with weighted
      average yields of 7.28% and 6.30%, respectively. Gross principal balances
      at March 31, 2002 consisted of fixed rate loans of $356.8 million and
      adjustable rate loans of $63.0 million, with weighted average yields of
      7.36% and 6.33%, respectively. Fixed rate and adjustable rate loans at
      March 31, 2001 totaled $290.4 million and $6.8 million, with weighted
      average yields of 7.72% and 7.55%, respectively.

      The Company primarily originates mortgage loans secured by existing
      single-family residential properties. The Company also originates
      multi-family and commercial mortgage loans, construction loans and
      consumer loans. Substantially all of the mortgage loan portfolio is
      secured by real estate properties located in Westchester County, New York
      and, to a lesser extent, Fairfield County, Connecticut. The ability of the
      Company's borrowers to make principal and interest payments is dependent
      upon, among other things, the level of overall economic activity and the
      real estate market conditions prevailing within the Company's concentrated
      lending area.

      Activity in the allowance for loan losses is summarized as follows:

<TABLE>
<CAPTION>
                                                          THREE MONTHS
                                                         ENDED JUNE 30,                 YEARS ENDED MARCH 31,
                                                       -------------------     ---------------------------------------
                                                        2002         2001         2002          2001            2000
                                                        ----         ----         ----          ----            ----
                                                                             (IN THOUSANDS)

<S>                                                 <C>          <C>           <C>           <C>           <C>
      Balance at beginning of period............    $   2,221    $   2,047     $  2,047      $   1,188     $   1,094
      Provision for loan losses.................           75           25          175            208           100
      Allowance transferred in Acquisition......           --           --           --            784            --
      Charge-offs...............................           --           --          (15)          (162)           (6)
      Recoveries................................           --           --           14             29            --
                                                      -------       ------       ------        -------       -------

      Balance at end of period..................    $   2,296    $   2,072     $  2,221      $   2,047     $   1,188
                                                      =======       ======       ======        =======       =======
</TABLE>

      The principal balances of nonaccrual loans past due ninety days or more
      are as follows:

<TABLE>
<CAPTION>
                                                                                               MARCH 31,
                                                                    JUNE 30,     -------------------------------------
                                                                      2002         2002          2001            2000
                                                                      ----         ----          ----            ----
                                                                                      (IN THOUSANDS)

<S>                                                               <C>           <C>           <C>           <C>
          One-to-four family mortgage loans....................   $     952     $    690      $     855     $     869
          Home equity lines of credit..........................          --           65             78           100
                                                                     ------       ------        -------       -------

          Total nonaccrual loans...............................   $     952     $    755      $     933     $     969
                                                                     ======       ======        =======       =======
</TABLE>

      Gross interest income that would have been recorded if the foregoing
      nonaccrual loans had remained current in accordance with their contractual
      terms totaled $20,000 for the three months ended June 30, 2002, and
      $67,000, $84,000 and $87,000 for the years ended March 31, 2002, 2001 and
      2000, respectively, compared to interest income actually recognized of
      $5,000, $20,000, $49,000 and $29,000, respectively.

      The Company had impaired loans of $96,000 at June 30, 2002, and $105,000
      at both March 31, 2002 and 2001, that were within the scope of SFAS No.
      114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN. The Company
      determines the need for an allowance for loan impairment under SFAS No.
      114 on a loan-by-loan basis, although no such allowances were required at
      the foregoing dates. The average recorded investment in impaired loans was
      $101,000 and $105,000 for the three months ended June 30, 2002 and 2001,
      and $105,000 and $178,000 for the

                                      F-17
<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      years ended March 31, 2002 and 2001, respectively. There were no impaired
      loans during the year ended March 31, 2000. No interest was collected or
      recognized as income on impaired loans while such loans were considered
      impaired.

      Other assets at March 31, 2002 and 2001 include real estate owned
      properties with net carrying values of $114,000 and $197,000, respectively
      (none at June 30, 2002). Provisions for losses and other activity in the
      allowance for losses on real estate owned were insignificant during the
      three months ended June 30, 2002 and 2001, and the years ended March 31,
      2002, 2001 and 2000.

(7)   PREMISES AND EQUIPMENT

      Premises and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                                                              MARCH 31,
                                                                             JUNE 30, ------------------------
                                                                              2002        2002         2001
                                                                              ----        ----         ----
                                                                                       (IN THOUSANDS)

<S>                                                                      <C>          <C>          <C>
           Land .....................................................    $       592  $       592  $       592
           Buildings and improvements................................          4,304        4,304        4,241
           Leasehold improvements....................................          1,524        1,519        1,502
           Furniture and equipment...................................          2,422        2,220        2,006
                                                                           ---------    ---------    ---------
                                                                               8,842        8,635        8,341

           Less accumulated depreciation and amortization............         (3,353)      (3,176)      (2,491)
                                                                           ----------   ---------    ---------

               Premises and equipment, net...........................    $     5,489  $     5,459  $     5,850
                                                                           =========    =========    =========
</TABLE>

(8)   DEPOSITS

      Deposit balances and weighted average stated interest rates are summarized
      as follows:

<TABLE>
<CAPTION>
                                                                                            MARCH 31,
                                                          JUNE 30,        ----------------------------------------------
                                                           2002                  2002                    2001
                                                   ---------------------  ---------------------   ----------------------
                                                    RATE       AMOUNT      RATE       AMOUNT       RATE        AMOUNT
                                                    ----       ------      ----       ------       ----        ------
                                                                         (DOLLARS IN THOUSANDS)

<S>                                                 <C>     <C>            <C>     <C>             <C>      <C>
        Savings and club accounts..............     1.00%   $   123,397    1.00%   $   118,578     2.00%    $   108,371
        Money market accounts..................     1.34         41,560    1.43         36,012     2.60          28,333
        NOW accounts...........................     0.75         48,514    0.76         47,578     1.27          38,710
        Commercial checking....................       --          6,382      --          5,436      --            2,390
                                                               --------               --------                ---------
               Total...........................     0.98        219,853    0.99        207,604     1.91         177,804
                                                               --------               --------                ---------

        Certificates of deposit by remaining
          term to contractual maturity:
             Within one year...................     3.03        270,443    3.24        268,116     6.01         272,570
             After one but within three years..     3.52         42,424    3.66         37,622     5.41          20,619
             After three years.................     4.67         11,906    4.62          6,563     4.85           2,553
                                                               --------               --------                ---------
               Total...........................     3.15        324,773    3.32        312,301     5.96         295,742
                                                               --------               --------                ---------

               Total deposits..................     2.27%   $   544,626    2.39%   $   519,905     4.44%    $   473,546
                                                               ========               ========                =========
</TABLE>

                                      F-18

<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      Certificates of deposit with denominations of $100,000 or more totaled
      $63.5 million, $59.5 million and $56.2 million at June 30, 2002, March 31,
      2002 and March 31, 2001, respectively.

      Interest expense on deposits is summarized as follows:

<TABLE>
<CAPTION>
                                                          THREE MONTHS
                                                         ENDED JUNE 30,                 YEARS ENDED MARCH 31,
                                                       -------------------     ---------------------------------------
                                                        2002         2001         2002          2001            2000
                                                        ----         ----         ----          ----            ----
                                                                             (IN THOUSANDS)

<S>                                                 <C>          <C>           <C>           <C>           <C>
      Passbook and club accounts................    $     311    $     511     $  1,609      $   2,420     $   1,245
      Money market, NOW and Super NOW
         accounts...............................          234          279        1,034          1,101           880
      Certificates of deposit...................        2,558        4,264       14,760         14,487         7,696
                                                      -------       ------      -------       --------       -------

         Total..................................    $   3,103    $   5,054     $ 17,403      $  18,008     $   9,821
                                                       ======       ======       ======        =======       =======
</TABLE>

(9)   BORROWINGS

      Borrowings under securities repurchase agreements with the FHLB are
      summarized as follows:

<TABLE>
<CAPTION>
                                                                                 MARCH 31,
                                              COUPON      JUNE 30,      ------------------------
                  MATURITY DATE                RATE        2002            2002           2001
                  -------------                ----        ----            ----           ----
                             (DOLLARS IN THOUSANDS)

<S>               <C>                           <C>     <C>             <C>            <C>
                  January 2008 (1)              5.42%   $    9,883      $    9,838     $   9,685
                  December 2008 (2)             4.72         5,000           5,000         4,927
                  March 2003                    2.54         7,000           7,000            --
                  March 2004                    3.57         7,000           7,000            --
                  March 2005                    4.22         6,000           6,000            --
                                                          --------        --------       -------

                  Total borrowings                      $   34,883      $   34,838     $  14,612
                                                          ========        ========       =======

                  Weighted average interest rate              4.17%           4.17%         5.18%
                  Accrued interest payable              $      158      $      166     $     124
                                                         =========        ========       =======
</TABLE>

                  (1)   Callable quarterly beginning January 2003.
                  (2)   Callable quarterly since November 2001.

      The securities transferred to the FHLB in repurchase agreements at June
      30, 2002 include U.S. Government and agency securities and mortgage-backed
      securities with fair values of $17.1 million and $18.9 million,
      respectively. The securities transferred to the FHLB in repurchase
      agreements include U.S. Government and agency securities and
      mortgage-backed securities of $23.8 million and $12.0 million,
      respectively, at March 31, 2002 ($6.0 million and $9.7 million,
      respectively, at March 31, 2001). Accrued interest receivable on these
      securities totaled $245,000, $500,000 and $191,000 at June 30, 2002, March
      31, 2002 and March 31, 2001, respectively.

                                      F-19

<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      In addition to securities repurchase agreements, the Bank may have
      outstanding borrowings from the FHLB of up to 25% of total assets, or
      approximately $102.3 million and $99.6 million at June 30, 2002 and March
      31, 2002, respectively, in a combination of term advances and overnight
      funds. Borrowings are secured by the Bank's investment in FHLB stock and
      by a blanket security agreement. This agreement requires the Bank to
      maintain as collateral certain qualifying assets (such as one-to-four
      family residential mortgage loans) with a fair value, as defined, at least
      equal to 110% of any outstanding advances.

      An outstanding FHLB advance of $84,000, $84,000 and $86,000 is also
      included in borrowings in the consolidated balance sheets at June 30,
      2002, March 31, 2002 and March 31, 2001, respectively. This advance bears
      interest at a fixed rate of 8.29% and matures in December 2002.

(10)  INCOME TAXES

      Income tax expense consists of the following components:

<TABLE>
<CAPTION>
                                                           THREE MONTHS
                                                           ENDED JUNE 30,                 YEARS ENDED MARCH 31,
                                                        -------------------     ---------------------------------------
                                                         2002         2001         2002          2001            2000
                                                         ----         ----         ----          ----            ----
                                                                              (IN THOUSANDS)
<S>                                                  <C>          <C>           <C>           <C>           <C>
       Federal:
          Current................................    $   1,151    $     559     $  2,722      $     705     $   1,392
          Deferred...............................          (18)          48          252            969          (132)
                                                       -------       ------       ------        -------       -------
                                                         1,133          607        2,974          1,674         1,260
                                                       -------       ------       ------        -------       -------
       State:
          Current................................          252           69          374             58           163
          Deferred...............................           (9)          12           28            318            20
                                                       -------       ------       ------        -------       -------
                                                           243           81          402            376           183
                                                       -------       ------       ------        -------       -------
       Total:
          Current................................        1,403          628        3,096            763         1,555
          Deferred...............................          (27)          60          280          1,287          (112)
                                                       -------       ------       ------        -------       -------

                                                     $   1,376    $     688     $  3,376      $   2,050     $   1,443
                                                       =======       ======       ======        =======       =======
</TABLE>

                                      F-20

<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      The following is a reconciliation of expected income taxes (computed at
      the applicable Federal statutory tax rate of 34%) to the Company's actual
      income tax expense:

<TABLE>
<CAPTION>
                                                           THREE MONTHS
                                                          ENDED JUNE 30,                 YEARS ENDED MARCH 31,
                                                        -------------------     ---------------------------------------
                                                         2002         2001         2002          2001            2000
                                                         ----         ----         ----          ----            ----
                                                                          (DOLLARS IN THOUSANDS)

<S>                                                  <C>          <C>           <C>           <C>           <C>
       Taxes at Federal statutory rate...........    $   1,203    $     633     $  3,110      $   1,601     $   1,304
       State tax expense, net of Federal tax
          benefit................................          160           53          265             248          121
       Goodwill amortization.....................           --           --           --             260           --
       Other reconciling items, net..............           13            2            1            (59)           18
                                                       -------       ------       ------        -------       -------

       Actual income tax expense.................    $   1,376    $     688     $  3,376      $   2,050     $   1,443
                                                       =======       ======       ======        =======       =======

       Effective income tax rate.................        38.9%        36.9%        36.9%          43.5%         37.6%
                                                         =====        =====        =====          =====         =====
</TABLE>

      The tax effects of temporary differences that give rise to the Company's
      deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                                                                                MARCH 31,
                                                                              JUNE 30,  ----------------------
                                                                               2002         2002         2001
                                                                               ----         ----         ----
                                                                                       (IN THOUSANDS)
<S>                                                                          <C>        <C>           <C>
           Deferred tax assets:
               Allowance for loan losses.............................        $   886    $     819     $    788
               Deferred compensation.................................            337          343          243
               Director emeritus plan................................            169          149          101
               Fair value adjustments on loans and securities recorded
                  in the Acquisition ................................            590          590        1,226
               Accrued pension cost..................................            316          411          294
               Other deductible temporary differences................             25           --          163
                                                                             -------      -------       ------
                    Total deferred tax assets........................          2,323        2,312        2,815
                                                                             -------      -------       ------

           Deferred tax liabilities:
               Net unrealized gain on securities available for sale..          1,153          757        1,560
               Tax bad debt reserves in excess of base-year reserves.            205          221          251
               Deferred loan costs...................................            205          194          313
               Fair value adjustments on buildings and borrowings
                  recorded in the Acquisition........................            165          180          287
               Other taxable temporary differences...................             22           18           31
                                                                             -------      -------       ------
                    Total deferred tax liabilities...................          1,750        1,370        2,442
                                                                             -------      -------       ------

           Net deferred tax asset....................................      $     573    $     942     $    373
                                                                             =======      =======       ======
</TABLE>

                                      F-21

<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      In assessing the realizability of the Company's total deferred tax assets,
      management considers whether it is more likely than not that some portion
      or all of those assets will not be realized. Based upon management's
      consideration of historical and anticipated future pre-tax income, as well
      as the reversal period for the items giving rise to the deferred tax
      assets and liabilities, a valuation allowance for deferred tax assets was
      not considered necessary at June 30, 2002, March 31, 2002 and March 31,
      2001.

      As a thrift institution, the Bank is subject to special provisions in the
      Federal and New York State tax laws regarding its allowable tax bad debt
      deductions and related tax bad debt reserves. These deductions
      historically were determined using methods based on loss experience or a
      percentage of taxable income. Tax bad debt reserves represent the excess
      of allowable deductions over actual bad debt losses, and include a defined
      base-year amount. SFAS No. 109 requires recognition of deferred tax
      liabilities with respect to reserves in excess of the base-year amount, as
      well as any portion of the base-year amount that is expected to become
      taxable (or "recaptured") in the foreseeable future.

      The Bank's base-year tax bad debt reserves totaled $9.0 million for
      Federal tax purposes and $8.7 million for State tax purposes at both June
      30, 2002 and March 31, 2002. In accordance with SFAS No. 109, deferred tax
      liabilities have not been recognized with respect to these reserves, since
      the Company does not expect that these amounts will become taxable in the
      foreseeable future. Under the tax laws, events that would result in
      taxation of these reserves include (i) redemptions of the Bank's stock or
      certain excess distributions by the Bank to Sound Federal Bancorp, and
      (ii) failure of the Bank to maintain a specified qualifying assets ratio
      or meet other thrift definition tests for New York State tax purposes. The
      unrecognized deferred tax liabilities with respect to the Bank's base-year
      reserves totaled approximately $3.8 million at both June 30, 2002 and
      March 31, 2002.

(11)  EMPLOYEE BENEFIT AND STOCK-BASED COMPENSATION PLANS

      PENSION PLANS

      The Company maintains non-contributory defined benefit pension plans that
      cover substantially all full-time employees who meet certain age and
      service requirements. Benefits are based on the employee's years of
      accredited service and average compensation for the three consecutive
      years that produce the highest average. The Company's funding policy is to
      contribute the amounts required by applicable regulations, although
      additional amounts may be contributed from time to time.

                                      F-22

<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      The following is a summary of the changes in the plans' projected benefit
      obligations and the fair value of the plans' assets, together with a
      reconciliation of the funded status to the accrued pension costs
      recognized in the consolidated balance sheets at March 31:

<TABLE>
<CAPTION>
                                                                                    2002          2001
                                                                                    ----          ----
                                                                                      (IN THOUSANDS)
<S>                                                                              <C>          <C>
      Change in benefit obligations:
          Beginning of year..................................................    $     8,523  $     4,864
          Benefit obligation assumed in Acquisition..........................             --        2,803
          Service cost.......................................................            190          118
          Interest cost......................................................            641          554
          Actuarial loss.....................................................            444          433
          Settlements........................................................           (918)          --
          Benefits paid......................................................           (438)        (249)
                                                                                   ---------    ---------

          End of year........................................................          8,442        8,523
                                                                                   ---------    ---------

      Change in fair value of plan assets:
          Beginning of year..................................................          7,266        4,420
          Assets received in Acquisition.....................................             --        2,286
          Actual return on plan assets.......................................            510          437
          Employer contributions.............................................            401          372
          Settlements........................................................           (918)          --
          Benefits paid......................................................           (438)        (249)
                                                                                   ---------    ---------
          End of year........................................................          6,821        7,266
                                                                                   ---------    ---------

      Funded status at end of year...........................................         (1,621)      (1,257)
      Unrecognized net actuarial loss........................................          1,144          708
      Unrecognized net transition obligation.................................              5           12
                                                                                   ---------    ---------

      Accrued pension cost...................................................    $       472  $       537
                                                                                   =========    =========

      Change in additional minimum liability:
          Charge to accumulated other comprehensive income...................    $       170  $        --
          Intangible asset...................................................              5           --
                                                                                   ---------    ---------
          Additional minimum liability.......................................    $       175  $        --
                                                                                   =========    =========
</TABLE>

      A discount rate of 7.00% and a rate of increase in future compensation
      levels of 4.25% were used in determining the actuarial present value of
      the projected benefit obligations at March 31, 2002 (7.25% and 4.75%,
      respectively, at March 31, 2001). The expected long-term rate of return on
      plan assets was 9.00% for 2002, 2001 and 2000.

                                      F-23

<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      The components of the net periodic pension expense were as follows for the
years ended March 31:

<TABLE>
<CAPTION>
                                                                                   2002          2001            2000
                                                                                   ----          ----            ----
                                                                                             (IN THOUSANDS)

<S>                                                                             <C>           <C>           <C>
       Service cost........................................................     $    190      $     118     $      69
       Interest cost.......................................................          641            554           343
       Expected return on plan assets......................................         (651)          (547)         (394)
       Recognized net actuarial loss.......................................           53              2            27
       Settlement charge...................................................           16             --            --
       Amortization of prior service cost and net
          transition obligation............................................            7             21            53
                                                                                  ------        -------       -------

          Net periodic pension expense.....................................     $    256      $     148     $      98
                                                                                  ======        =======       =======
</TABLE>

      Net periodic pension expense was $76,000 and $40,000 for the three months
      ended June 30, 2002 and 2001, respectively.

      DIRECTOR EMERITUS PLAN

      The Company maintains a non-qualified, unfunded Director Emeritus Plan.
      The plan provides for payments to directors who reach emeritus status, in
      annual amounts equal to the compensation earned as a director at the time
      of retirement. Payments are made to the Director Emeritus for a period not
      to exceed fifteen years or age 85 or until the death of the Director
      Emeritus, whichever comes first. Directors qualify for emeritus status
      upon attaining age 70 with at least 15 years of board service (5 years if
      directorship ceases as a result of a merger, consolidation or similar
      transaction). The plan's projected benefit obligation and unrecognized
      prior service cost were $741,000 and $475,000, respectively, at March 31,
      2002 ($704,000 and $554,000, respectively, at March 31, 2001). Total
      expense for this plan was $37,000 and $33,000 for the three months ended
      June 30, 2002 and 2001, respectively, and $133,000, $96,000 and $94,000
      for the years ended March 31, 2002, 2001 and 2000, respectively.

      SAVINGS PLAN

      The Company maintains an employee savings plan under Section 401(k) of the
      Internal Revenue Code. Eligible employees are able to make contributions
      to the plan of up to 10% of their compensation. Prior to February 1, 1999,
      the Company made matching contributions equal to 50% of the participant's
      contributions to the plan. The Company ceased its matching contributions
      effective February 1, 1999. Participants vest immediately in both their
      own contributions and Company contributions.

      EMPLOYEE STOCK OWNERSHIP PLAN

      In connection with the Reorganization and Offering, the Company
      established an ESOP for eligible employees who meet certain age and
      service requirements. The ESOP borrowed approximately $1.9 million from
      Sound Federal Bancorp and used the funds to purchase 192,129 shares of
      common stock sold in the Offering. The Bank makes periodic contributions
      to the ESOP sufficient to satisfy the debt service requirements of the
      loan which has a ten-year term and bears interest at the prime rate. The
      ESOP uses these contributions and any dividends received by the ESOP on
      unallocated shares to make principal and interest payments on the loan.

                                      F-24

<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      Shares purchased by the ESOP are held in a suspense account by the plan
      trustee until allocated to participant accounts. Shares released from the
      suspense account are allocated to participants on the basis of their
      relative compensation in the year of allocation. Participants become
      vested in the allocated shares over a period not to exceed five years. Any
      forfeited shares are allocated to other participants in the same
      proportion as contributions.

      ESOP expense was $92,000 and $51,000 for the three months ended June 30,
      2002 and 2001, respectively, and $246,000, $176,000 and $178,000 for the
      years ended March 31, 2002, 2001 and 2000, respectively. The cost of the
      ESOP shares that have not yet been allocated or committed to be released
      to participants is deducted from stockholders' equity (105,674 shares and
      110,473 shares at June 30, 2002 and March 31, 2002, respectively). The
      fair value of these shares was approximately $2.5 million at June 30, 2002
      and $1.7 million at March 31, 2002.

      STOCK OPTION PLAN

      On October 14, 1999, stockholders approved the Sound Federal Bancorp 1999
      Stock Option Plan (the "Stock Option Plan"). A total of 210,738 shares of
      authorized but unissued common stock were reserved for issuance under the
      Stock Option Plan. Options have a ten-year term and may be either
      non-qualified stock options or incentive stock options. Each option
      entitles the holder to purchase one share of common stock at an exercise
      price equal to the fair market value of the stock on the grant date.

      Effective October 20, 1999, initial option grants were made under the
      Stock Option Plan for 210,738 shares at an exercise price of $9.125 per
      share. During the year ended March 31, 2002, 8,000 options were exercised.
      A total of 202,738 options were outstanding at March 31, 2002, including
      126,043 that were exercisable at that date. During the three months ended
      June 30, 2002, 3,000 options were exercised, resulting in a total of
      199,738 outstanding options at June 30, 2002, including 123,043 that were
      exercisable at that date.

      In accordance with the provisions of APB Opinion No. 25 related to fixed
      stock options, compensation expense is not recognized with respect to
      these options since the exercise price equals the fair value of the common
      stock at the grant date. Under the alternative fair-value-based method
      defined in SFAS No. 123, the grant-date fair value of fixed stock options
      is recognized as expense over the vesting period. The estimated per-share
      fair value of options granted in October 1999 was $2.25, estimated using
      the Black-Scholes option-pricing model with assumptions as follows:
      dividend yield of 3.1%; expected volatility rate of 20.0%; risk-free
      interest rate of 6.4%; and expected option life of 7 years. Had the
      Company applied the fair-value-based method to the options granted, it
      would have reported net income, basic earnings per share and diluted
      earnings per share of $2.1 million, $0.44 and $0.44, respectively, for the
      three months ended June 30, 2002; $1.1 million, $0.23 and $0.23,
      respectively, for the three months ended June 30, 2001; $5.7 million,
      $1.22 and $1.21, respectively, for the year ended March 31, 2002; $2.6
      million, $0.54 and $0.54, respectively, for the year ended March 31, 2001;
      and $2.3 million, $0.46 and $0.46, respectively, for the year ended March
      31, 2000.

      RECOGNITION AND RETENTION PLAN

      On October 14, 1999, stockholders also approved the Sound Federal Bancorp
      1999 Recognition and Retention Plan (the "RRP"). The purpose of the RRP is
      to provide officers and non-employee directors of the Company with a
      proprietary interest in the Company in a manner designed to encourage
      their retention. A total of 105,369 shares were awarded under the RRP in
      October 1999 and funded with shares purchased by the Company in the open
      market. The grant-date fair value of these shares was charged to
      stockholders' equity. The awards vest at a rate of 20% on each of five
      annual vesting dates, the first of which was January 1, 2000. RRP expense
      for both the three months ended June 30, 2002 and 2001 amounted to
      $36,000. RRP expense for the year ended March 31, 2002 amounted to
      $148,000. RRP expense for the year ended March 31, 2001 was $329,000 and
      included $148,000 for

                                      F-25

<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      awards that vested as a result of the retirement of certain participants.
      RRP expense for the year ended March 31, 2000 was $240,000 and included
      $193,000 for the 20% of the 1999 awards that vested on January 1, 2000.

(12)  COMMITMENTS AND CONTINGENCIES

      OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

      The Company's off-balance sheet financial instruments at June 30, 2002,
      March 31, 2002 and March 31, 2001 were limited to loan origination
      commitments of $25.5 million, $28.7 million and $16.8 million,
      respectively, and unused lines of credit (principally fixed rate home
      equity lines) extended to customers of $40.1 million, $36.8 million and
      $31.1 million, respectively. Substantially all of these commitments and
      lines of credit have been provided to customers within the Company's
      primary lending area described in Note 6. Loan origination commitments at
      June 30, 2002 consisted of adjustable rate and fixed rate commitments of
      $9.2 million and $16.3 million, respectively, with weighted average yields
      of 6.21% and 7.00%, respectively. Loan origination commitments at March
      31, 2002 consisted of adjustable rate and fixed rate commitments of $4.8
      million and $23.9 million, respectively, with weighted average yields of
      6.78% and 6.68%, respectively. Substantially all of the commitments at
      March 31, 2001 carried fixed interest rates ranging from 6.75% to 10.50%.

      Loan origination commitments and lines of credit are contractual
      agreements to lend to customers within specified time periods at interest
      rates and on other terms specified in the agreements. These financial
      instruments involve elements of credit risk and interest rate risk in
      addition to the amounts for funded loans recognized in the consolidated
      balance sheets. The contractual amounts of commitments and lines of credit
      represent the Company's maximum potential exposure to credit loss
      (assuming that the agreements are fully funded and any collateral proves
      to be worthless), but do not necessarily represent future cash
      requirements since certain agreements may expire without being fully
      funded. Loan commitments generally have fixed expiration dates (ranging up
      to three months) or other termination clauses and may require the payment
      of a fee by the customer. Commitments and lines of credit are subject to
      the same credit approval process applied in the Company's general lending
      activities, including a case-by-case evaluation of the customer's
      creditworthiness and related collateral requirements.

      LEASE COMMITMENTS

      The Company is obligated under non-cancelable operating leases for six
      branch offices. Rent expense under these leases was $96,000 and $73,000
      for the three months ended June 30, 2002 and 2001, respectively, and
      $304,000, $258,000 and $176,000 for the years ended March 31, 2002, 2001
      and 2000, respectively. At March 31, 2002, the future minimum rental
      payments under these lease agreements for the fiscal years ending March 31
      are $385,000 in 2003, $395,000 in 2004, $382,000 in 2005, $388,000 in
      2006, $395,000 in 2007, and a total of $2.6 million for 2008 and
      thereafter. There were no significant changes in future minimum lease
      rentals during the three months ended June 30, 2002.

      LEGAL PROCEEDINGS

      In the normal course of business, the Company is involved in various
      outstanding legal proceedings. In the opinion of management, after
      consultation with legal counsel, the outcome of such legal proceedings
      should not have a material effect on the Company's financial condition,
      results of operations or liquidity.

                                      F-26

<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

(13)  REGULATORY MATTERS

      REGULATORY CAPITAL REQUIREMENTS

      OTS regulations require savings institutions to maintain a minimum ratio
      of tangible capital to total adjusted assets of 1.5%, a minimum ratio of
      Tier I (core) capital to total adjusted assets of 4.0%, and a minimum
      ratio of Total (core and supplementary) capital to risk-weighted assets of
      8.0%.

      Under its prompt corrective action regulations, the OTS is required to
      take certain supervisory actions with respect to an undercapitalized
      institution. Such actions could have a direct material effect on the
      institution's financial statements. The regulations establish a framework
      for the classification of depository institutions into five categories:
      well capitalized, adequately capitalized, undercapitalized, significantly
      undercapitalized, and critically undercapitalized. Generally, an
      institution is considered well capitalized if it has a Tier I (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%.

      The foregoing capital ratios are based in part on specific quantitative
      measures of assets, liabilities and certain off-balance sheet items as
      calculated under regulatory accounting practices. Capital amounts and
      classifications are also subject to qualitative judgments by the OTS about
      capital components, risk weightings and other factors. These capital
      requirements apply only to the Bank, and do not consider additional
      capital retained by Sound Federal Bancorp.

      Management believes that, as of June 30, 2002, March 31, 2002 and March
      31, 2001, the Bank met all capital adequacy requirements to which it was
      subject. Further, the most recent OTS notification categorized the Bank as
      a well-capitalized institution under the prompt corrective action
      regulations. There have been no conditions or events since that
      notification that management believes have changed the Bank's capital
      classification.









                                      F-27

<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      The following is a summary of the Bank's actual capital amounts and
      ratios, compared to the OTS requirements for minimum capital adequacy and
      for classification as a well-capitalized institution. In accordance with
      the applicable regulatory requirements, the Bank's actual tangible and
      Tier 1 capital amounts exclude goodwill and the after-tax net unrealized
      gain on securities available for sale, while the Total risk-based capital
      amounts include the allowance for loan losses.

<TABLE>
<CAPTION>
                                                                           OTS REQUIREMENTS
                                                            -----------------------------------------------------
                                                               MINIMUM CAPITAL            CLASSIFICATION AS
                                       BANK ACTUAL                  ADEQUACY                WELL CAPITALIZED
                                -------------------------   -------------------------   -------------------------
                                   AMOUNT        RATIO         AMOUNT        RATIO         AMOUNT        RATIO
                                   ------        -----         ------        -----         ------        -----
                                                               (DOLLARS IN THOUSANDS)
<S>                             <C>              <C>        <C>               <C>         <C>            <C>
       JUNE 30, 2002
       -------------
        Tangible capital.....   $  42,113         6.6%      $  9,528          1.5%
        Tier I (core) capital.     42,113         6.6         25,405          4.0         $  31,757       5.0%
        Risk-based capital:
           Tier I............      42,113        13.1                                        19,341       6.0
           Total.............      44,410        13.8         25,788          8.0            32,236      10.0

       MARCH 31, 2002
       --------------
        Tangible capital.....   $  39,865         6.5%      $  9,139          1.5%
        Tier I (core) capital.     39,865         6.5         24,371          4.0         $  30,464      5.0%
        Risk-based capital:
           Tier I............      39,865        12.7                                        18,776      6.0
           Total.............      42,087        13.5         25,035          8.0            31,294     10.0

       MARCH 31, 2001
       --------------
        Tangible capital.....   $  34,247         6.4%      $  8,029          1.5%
        Tier I (core) capital      34,247         6.4         21,410          4.0         $  26,763      5.0%
        Risk-based capital:
           Tier I............      34,247        14.8                                        13,847      6.0
           Total.............      36,294        15.7         18,463          8.0            23,079     10.0
</TABLE>

      DIVIDEND LIMITATIONS

      Under current OTS regulations, savings associations such as the Bank
      generally may declare annual cash dividends up to an amount equal to net
      income for the current year plus retained net income for the two preceding
      years. Dividends in excess of this amount require OTS approval. Unlike the
      Bank, Sound Federal Bancorp is not subject to OTS regulatory limitations
      on the payment of dividends to its shareholders. Beginning in April 1999,
      Sound Federal Bancorp has declared a quarterly cash dividend of $0.07 per
      common share. Since October 1999, the Mutual Holding Company has waived
      receipt of this dividend with respect to all of its shares. The cumulative
      amount of dividends waived through June 30, 2002 was $2.2 million.

      STOCK REPURCHASE PROGRAMS

      In July 1999, the Company announced a stock repurchase program to acquire
      up to 344,926 shares of its common stock, which represents approximately
      15% of the common stock held by persons other than the Mutual Holding
      Company. This repurchase program was completed in February 2001. In March
      2001, the Company announced a program to repurchase up to 206,000 shares
      of its common stock. As of June 30, 2002, the Company had acquired 444,926
      shares of its common stock as treasury shares, at a total cost of
      approximately $4.4 million or an average of $9.78 per share.

                                      F-28

<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      LIQUIDATION RIGHTS

      All depositors who had liquidation rights with respect to the Bank as of
      the effective date of the Reorganization continue to have such rights
      solely with respect to the Mutual Holding Company, as long as they
      continue to hold deposit accounts with the Bank. In addition, all persons
      who become depositors of the Bank subsequent to the Reorganization will
      have such liquidation rights with respect to the Mutual Holding Company.

(14)  COMPREHENSIVE INCOME

      Comprehensive income represents the sum of net income and items of "other
      comprehensive income or loss" that are reported directly in stockholders'
      equity, such as the change during the period in the after-tax net
      unrealized gain or loss on securities available for sale. The Company has
      reported its total comprehensive income in the consolidated statements of
      changes in stockholders' equity.

      The Company's other comprehensive income (loss) is summarized as follows:

<TABLE>
<CAPTION>
                                                           THREE MONTHS
                                                          ENDED JUNE 30,                 YEARS ENDED MARCH 31,
                                                        -------------------     --------------------------------------
                                                         2002         2001         2002          2001            2000
                                                         ----         ----         ----          ----            ----
                                                                              (IN THOUSANDS)
<S>                                                  <C>          <C>           <C>           <C>           <C>
       Net unrealized holding gain (loss) arising
          during the period on securities available
          for sale...............................    $   1,023    $    (250)    $ (1,850)     $   5,823     $  (1,788)
       Additional minimum pension liability......           --           --         (170)            --            --
       Related deferred income tax effect........         (396)         101          869         (2,369)          718
                                                       --------      ------       ------        -------       -------

       Other comprehensive income (loss).........    $     627    $    (149)    $ (1,151)     $   3,454     $  (1,070)
                                                       =======       =======      ======        =======       =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                              MARCH 31,
                                                                             JUNE 30, -----------------------
                                                                              2002        2002         2001
                                                                              ----        ----         ----
                                                                                       (IN THOUSANDS)

<S>                                                                      <C>          <C>          <C>
           Net unrealized holding gain on securities available for sale  $     2,985  $     1,962  $     3,812
           Additional minimum pension liability......................           (170)        (170)          --
           Related deferred income taxes.............................         (1,087)        (691)      (1,560)
                                                                           ----------   ---------    ---------

           Accumulated other comprehensive income ...................    $     1,728  $     1,101  $     2,252
                                                                           =========    =========    =========
</TABLE>

                                      F-29

<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

(15)  EARNINGS PER SHARE

      The following is a summary of the Company's EPS calculations. For purposes
      of computing basic EPS, net income applicable to common stock equaled net
      income for all periods.

<TABLE>
<CAPTION>
                                                   THREE MONTHS
                                                    ENDED JUNE 30,                YEARS ENDED MARCH 31,
                                               ------------------------ --------------------------------------
                                                   2002         2001        2002         2001           2000
                                                   ----         ----        ----         ----           ----
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)

<S>                                             <C>          <C>         <C>         <C>           <C>
      Net income.............................   $    2,161   $    1,175  $    5,770  $    2,659    $    2,392
                                                  ========     ========    ========    ========      ========
      Weighted average common shares
          outstanding for computation of
          basic EPS (1)......................        4,649        4,633       4,639       4,783         4,949
      Common-equivalent shares due to the
          dilutive effect of stock options
          and RRP awards (2).................           94           29          56          --             2
                                                  --------     --------    --------    --------      --------
      Weighted average common shares for
          computation of diluted EPS.........        4,743        4,662       4,695       4,783         4,951
                                                  ========     ========    ========    ========      ========

      Earnings per common share:
          Basic..............................   $     0.46   $     0.25  $     1.24  $     0.56    $     0.48
          Diluted............................         0.46         0.25        1.23        0.56          0.48
                                                 ==========   ==========  ==========  ==========    ==========
</TABLE>

      (1)   Includes all shares issued to the Mutual Holding Company and
            contributed to the Charitable Foundation. Excludes RRP shares that
            have not vested and unallocated ESOP shares that have not been
            released or committed to be released to participants.
      (2)   Represents an incremental number of shares computed using the
            treasury stock method.

(16)  FAIR VALUES OF FINANCIAL INSTRUMENTS

      SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,
      requires disclosures for financial instruments for which it is practicable
      to estimate fair value. The definition of a financial instrument includes
      many of the assets and liabilities recognized in the Company's
      consolidated balance sheets, as well as certain off-balance sheet items.
      Fair value is defined in SFAS No. 107 as the amount at which a financial
      instrument could be exchanged in a current transaction between willing
      parties, other than in a forced sale or liquidation.

      Quoted market prices are used to estimate fair values when those prices
      are available. However, active markets do not exist for many types of
      financial instruments. Consequently, fair values for these instruments
      must be estimated by management using techniques such as discounted cash
      flow analysis and comparison to similar instruments. Estimates developed
      using these methods are highly subjective and require judgments regarding
      significant matters such as the amount and timing of future cash flows and
      the selection of discount rates that appropriately reflect market and
      credit risks. Changes in these judgments often have a material effect on
      the fair value estimates. Since these estimates are made as of a specific
      point in time, they are susceptible to material near-term changes. Fair
      values disclosed in accordance with SFAS No. 107 do not reflect any
      premium or discount that could result from the sale of a large volume of a
      particular financial instrument, nor do they reflect possible tax
      ramifications or estimated transaction costs.

                                      F-30

<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      The following is a summary of the carrying amounts and estimated fair
      values of the Company's financial assets and liabilities (none of which
      were held for trading purposes):

<TABLE>
<CAPTION>
                                                                                      MARCH 31,
                                                JUNE 30,           ------------------------------------------------
                                                  2002                      2002                      2001
                                          --------------------     ---------------------      ---------------------
                                            CARRYING     FAIR        CARRYING      FAIR        CARRYING     FAIR
                                             AMOUNT      VALUE        AMOUNT       VALUE        AMOUNT      VALUE
                                             ------      -----        ------       -----        ------      -----
                                                                       (IN MILLIONS)
<S>                                        <C>        <C>            <C>        <C>           <C>         <C>
     Financial assets:
        Cash and due from banks........    $    6.7   $    6.7       $   6.9    $    6.9      $    5.8    $    5.8
        Federal funds sold and other
          overnight deposits...........        35.4       35.4          19.8        19.8          35.0        35.0
        Other interest-earning assets..         --         --           --          --             2.5         2.5
        Securities.....................       143.8      143.8         150.2       150.2         185.7       185.8
        Loans..........................       437.4      448.1         418.4       426.4         293.8       299.4
        Accrued interest receivable....         3.5        3.5           3.2         3.2           3.4         3.4
        FHLB stock.....................         4.1        4.1           4.1         4.1           3.7         3.7
     Financial liabilities:
        Savings certificate accounts...       324.8      326.8         312.3       313.5         295.7       298.8
        Other deposit accounts.........       219.9      219.9         207.6       207.6         177.8       177.8
        Borrowings.....................        35.0       36.3          34.9        35.4          14.7        15.5
        Mortgage escrow funds..........         4.4        4.4           5.0         5.0           4.5         4.5
                                             ======    =======        ======      ======        ======      ======
</TABLE>

      The following is a description of the valuation methods used by the
      Company to estimate the fair values of its financial instruments:

      SECURITIES

      The fair values of securities were based on market prices or dealer
      quotes.

      LOANS

      For valuation purposes, the loan portfolio was segregated into its
      significant categories, such as residential mortgage loans and consumer
      loans. These categories were further analyzed, where appropriate, into
      components based on significant financial characteristics such as type of
      interest rate (fixed or adjustable). Generally, management estimated fair
      values by discounting the anticipated cash flows at current market rates
      for loans with similar terms to borrowers of similar credit quality.

      DEPOSIT LIABILITIES

      The fair values of savings certificate accounts represent contractual cash
      flows discounted using interest rates currently offered on certificates
      with similar characteristics and remaining maturities (but are not less
      than the net amount at which depositors could settle their accounts). In
      accordance with SFAS No. 107, the fair values of other deposit accounts
      (those with no stated maturity, such as passbook and money market
      accounts) are equal to the carrying amounts payable on demand. These fair
      values do not include the value of core deposit relationships that
      comprise a significant portion of the Company's deposit base. Management
      believes that these core deposit

                                      F-31

<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      relationships provide a relatively stable, low-cost funding source that
      has a substantial unrecognized value separate from the deposit balances.

      BORROWINGS

      The fair values of securities repurchase agreements and FHLB advances
      represent contractual repayments discounted using interest rates currently
      available on borrowings with similar characteristics and remaining
      maturities.

      OTHER FINANCIAL INSTRUMENTS

      The remaining financial assets and liabilities listed in the preceding
      table have fair values that approximate the respective carrying amounts in
      the consolidated balance sheets because the instruments are payable on
      demand or have short-term maturities and present relatively low credit
      risk and interest rate risk. Fair values of the loan origination
      commitments and unused lines of credit described in Note 12 were estimated
      based on an analysis of the interest rates and fees currently charged to
      enter into similar transactions, considering the remaining terms of the
      instruments and the creditworthiness of the potential borrowers. At June
      30, 2002, March 31, 2002 and March 31, 2001, the fair values of these
      instruments approximated the related carrying amounts.





                                      F-32

<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

(17)  PARENT COMPANY CONDENSED FINANCIAL STATEMENTS

      Set forth below are condensed financial statements of Sound Federal
      Bancorp:

<TABLE>
<CAPTION>
                                                                                                        MARCH 31,
                                                                               JUNE 30,      -----------------------------
        CONDENSED BALANCE SHEETS                                                 2002             2002             2001
                                                                                 ----             ----             ----
                                                                                            (IN THOUSANDS)
<S>                                                                         <C>              <C>              <C>
        ASSETS
        Interest-bearing deposits at subsidiary bank.................       $      5,075     $      5,229     $      6,116
        Loan receivable from ESOP....................................              1,153            1,153            1,345
        Investment in subsidiary bank................................             57,891           55,082           50,468
        Other assets.................................................                998              931              704
                                                                               ---------        ---------        ---------
                Total assets.........................................       $     65,117     $     62,395     $     58,633
                                                                               =========        =========        =========

        LIABILITIES..................................................       $      1,297     $      1,380     $      1,704
        STOCKHOLDERS' EQUITY.........................................             63,820           61,015           56,929
                                                                               ---------        ---------        ---------
                Total liabilities and stockholders' equity...........       $     65,117     $     62,395     $     58,633
                                                                               =========        =========        =========

<CAPTION>

                                                                 THREE MONTHS
                                                                ENDED JUNE 30,                 YEARS ENDED MARCH 31,
                                                          -------------------------  --------------------------------------
       CONDENSED STATEMENTS OF INCOME                         2002          2001         2002         2001          2000
                                                              ----          ----         ----         ----          ----
                                                                                    (IN THOUSANDS)

<S>                                                       <C>            <C>         <C>           <C>          <C>
       Interest income..............................      $       52     $      79   $      269    $     345    $      410
       Other expenses...............................             (88)          (41)        (208)         (77)         (221)
                                                              -------      --------      -------     --------    ---------
       (Loss) income before income taxes and
          equity in undistributed earnings of
          subsidiary bank...........................             (36)           38           61          268           189
       Income tax (benefit) expense.................             (14)           44           56           56            48
                                                              -------      -------       ------      -------     ---------
       (Loss) income before equity in undistributed
           earnings of subsidiary bank..............             (22)           (6)           5          212           141
       Equity in undistributed earnings of subsidiary
           bank.....................................           2,183         1,181        5,765        2,447         2,251
                                                              ------       -------       ------      -------      --------
       Net income...................................      $    2,161     $   1,175   $    5,770    $   2,659    $    2,392
                                                              ======       =======       ======      =======      ========
</TABLE>

                                      F-33

<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

<TABLE>
<CAPTION>

                                                           THREE MONTHS
                                                           ENDED JUNE 30,                   YEARS ENDED MARCH 31,
                                                     --------------------------   -----------------------------------------
       CONDENSED STATEMENTS OF CASH FLOWS                2002          2001           2002          2001           2000
                                                         ----          ----           ----          ----           ----
                                                                                  (IN THOUSANDS)
<S>                                                  <C>           <C>            <C>           <C>           <C>
       OPERATING ACTIVITIES
       Net income..............................      $    2,161    $    1,175     $    5,770    $    2,659    $     2,392
       Adjustments to reconcile net income to net
           cash (used in) provided by operating
           activities:
             Equity in undistributed earnings of
               subsidiary bank.................          (2,183)       (1,181)        (5,765)       (2,447)        (2,251)
             (Increase) decrease in other
               assets..........................             (67)          (67)          (227)         (148)            12
             Other.............................              46            24             70            (2)           (70)
                                                         ------        ------         ------        -------       --------
                 Net cash (used in)  provided
                   by operating activities.....             (43)          (49)          (152)           62             83
                                                         ------        -------        -------       ------        -------

       INVESTING ACTIVITIES
       ESOP loan repayments....................              --            --            192           192            192
                                                         ------        ------         ------        ------        -------

       FINANCING ACTIVITIES
       Purchases of treasury stock.............              --          (483)          (483)       (1,798)        (2,069)
       Issuance of stock pursuant to stock
           option plan.........................              27            --             73            --             --
       Payment of cash dividends on common stock...        (138)         (140)          (517)         (580)        (1,004)
                                                         -------       -------        -------   -----------       --------
                 Net cash used in financing
                   activities..................            (111)         (623)          (927)       (2,378)        (3,073)
                                                         -------       -------        -------       -------       --------
       Net decrease in cash and cash
           equivalents.........................            (154)         (672)          (887)       (2,124)        (2,798)
       Cash and cash equivalents at beginning
           of period...........................           5,229         6,116          6,116         8,240         11,038
                                                         ------        ------         ------        ------        -------
       Cash and cash equivalents at end
           of period...........................      $    5,075    $    5,444     $    5,229    $    6,116    $     8,240
                                                         ======        ======         ======         =====        =======
</TABLE>

                                      F-34

<PAGE>

                      SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

(18)  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

      The following is a condensed summary of quarterly results of operations
      for the years ended March 31, 2002 and 2001:

<TABLE>
<CAPTION>
                                                              FIRST           SECOND        THIRD          FOURTH
                                                             QUARTER         QUARTER       QUARTER         QUARTER
                                                             -------         -------       -------         -------
                                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                        <C>             <C>           <C>              <C>
      YEAR ENDED MARCH 31, 2002
      -------------------------
      Interest and dividend income...................      $     9,365     $     9,464   $     9,445      $   9,171
      Interest expense...............................            5,339           4,961         4,650          3,589
                                                           -----------     -----------   -----------      ---------
      Net interest income............................            4,026           4,503         4,795          5,582
      Provision for loan losses......................               25              25            75             50
      Non-interest income............................              196             169           194            172
      Non-interest expense...........................            2,334           2,421         2,535          3,026
                                                           -----------     -----------   -----------      ---------
      Income before income tax expense...............            1,863           2,226         2,379          2,678
      Income tax expense.............................              688             854           914            920
                                                           -----------     -----------   -----------      ---------
      Net income.....................................      $     1,175     $     1,372   $     1,465      $   1,758
                                                           ===========     ===========   ===========      =========

      Basic earnings per common share................      $      0.25     $      0.30   $      0.32      $    0.38
      Diluted earnings per common share..............             0.25            0.29          0.31           0.37
                                                           ===========     ===========   ============     =========

      YEAR ENDED MARCH 31, 2001
      -------------------------
      Interest and dividend income...................      $     5,730     $     8,610   $     9,635      $   9,601
      Interest expense...............................            2,896           4,808         5,701          5,603
                                                           -----------     -----------   -----------      ---------
      Net interest income............................            2,834           3,802         3,934          3,998
      Provision for loan losses......................               50              58            50             50
      Non-interest income............................               55              66           146            115
      Non-interest expense...........................            1,888           2,550         2,868          2,727
                                                           -----------     -----------   -----------      ---------
      Income before income tax expense...............              951           1,260         1,162          1,336
      Income tax expense.............................              356             590           491            613
                                                           -----------     -----------   -----------      ---------
      Net income.....................................      $       595     $       670   $       671      $     723
                                                           ===========     ===========   ===========      =========

      Basic and diluted earnings per common share....      $      0.12     $      0.14   $      0.14      $    0.15
                                                           ===========     ===========   ===========      =========
</TABLE>

                                      F-35

<PAGE>

--------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY SOUND FEDERAL BANCORP OR SOUND FEDERAL SAVINGS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF SOUND FEDERAL
BANCORP OR SOUND FEDERAL SAVINGS SINCE ANY OF THE DATES AS OF WHICH INFORMATION
IS FURNISHED HEREIN OR SINCE THE DATE HEREOF.


                             UP TO 6,765,910 SHARES
                              (ANTICIPATED MAXIMUM)

                              SOUND FEDERAL BANCORP

                              (HOLDING COMPANY FOR
                   SOUND FEDERAL SAVINGS AND LOAN ASSOCIATION)


                                  COMMON STOCK
                            PAR VALUE $0.01 PER SHARE


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

                                   PROSPECTUS
                               ------------------


                          KEEFE, BRUYETTE & WOODS, INC.


                                NOVEMBER __, 2002
                                ----------------

                  THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
                  AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
                                ----------------

UNTIL DECEMBER __, 2002 OR 25 DAYS AFTER COMMENCEMENT OF THE SYNDICATED
COMMUNITY OFFERING, IF ANY, WHICHEVER IS LATER, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OF SUBSCRIPTIONS.
--------------------------------------------------------------------------------

<PAGE>

PART II:    INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.    OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
                                                                                             AMOUNT

<S>                                                                                  <C>
      *     Legal Fees and Expenses............................................      $      320,000
      *     Printing, Postage, Mailing and EDGAR...............................             190,000
      *     Appraisal and Business Plan Fees and Expenses......................              34,000
      *     Accounting and State Tax Fees and Expenses.........................             100,000
      *     Conversion Agent and Data Processing Fees..........................              60,000
      **    Marketing Agent Fees and Expenses..................................             825,500
      *     Marketing Agent Counsel Fees and expenses..........................              35,000
      *     Filing Fees (OTS, NASD, Nasdaq and SEC)............................              56,767
      *     Other..............................................................              45,733
                                                                                     --------------
      *     Total .............................................................      $    1,682,000
                                                                                     ==============
</TABLE>
*     Estimated
**    Sound Federal Bancorp has retained Keefe, Bruyette & Woods, Inc. to assist
      in the sale of common stock on a best efforts basis in the Offerings. Fees
      are estimated at the maximum of the offering range.

ITEM 14.    INDEMNIFICATION OF DIRECTORS AND OFFICERS

      Article TENTH of the Certificate of Incorporation of Sound Federal Bancorp
(the "Corporation") sets forth circumstances under which directors, officers,
employees and agents of the Corporation may be insured or indemnified against
liability which they incur in their capacities as such:

      TENTH:

      A.    Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent or in any other capacity while serving as a Director, Officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as provided
in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.

      B.    The right to indemnification conferred in Section A of this Article
TENTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a Director or Officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections A and B of this Article TENTH shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a

<PAGE>

Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.

      C.    If a claim under Section A or B of this Article TENTH is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article TENTH or otherwise shall be on the Corporation.

      D.    The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested Directors or otherwise.

      E.    The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.

      F.    The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the advancement
of expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.

ITEM 15.    RECENT SALES OF UNREGISTERED SECURITIES

            Not Applicable.

<PAGE>

ITEM 16.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:

            The exhibits and financial statement schedules filed as part of this
registration statement are as follows:

            (A) LIST OF EXHIBITS

1.1   Engagement Letter between the Registrant and Keefe, Bruyette & Woods, Inc.
1.2   Form of Agency Agreement between the Registrant and Keefe, Bruyette &
      Woods, Inc.
2     Plan of Conversion and Reorganization
3.1   Certificate of Incorporation of Sound Federal Bancorp (Included in Exhibit
      2)
3.2   Bylaws of Sound Federal Bancorp (Included in Exhibit 2)
4     Form of Common Stock Certificate of Sound Federal Bancorp
5     Opinion of Luse Gorman Pomerenk & Schick regarding legality of securities
      being registered
8.1   Form of Federal Tax Opinion of Luse Gorman Pomerenk & Schick
10.1  Sound Federal Bancorp 1999 Stock Option Plan**
10.2  Sound Federal Bancorp 1999 Recognition and Retention Plan**
10.3  Employment Agreement with Richard P. McStravick***
10.4  Employee Stock Ownership Plan
21    Subsidiaries of Registrant
23.1  Consent of Luse Gorman Pomerenk & Schick (contained in Opinions included
      as Exhibits 5 and 8.1)
23.2  Consent of KPMG LLP
23.3  Consent of FinPro, Inc.
24    Power of Attorney (set forth on signature page)
99.1  Appraisal and Business Plan Agreement between the Registrant and FinPro,
      Inc.
99.2  Appraisal Report of FinPro, Inc.****
99.3  Marketing Materials
99.4  Order and Acknowledgment Form
99.5  Special Meeting Proxy Statement
99.6  Letter of FinPro, Inc. with respect to Subscription Rights
99.7  Prospectus Supplement
-------------------------------
*     To be filed supplementally or by amendment.
**    Incorporated by reference to the Registration Statement on Form S-8 (File
      No. 333-93215), originally filed with the Commission on December 21, 1999.
***   Incorporated by reference to the Registration Statement on Form S-1 (File
      No. 333-57377), originally filed with the Commission on June 22, 1998.
****  Supporting financial schedules filed pursuant to Rule 202 of Regulation
      S-T.

            (B) FINANCIAL STATEMENT SCHEDULES

            No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated financial
statements or related notes.

ITEM 17.    UNDERTAKINGS

            The undersigned Registrant hereby undertakes:

            (1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement:

            (i)   To include any prospectus required by Section 10(a)(3) of the
      Securities Act of 1933;

            (ii)  To reflect in the prospectus any facts or events arising after
      the effective date of the registration statement (or the most recent
      post-effective amendment thereof) which, individually or in the aggregate,
      represent a fundamental change in the information set forth in the
      registration statement.

<PAGE>

      Notwithstanding the foregoing, any increase or decrease in volume of
      securities offered (if the total dollar value of securities offered would
      not exceed that which was registered) and any duration from the low or
      high and of the estimated maximum offering range may be reflected in the
      form of prospectus filed with the Commission pursuant to Rule 424(b) if,
      in the aggregate, the changes in volume and price represent no more than
      20 percent change in the maximum aggregate offering price set forth in the
      "Calculation of Registration Fee" table in the effective registration
      statement;

            (iii) To include any material information with respect to the plan
      of distribution not previously disclosed in the registration statement or
      any material change to such information in the registration statement.

      (2)   That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

      (3)   To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.

      Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the questions whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Mamaroneck, State of New
York on September 16, 2002.

                                     SOUND FEDERAL BANCORP


                                     By:  /s/ Richard P. McStravick
                                          ------------------------------------
                                          Richard P. McStravick
                                          President and Chief Executive Officer
                                          (Duly Authorized Representative)

                                POWER OF ATTORNEY

      We, the undersigned directors and officers of Sound Federal Bancorp (the
"Company") hereby severally constitute and appoint Richard P. McStravick as our
true and lawful attorney and agent, to do any and all things in our names in the
capacities indicated below which said Richard P. McStravick may deem necessary
or advisable to enable the Company to comply with the Securities Act of 1933,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the registration statement on Form S-1 relating
to the offering of the Company's Common Stock, including specifically, but not
limited to, power and authority to sign for us in our names in the capacities
indicated below the registration statement and any and all amendments (including
post-effective amendments) thereto; and we hereby approve, ratify and confirm
all that said Richard P. McStravick shall do or cause to be done by virtue
thereof.

      Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>

           Signatures                              Title                                 Date
           ----------                              -----                                 ----

<S>                                     <C>                                       <C>
/s/ Richard P. McStravick               President, Chief Executive                September 16, 2002
--------------------------------        Officer and Director (Principal
Richard P. McStravick                   Executive Officer)

/s/ Anthony J. Fabiano                  Senior Vice President and Chief           September 16, 2002
--------------------------------        Financial Officer
Anthony J. Fabiano                      (Principal Financial and
                                        Accounting Officer)

/s/ Bruno J. Gioffre                    Chairman                                  September 16, 2002
--------------------------------
Bruno J. Gioffre

/s/ Joseph Dinolfo                      Director                                  September 16, 2002
--------------------------------
Joseph Dinolfo

/s/ Donald H. Heithaus                  Director                                  September 16, 2002
--------------------------------
Donald H. Heithaus

/s/ Joseph A. Lanza                     Director                                  September 16, 2002
--------------------------------
Joseph A. Lanza
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

           Signatures                              Title                                 Date
           ----------                              -----                                 ----

<S>                                     <C>                                       <C>
/s/ Eldorus Maynard                     Director                                  September 16, 2002
--------------------------------
Eldorus Maynard

/s/ James Staudt                        Director                                  September 16, 2002
--------------------------------
James Staudt

/s/ Samuel T. Telerico                  Director                                  September 16, 2002
--------------------------------
Samuel T. Telerico
</TABLE>

<PAGE>

   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 2002

                                                   REGISTRATION NO. 333-________
================================================================================

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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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







                                    EXHIBITS
                                       TO
                             REGISTRATION STATEMENT
                                       ON
                                    FORM S-1








                              SOUND FEDERAL BANCORP
                              MAMARONECK, NEW YORK


================================================================================

<PAGE>

                                  EXHIBIT INDEX


1.1   Engagement Letter between the Registrant and Keefe, Bruyette & Woods, Inc.
1.2   Form of Agency Agreement between the Registrant and Keefe, Bruyette &
      Woods, Inc.
2     Plan of Conversion and Reorganization
3.1   Certificate of Incorporation of Sound Federal Bancorp (Included in Exhibit
      2)
3.2   Bylaws of Sound Federal Bancorp (Included in Exhibit 2)
4     Form of Common Stock Certificate of Sound Federal Bancorp
5     Opinion of Luse Gorman Pomerenk & Schick regarding legality of securities
      being registered
8.1   Form of Federal Tax Opinion of Luse Gorman Pomerenk & Schick
10.1  Sound Federal Bancorp 1999 Stock Option Plan**
10.2  Sound Federal Bancorp 1999 Recognition and Retention Plan**
10.3  Employment Agreement with Richard P. McStravick***
10.4  Employee Stock Ownership Plan
21    Subsidiaries of Registrant
23.1  Consent of Luse Gorman Pomerenk & Schick (contained in Opinions included
      as Exhibits 5 and 8.1)
23.2  Consent of KPMG LLP
23.3  Consent of FinPro, Inc.
24    Power of Attorney (set forth on signature page)
99.1  Appraisal and Business Plan Agreement between the Registrant and FinPro,
      Inc.
99.2  Appraisal Report of FinPro, Inc.****
99.3  Marketing Materials
99.4  Order and Acknowledgment Form
99.5  Special Meeting Proxy Statement
99.6  Letter of FinPro, Inc. with respect to Subscription Rights
99.7  Prospectus Supplement
-------------------------------
*     To be filed supplementally or by amendment.
**    Incorporated by reference to the Registration Statement on Form S-8 (File
      No. 333-93215), originally filed with the Commission on December 21, 1999.
***   Incorporated by reference to the Registration Statement on Form S-1 (File
      No. 333-57377), originally filed with the Commission on June 22, 1998.
****  Supporting financial schedules filed pursuant to Rule 202 of Regulation
      S-T.
[{"type": "S-1", "sequence": "1", "filename": "gs1-29712.txt", "description": "S-1", "secsgml_size_bytes": 719682}]
{"company-data": {"conformed-name": "SOUND FEDERAL BANCORP", "cik": "0001064236", "assigned-sic": "6035", "irs-number": "134029393", "state-of-incorporation": "NY", "fiscal-year-end": "0331"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-99767", "film-number": "02767377"}, "business-address": {"street1": "300 MAMARONECK AVE", "city": "MAMARONECK", "state": "NY", "zip": "10543-2647", "phone": "9146986400"}, "mail-address": {"street1": "300 MAMARONECK AVE", "city": "MAMARONECK", "state": "NY", "zip": "10543-2647"}, "former-company": {"former-conformed-name": "SOUND FEDERAL SAVINGS & LOAN ASSOC", "date-changed": "19980616"}}
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 2002
                                                   REGISTRATION NO. 333-________

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM S-1
                          REGISTRATION STATEMENT UNDER
                           THE SECURITIES ACT OF 1933

                              SOUND FEDERAL BANCORP
             (Exact Name of Registrant as Specified in Its Charter)
DELAWARE                                  6712                          (APPLIED FOR)
   (State or Other Jurisdiction of          (Primary Standard Industrial            (I.R.S. Employer
   Incorporation or Organization)            Classification Code Number)           Identification No.)
300 MAMARONECK AVENUE
                           MAMARONECK, NEW YORK 10543
                                 (914) 698-6400
    (Address, including zip code, and telephone number, including area code,
                  of Registrant's principal executive offices)

                              RICHARD P. MCSTRAVICK
                      PRESIDENT AND CHIEF EXECUTIVE OFFICER
                              300 MAMARONECK AVENUE
                           MAMARONECK, NEW YORK 10543
                                 (914) 698-6400
  (Name, address, including zip code, and telephone number, including area code
                              of Agent for Service)

                                   COPIES TO:
                                ALAN SCHICK, ESQ.
                                 ERIC LUSE, ESQ.
                              EDWARD A. QUINT, ESQ.
                       LUSE GORMAN POMERENK & SCHICK, P.C.
                     5335 WISCONSIN AVENUE, N.W., SUITE 400
                             WASHINGTON, D.C. 20015

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this registration statement becomes effective.

If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
check the following box: :  [X]

If this Form is filed to register additional shares for an offering pursuant to
Rule 462(b) under the Securities Act please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]

If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
========================================= ================== ==================== ==================== =====================

                                                              PROPOSED MAXIMUM     PROPOSED MAXIMUM         AMOUNT OF
         TITLE OF EACH CLASS OF             AMOUNT TO BE       OFFERING PRICE          AGGREGATE         REGISTRATION FEE
      SECURITIES TO BE REGISTERED            REGISTERED           PER SHARE        OFFERING PRICE(1)
----------------------------------------- ------------------ -------------------- -------------------- ---------------------
Common Stock, $0.01 par value per share   13,225,000 shares        $ 10.00        $ 132,250,000              $ 12,167
----------------------------------------- ------------------ -------------------- -------------------- ---------------------

Participation Interests                   230,281 interests          --                   --                   --
========================================= ================== ==================== ==================== =====================
(1)   Estimated solely for the purpose of calculating the registration fee.
(2)   The securities of Sound Federal Bancorp to be purchased by the Sound
      Federal Savings and Loan Association 401(k) Savings Plan in RSI Retirement
      Trust or as adopted by Sound Federal Savings and Loan Association are
      included in the amount shown for Common Stock. However, pursuant to Rule
      457(h) of the Securities Act of 1933, as amended, no separate fee is
      required for the participation interests. Pursuant to such rule, the
      amount being registered has been calculated on the basis of the number of
      shares of Common Stock that may be purchased with the current assets of
      such Plan.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
PROSPECTUS
                              SOUND FEDERAL BANCORP
        (HOLDING COMPANY FOR SOUND FEDERAL SAVINGS AND LOAN ASSOCIATION)
                     UP TO 6,765,910 SHARES OF COMMON STOCK

      Sound Federal Bancorp is offering common stock for sale in connection with
the conversion of Sound Federal, MHC from the mutual to the stock form of
organization. The shares we are offering represent the ownership interest in
Sound Federal Bancorp now owned by Sound Federal, MHC. The existing publicly
held shares of Sound Federal Bancorp will be exchanged for new shares of common
stock of Sound Federal Bancorp. All shares offered for sale are offered at a
price of $10.00 per share. Our common stock will continue to trade on the Nasdaq
National Market under the symbol "SFFS."

      IF YOU ARE OR WERE A DEPOSITOR OF SOUND FEDERAL SAVINGS AND LOAN
ASSOCIATION:
      o     You may have priority rights to purchase shares of common stock.
      IF YOU ARE CURRENTLY A STOCKHOLDER OF SOUND FEDERAL BANCORP:
      o     Each of your shares of common stock will automatically be exchanged
            for between 1.7782 and 2.7667 new shares of Sound Federal Bancorp.
      o     Your percentage ownership will remain essentially equivalent to your
            current percentage ownership interest in Sound Federal Bancorp.
      o     You may also purchase additional shares in the offering after
            priority orders are filled.
      IF YOU ARE A PARTICIPANT IN THE SOUND FEDERAL SAVINGS AND LOAN ASSOCIATION
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST:
      o     You may direct that all or part of your current account balances in
            this plan be invested in shares of common stock.
      o     You will be receiving separately a supplement to this prospectus
            that describes your rights under the plan.
      IF YOU FIT NONE OF THE CATEGORIES ABOVE, BUT ARE INTERESTED IN PURCHASING
SHARES OF OUR COMMON STOCK:
      o     You may purchase shares of common stock after priority orders are
            filled.

      We are offering up to 6,765,910 shares of the common stock for sale on a
best efforts basis. We must sell a minimum of 5,000,890 shares to complete the
offering and the exchange of existing shares. We may sell up to 7,780,737 shares
because of regulatory considerations, demand for the shares or changes in market
conditions without resoliciting subscribers. The offering is expected to
terminate at 12:00 noon, New York Time, on December ____, 2002. We may extend
this termination date without notice to you until February ____, 2003, unless
the Office of Thrift Supervision approves a later date, which may not be beyond
December ______, 2004.

      Keefe, Bruyette & Woods, Inc. will assist us in our selling efforts, but
is not required to purchase any of the common stock that is being offered for
sale. Purchasers will not pay a commission to purchase common stock in the
offering.

      The minimum purchase is 25 shares. Once submitted, orders are irrevocable
unless the offering is terminated or extended beyond February ____, 2003. If the
offering is extended beyond February ____, 2003, subscribers will have the right
to modify or rescind their purchase orders. Funds received prior to completion
of the offering will be held in an escrow account at Sound Federal Savings and
Loan Association and will earn interest at our passbook rate.

      Following the conversion, our directors and executive officers, together
with their associates, are expected to own __________ shares of common stock, or
_____% of our outstanding common stock if the shares are sold at the midpoint of
the offering range.

                                OFFERING SUMMARY
                             PRICE: $10.00 PER SHARE

                                               MINIMUM            MAXIMUM
                                               -------            -------
          Number of shares:                     5,000,890          6,765,910
          Gross offering proceeds:           $ 50,008,900       $ 67,659,100
          Estimated offering expenses:       $  1,463,000       $  1,682,000
          Estimated net proceeds:            $ 48,545,900       $ 65,977,100
          Estimated net proceeds per share:  $       9.71       $       9.75

      THIS INVESTMENT INVOLVES A DEGREE OF RISK, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.

                PLEASE READ "RISK FACTORS" BEGINNING ON PAGE __.

      THESE SECURITIES ARE NOT DEPOSITS OR SAVINGS ACCOUNTS AND ARE NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.

      NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED OF
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

                          KEEFE, BRUYETTE & WOODS, INC.

                THE DATE OF THIS PROSPECTUS IS NOVEMBER __, 2002
[INSERT MAP SHOWING SOUND FEDERAL SAVINGS' MARKET AREA]
TABLE OF CONTENTS
PAGE

SUMMARY........................................................................................1
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF SOUND FEDERAL BANCORP AND SUBSIDIARY........11
RISK FACTORS..................................................................................13
FORWARD-LOOKING STATEMENTS....................................................................17
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING...........................................17
OUR DIVIDEND POLICY...........................................................................19
MARKET FOR THE COMMON STOCK...................................................................19
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE........................................21
CAPITALIZATION................................................................................22
PRO FORMA DATA................................................................................23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........29
BUSINESS OF SOUND FEDERAL BANCORP AND SOUND FEDERAL SAVINGS AND LOAN ASSOCIATION..............43
SUPERVISION AND REGULATION....................................................................66
TAXATION......................................................................................72
MANAGEMENT OF SOUND FEDERAL BANCORP...........................................................73
BENEFICIAL OWNERSHIP OF COMMON STOCK..........................................................82
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS.............................................82
THE CONVERSION................................................................................83
COMPARISON OF STOCKHOLDERS' RIGHTS...........................................................101
RESTRICTIONS ON ACQUISITION OF SOUND FEDERAL BANCORP.........................................106
DESCRIPTION OF CAPITAL STOCK OF SOUND FEDERAL BANCORP FOLLOWING THE CONVERSION...............108
TRANSFER AGENT...............................................................................109
EXPERTS......................................................................................109
LEGAL MATTERS................................................................................109
ADDITIONAL INFORMATION.......................................................................109
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS...................................................F-1
SUMMARY

      THE FOLLOWING SUMMARY EXPLAINS THE SIGNIFICANT ASPECTS OF THE CONVERSION,
THE OFFERING AND THE EXCHANGE OF EXISTING SHARES OF SOUND FEDERAL BANCORP COMMON
STOCK FOR NEW SHARES OF SOUND FEDERAL BANCORP COMMON STOCK. IT MAY NOT CONTAIN
ALL THE INFORMATION THAT IS IMPORTANT TO YOU. FOR ADDITIONAL INFORMATION, YOU
SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

THE COMPANIES

      SOUND FEDERAL, MHC

      Sound Federal, MHC is the federally chartered mutual holding company of
Sound Federal Bancorp. Sound Federal, MHC's principal business activity is the
ownership of 2,810,510 shares of common stock of Sound Federal Bancorp. Upon the
conclusion of the conversion, Sound Federal, MHC will cease to exist.

      SOUND FEDERAL BANCORP

      Sound Federal Bancorp is a federally chartered stock holding company that
owns all of the outstanding common stock of Sound Federal Savings. As of June
30, 2002, Sound Federal Bancorp had 4,778,292 issued and outstanding shares of
common stock. Sound Federal, MHC owned 2,810,510 shares of Sound Federal
Bancorp's outstanding common stock. The remaining 1,967,782 shares are held by
the public. At June 30, 2002, Sound Federal Bancorp had consolidated assets of
$651.5 million, deposits of $544.6 million and stockholders' equity of $63.8
million. Following the conversion, Sound Federal Bancorp will cease to exist,
but will be succeeded by a new Delaware corporation with the same name.

      SOUND FEDERAL SAVINGS AND LOAN ASSOCIATION

      Sound Federal Savings and Loan Association is a federally chartered
savings association headquartered in Mamaroneck, New York. Sound Federal
Savings' deposits are insured by the Federal Deposit Insurance Corporation.
Sound Federal Savings was organized as a New York chartered savings bank in 1891
and became a federally chartered savings association in 1934. In July 2000,
Sound Federal Bancorp and Sound Federal Savings completed the acquisition of
Peekskill Financial Corporation and its wholly owned subsidiary, First Federal
Savings Bank. At the completion of the conversion, we will change our name to
"Sound Federal Savings." At June 30, 2002, Sound Federal Savings operated from
nine locations in New York and Connecticut. In July 2002, we opened our tenth
location in Somers, New York. A full description of our products and services
begins on page _______ of this prospectus.

      The executive office of each of Sound Federal, MHC, Sound Federal Bancorp
and Sound Federal Savings is located at 300 Mamaroneck Avenue, Mamaroneck, New
York 10543. The telephone number at this address is (914) 698-6400.

OUR ORGANIZATIONAL STRUCTURE

      In 1998, Sound Federal Savings' mutual predecessor reorganized into the
mutual holding company form of organization. As a part of the mutual holding
company reorganization, we sold a minority of our common stock to our customers
in a subscription offering. The majority of our outstanding shares were retained
by Sound Federal, MHC. Sound Federal, MHC is a mutual holding company that has
no stockholders. Sound Federal Bancorp owns 100% of the outstanding shares of
Sound Federal Savings.

      Pursuant to the terms of our plan of conversion, we will convert from the
mutual holding company form of ownership to the fully public form of corporate
structure. As part of the conversion, we are offering for sale in a subscription
offering and a community offering shares of common stock that represent the
majority ownership interest of Sound Federal Bancorp that is currently held by
Sound Federal, MHC. Upon the completion of the conversion and offering, Sound
Federal, MHC will cease to exist, public stockholders of Sound Federal Bancorp
will receive new shares of common stock in exchange for their existing shares of
Sound Federal Bancorp and we will have completed the transition from partial to
full public ownership.

      The following chart shows our current ownership structure, which is
commonly referred to as the "two-tier" mutual holding company structure:

   -----------------------------                -----------------------------
        SOUND FEDERAL, MHC                           PUBLIC STOCKHOLDERS
   -----------------------------                -----------------------------
    58.8% of Sound                                             41.2% of Sound
    Federal Bancorp                                            Federal Bancorp
    common stock                                               common stock

                      ------------------------------------
                              SOUND FEDERAL BANCORP
                             (A FEDERAL CORPORATION)
                      ------------------------------------

                                           100% of common stock

                      ------------------------------------
                              SOUND FEDERAL SAVINGS
                      ------------------------------------

      After the conversion and offering are completed, our ownership structure
will be as follows:

                      ------------------------------------
                              PUBLIC STOCKHOLDERS
                      ------------------------------------

                                           100% of common stock

                      ------------------------------------
                              SOUND FEDERAL BANCORP
                            (A DELAWARE CORPORATION)
                      ------------------------------------

                                           100% of common stock

                      ------------------------------------
                              SOUND FEDERAL SAVINGS
                      ------------------------------------

BUSINESS STRATEGY

      Our business strategy is to grow and enhance our profitability by:

      o     operating a community-oriented financial institution that provides
            quality service by monitoring the needs of its customers and
            offering customers personalized services;

      o     emphasizing one-to-four family residential real estate lending;

                                       2
o     maintaining appropriate levels of liquid investments and
            adjustable-rate mortgage-backed securities;

      o     maintaining asset quality; and

      o     expanding our market presence.

REASONS FOR THE CONVERSION

      The primary reasons for the conversion are to (i) obtain additional
capital to support internal growth by increasing our lending in the communities
we serve, (ii) continue our expansion within our market area and the contiguous
counties, (iii) enhance stockholder returns through higher earnings and capital
management strategies and (iv) facilitate acquisitions of other financial
institutions as opportunities arise.

      As a fully converted stock holding company, we will have greater
flexibility in structuring mergers and acquisitions, including the form of
consideration paid in a transaction. Our current mutual holding company
structure, by its nature, limits our ability to offer our common stock as
consideration in a merger or acquisition. Potential sellers often want stock for
at least part of the purchase price. Our new stock holding company structure
will enhance our ability to compete with other bidders when acquisition
opportunities arise by enabling us to offer stock or cash consideration, or a
combination thereof. We do not now have any specific acquisition or expansion
plans.

TERMS OF THE CONVERSION AND OFFERING

      Pursuant to our plan of conversion, our organization will convert from a
partially public to a fully public form of holding company structure. In
connection with the conversion, we are selling in the offering common stock
representing the ownership interest in Sound Federal Bancorp now owned by Sound
Federal, MHC. We are selling between 5,000,890 and 6,765,910 shares of common
stock to qualifying depositors and to the public, to the extent shares remain
available. The number of shares to be sold may be increased up to 7,780,737 as a
result of strong demand for the shares in the offering or positive changes in
the market for financial institution stocks. Unless the number of shares to be
sold is increased to more than 7,780,737 or decreased to less than 5,000,890,
you will not have the opportunity to change or cancel your stock order. The
offering price is $10.00 per share. Keefe, Bruyette & Woods, Inc., our marketing
advisor in the offering, will use its best efforts to assist us in selling our
stock. Keefe, Bruyette & Woods, Inc. is not obligated to purchase any shares in
the offering.

PERSONS WHO MAY ORDER STOCK IN THE OFFERING

      Under the plan of conversion, we are offering the shares of common stock
of Sound Federal Bancorp in a "subscription offering" in the following
descending order of priority:

      (1)   First, depositors with accounts at Sound Federal Savings with
            aggregate balances of at least $50 on May 31, 2001.

      (2)   Second, Sound Federal Bancorp's tax-qualified plans, including the
            employee stock ownership plan.

      (3)   Third, depositors with accounts at Sound Federal Savings with
            aggregate balances of at least $50 on September 30, 2002.

      (4)   Fourth, depositors of Sound Federal Savings as of October _________,
            2002 and borrowers of Sound Federal Savings as of October 8, 1998
            whose borrowings remained outstanding as of _________, 2002.

      The shares of common stock not purchased in the subscription offering will
be offered in a "direct community offering," with a preference given first to
public stockholders of Sound Federal Bancorp as of October _________, 2002, and
then to natural persons residing in the New York counties of Westchester,
Rockland and Putnam and the Connecticut county of Fairfield. The direct
community offering, if it occurs at all, may begin

                                       3
concurrently with, during or promptly after the subscription offering. We also
may offer shares of common stock not purchased in the subscription offering or
community offering through a "syndicated community offering" managed by Keefe,
Bruyette & Woods, Inc. We have the right to accept or reject, in our sole
discretion, orders received in the direct community offering or syndicated
community offering.

HOW WE DETERMINED THE OFFERING RANGE AND THE $10.00 PER SHARE STOCK PRICE

      The amount of common stock we are offering is based on an independent
appraisal of the estimated market value of Sound Federal Bancorp, assuming the
conversion and offering are completed. FinPro, Inc., the independent appraiser,
has estimated that, as of September 10, 2002, this market value ranged from
$85.0 million to $115.0 million, with a midpoint of $100.0 million. Based on
this valuation, the ownership interest of Sound Federal, MHC being sold in the
offering and the $10.00 per share price, the number of shares of common stock
being offered for sale by Sound Federal Bancorp will range from 5,000,890 shares
to 6,765,910 shares. The $10.00 per share price was selected primarily because
it is the price most commonly used in mutual-to-stock conversions of financial
institutions. The appraisal was based in part on Sound Federal Bancorp's
financial condition and results of operations, the effect of the additional
capital raised by the sale of common stock in the offering, and an analysis of a
peer group of publicly-traded savings bank and thrift holding companies that
FinPro, Inc. considered comparable to Sound Federal Bancorp.

      The following table presents a summary of selected pricing ratios for the
peer group companies and the resulting pricing ratios for Sound Federal Bancorp.
Compared to the average pricing of the peer group, Sound Federal Bancorp's pro
forma pricing ratios at the maximum of the offering range indicated a premium of
11.1% on a price-to-earnings basis and a discount of 18.6% on a
price-to-tangible book basis. The estimated appraised value and the resulting
premium/ discount took into consideration the potential financial impact of the
conversion.
PRO FORMA                         PRO FORMA
                                              PRICE-TO-EARNINGS MULTIPLE    PRICE-TO-TANGIBLE BOOK VALUE RATIO
                                             ----------------------------  ------------------------------------
SOUND FEDERAL BANCORP
       Minimum of offering range...........              12.66x                            94.52%
       Maximum of offering range...........              16.67                            109.17

    VALUATION OF PEER GROUP COMPANIES AS
    OF SEPTEMBER 10, 2002
       Averages............................              15.00x                           134.13%
       Medians.............................              14.45                            124.14
THE INDEPENDENT APPRAISAL DOES NOT INDICATE MARKET VALUE. DO NOT ASSUME OR
EXPECT THAT THE VALUATION OF SOUND FEDERAL BANCORP AS INDICATED ABOVE MEANS THAT
THE COMMON STOCK WILL TRADE AT OR ABOVE THE $10.00 PURCHASE PRICE AFTER THE
CONVERSION.

      The independent appraisal will be updated prior to the completion of the
conversion. If the market value changes to either below $85.0 million or above
$132.3 million, subscribers will be notified and provided with the opportunity
to modify or cancel their orders.

THE EXCHANGE OF EXISTING SHARES OF SOUND FEDERAL BANCORP COMMON STOCK

      If you are now a stockholder of Sound Federal Bancorp, your existing
shares will be cancelled and exchanged for new shares of Sound Federal Bancorp.
The number of shares you receive will be based on an exchange ratio determined
at the completion of the conversion. The following table shows how the exchange
ratio will adjust, based on the number of shares sold in our offering. The table
also shows how many shares a hypothetical owner of Sound Federal Bancorp common
stock would receive in the exchange, based on the number of shares sold in the
offering.

                                       4
NEW SHARES TO BE EXCHANGED
                    NEW SHARES TO BE SOLD       FOR EXISTING SHARES OF                                    NEW SHARES TO
                       IN THIS OFFERING         SOUND FEDERAL BANCORP     TOTAL SHARES OF                BE RECEIVED FOR
                     --------------------      ----------------------     COMMON STOCK TO     EXCHANGE    100 EXISTING
                       AMOUNT     PERCENT       AMOUNT        PERCENT     BE OUTSTANDING       RATIO         SHARES
                     ---------    -------      ---------      -------     --------------       -----       -----------
Minimum........      5,000,890     58.8%       3,499,110        41.2%        8,500,000         1.7782         177
Midpoint.......      5,883,400     58.8%       4,116,600        41.2%       10,000,000         2.0920         209
Maximum........      6,765,910     58.8%       4,734,090        41.2%       11,500,000         2.4058         240
15% above Maximum    7,780,737     58.8%       5,444,263        41.2%       13,225,000         2.7667         276
If you hold shares of Sound Federal Bancorp in "street name," you do not
need to take any action to exchange the shares. If you hold Sound Federal
Bancorp stock certificates after the conversion and offering are completed, you
will receive a transmittal form with instructions to surrender stock
certificates. New certificates of Sound Federal Bancorp common stock will be
mailed within five business days after the exchange agent receives properly
executed transmittal forms and certificates.

      New shares of Sound Federal Bancorp issued in exchange for existing shares
are considered acquired in an initial public offering. Accordingly, such new
shares cannot be owned on margin for 30 days after the offering. If a
shareholder owns our stock on margin, the shares would have to be moved to a
cash account prior to exchanging the old stock certificates for new stock
certificates.

      No fractional shares of Sound Federal Bancorp common stock will be issued
to any public stockholder of Sound Federal Bancorp. For each fractional share
that would otherwise be issued, Sound Federal Bancorp will pay in cash an amount
equal to the product obtained by multiplying the fractional share interest to
which the holder would otherwise be entitled by the $10.00 per share
subscription price. Under federal regulations, current stockholders of Sound
Federal Bancorp do not have dissenters' rights or appraisal rights in connection
with the conversion.

DIFFERENCES IN STOCKHOLDERS' RIGHTS

      As a result of the conversion, existing stockholders of Sound Federal
Bancorp, a federal corporation, will become stockholders of Sound Federal
Bancorp, a Delaware corporation. The changes in stockholder rights result from
differences in the Delaware certificate of incorporation and bylaws, and from
distinctions between Delaware and federal law. In our mutual holding company
form of organization, public stockholders are unable to compel the board of
directors to take corporate actions that the board of directors determine are
not in the best interests of stockholders. As a fully converted institution, the
Board has determined to include in its certificate of incorporation and bylaws
provisions that would make it more difficult for stockholders to compel the
Board to take an action which the Board concludes are not in the best interests
of Sound Federal Bancorp and its stockholders. THE DIFFERENCES IN STOCKHOLDER
RIGHTS UNDER THE DELAWARE CERTIFICATE OF INCORPORATION AND BYLAWS ARE NOT
MANDATED BY DELAWARE LAW BUT HAVE BEEN CHOSEN BY MANAGEMENT AS BEING IN THE BEST
INTERESTS OF THE CORPORATION AND ALL OF ITS STOCKHOLDERS. The differences in
stockholder rights include the following: (i) approval by at least 80% of
outstanding shares required to remove a director for cause; (ii) the inability
of stockholders to call special meetings; (iii) greater lead time required for
stockholders to submit stockholder proposals; (iv) approval by at least 80% of
outstanding shares required to amend the Certificate of Incorporation and
Bylaws; (v) a residency requirement for directors; (vi) approval by at least 80%
of outstanding shares required to approve business combinations involving an
interested stockholder. As a result of including these provisions, stockholders
as a whole will have more limited rights to compel actions. See "Comparison Of
Stockholders' Rights" on page _____ for a discussion of these differences.

LIMITS ON HOW MUCH COMMON STOCK YOU MAY PURCHASE

      The minimum number of shares that may be purchased is 25.

                                       5
IF YOU ARE NOT NOW A SOUND FEDERAL BANCORP STOCKHOLDER:

      No individual may purchase more than 50,000 shares. If any of the
following persons purchase stock, their purchases when combined with your
purchases cannot exceed 50,000 shares:

      o     your spouse or relatives of you or your spouse living in your house;

      o     companies, trusts or other entities in which you have an interest or
            hold a position; or

      o     other persons who may be acting in concert with you.

      IF YOU ARE NOW A SOUND FEDERAL BANCORP STOCKHOLDER:

      In addition to the above purchase limitations, there is an ownership
limitation. Shares that you purchase in the offering individually and together
with persons acting in concert with you as described above, PLUS new shares you
and they receive in the exchange for existing Sound Federal Bancorp common
stock, may not exceed 2% of the shares issued in the conversion, or 230,000
shares at the maximum of the offering range. Subject to Office of Thrift
Supervision approval, we may increase or decrease the purchase and ownership
limitations at any time.

HOW YOU MAY PURCHASE COMMON STOCK

      In the subscription offering and direct community offering, you may pay
for your shares only by:

      (1)   personal check, bank check or money order; or

      (2)   authorizing us to withdraw funds from Sound Federal Savings deposit
            accounts, including certificate of deposit accounts, designated on
            the stock order form.

      Sound Federal Savings is not permitted to lend funds to anyone for the
purpose of purchasing our common stock in the offering. Additionally, you may
not use a Sound Federal Savings line of credit to pay for common stock.

      You can subscribe for shares of common stock in the offering by delivering
a signed and completed original stock order form, together with full payment,
provided that we receive the stock order form before the end of the offering. We
will pay interest at Sound Federal Savings' passbook savings rate, from the date
funds are received until completion or termination of the conversion.
Withdrawals from certificates of deposit may be made without incurring an early
withdrawal penalty. All funds authorized for withdrawal from deposit accounts
with Sound Federal Savings must be in the deposit accounts at the time the stock
order is received. However, funds will not be withdrawn from the deposit
accounts until the completion of the offering and will earn interest at the
applicable deposit account rate until the completion of the offering. A hold
will be placed on those funds when your stock order is received, making the
designated funds unavailable to you. After we receive an order, the order cannot
be withdrawn or changed, except with our consent.

      You may subscribe for shares using funds in your individual retirement
account at Sound Federal Savings or elsewhere. However, common stock must be
held in a self-directed retirement account. By regulation, Sound Federal
Savings' individual retirement accounts are not self-directed, so they cannot be
invested in stock. If you wish to use some or all of the funds in your Sound
Federal Savings individual retirement account, the applicable funds must be
transferred to a self-directed account maintained by an independent trustee,
such as a brokerage firm. If you do not have such an account, you will need to
establish one before placing your stock order. An annual administrative fee may
be payable to the independent trustee. Because individual circumstances differ
and processing of retirement fund orders takes additional time, we recommend
that you contact the stock information center promptly, preferably at least two
weeks before the end of the offering period, for assistance with purchases using
your individual retirement account or other retirement account that you may
have. Whether you may use such funds for the purchase of shares in the stock
offering may depend on timing constraints and, possibly, limitations imposed by
the institution where the funds are held.

                                       6
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

      We estimate net proceeds will be between $48.5 million and $66.0 million,
or $76.0 million if the offering range is increased by 15%. Sound Federal
Bancorp intends to retain approximately 50% of the net proceeds (between $24.3
million and $33.0 million, or $38.0 million if the offering range is increased
by 15%). Approximately $24.3 million to $33.0 million of the net proceeds (or
$38.0 million if the offering range is increased by 15%) will be invested in
Sound Federal Savings.

      The net proceeds will be used for general corporate purposes. Sound
Federal Bancorp may use the funds to pay cash dividends and repurchase shares of
common stock. Funds invested in Sound Federal Savings will be used to obtain
additional capital to support lending and to offer new products and banking
services. The net proceeds also may be used for future business expansion
through acquisitions or establishing new branches. We do not now have any
specific acquisition or expansion plans. Initially, the net proceeds will be
invested in short-term investments and investment-grade debt obligations, and
mortgage-backed securities.

      A portion of the net proceeds also may be used to provide a loan to the
employee stock ownership plan to fund the purchase of common stock in the
offering.

YOU MAY NOT SELL OR TRANSFER YOUR SUBSCRIPTION RIGHTS

      If you order stock in the subscription offering, you will be required to
state that you are purchasing the stock for yourself and that you have no
agreement or understanding to sell or transfer your subscription rights. We
intend to take legal action, including reporting persons to federal or state
regulatory agencies, against anyone who we believe sells or gives away their
subscription rights. We will not accept your order if we have reason to believe
that you sold or transferred your subscription rights. In addition, you may not
add the names of others for joint stock registration unless they were eligible
to purchase common stock in the subscription offering on the applicable date of
eligibility.

DEADLINES FOR ORDERS OF COMMON STOCK

      If you wish to purchase shares, a properly completed stock order form,
together with payment for the shares, must be received by Sound Federal Bancorp
no later than 12:00 noon, New York Time, on December ____, 2002, unless we
extend this deadline. You may submit your order form by mail using the return
envelope provided, by overnight courier to the indicated address on the order
form, or by delivery to the stock information center. Stock order forms may be
delivered in person to our branch offices.

YOU MAY NOT REVOKE YOUR PURCHASE ORDER UNLESS THE OFFERING IS TERMINATED OR
EXTENDED BEYOND FEBRUARY ____, 2003.

      Funds submitted in connection with the purchase of common stock in the
offering will be held by Sound Federal Bancorp until the termination or
completion of the offering, including any extension of the expiration date.
Because completion of the offering will be subject to an update of the
independent appraisal and other factors, there may be one or more delays in
completing the offering. Orders submitted in the offering are irrevocable, and
subscribers will have no access to subscription funds and/or shares of common
stock unless the stock offering is terminated, or extended beyond February ____,
2003.

TERMINATION OF THE OFFERING

      The subscription offering will terminate at 12:00 noon, New York Time, on
December ____, 2002. We expect that the community offering will terminate at the
same time. We may extend this expiration date without notice to you, until
February ____, 2003, unless regulators approve a later date. If the subscription
offering and/or community offering extend beyond February ____, 2003, we will be
required to resolicit subscriptions before proceeding with the offering.

                                       7
STEPS WE MAY TAKE IF WE DO NOT RECEIVE ORDERS FOR THE MINIMUM NUMBER OF SHARES

      If we do not receive orders for at least 5,000,890 shares of common stock,
we may take several steps in order to sell the minimum number of shares in the
offering range. Specifically, we may increase the purchase limitations and we
may seek regulatory approval to extend the offering beyond the December ____,
2002 expiration date, provided that any such extension will require us to
resolicit subscriptions received in the offering.

PURCHASES BY OFFICERS AND DIRECTORS

      We expect our directors and executive officers, together with their
families, to subscribe for 108,000 shares, which equals approximately 1.8% of
the shares sold at the midpoint of the offering range. The purchase price paid
by them will be the same $10.00 per share price paid by all other persons who
purchase shares in the offering. Following the conversion, our directors and
executive officers, together with their associates, are expected to own
_________ shares of common stock, or ___% of our outstanding common stock if
shares are sold at the midpoint of the offering range.

BENEFITS TO MANAGEMENT AND POTENTIAL DILUTION TO STOCKHOLDERS RESULTING FROM THE
CONVERSION

      Our employee stock ownership plan expects to purchase up to 8% of the
shares we sell in the offering, or 541,273 shares, assuming we sell the maximum
of the shares proposed to be sold. If we sell more shares than the maximum of
the offering range, the employee stock ownership plan will have first priority
to purchase shares over this maximum, up to the total of 8% of the shares sold.
We reserve the right to purchase common stock in the open market following the
offering in order to fund the employee stock ownership plan. This plan is a
tax-qualified retirement plan for all eligible employees. Assuming the plan
purchases 541,273 shares in the offering, we will recognize additional
compensation expense of $5,412,730 over a period of 20 years, or approximately
$271,000 per year, from the consummation of the conversion, assuming the shares
have a fair market value of $10.00 per share for the full 20-year period. If, in
the future, the shares have a fair market value greater or less than $10.00, the
compensation expense will increase or decrease accordingly.

      We also intend to implement two stock-based incentive plans no earlier
than six months after the conversion, and stockholder approval of such plans
would be required. The recognition and retention plan is a restricted stock plan
that would reserve an amount equal to 4% of the shares sold in the offering, or
270,636 shares at the maximum of the offering range, for awards to key employees
and directors, at no cost to the recipients. If the shares awarded under the
recognition and retention plan come from authorized but unissued shares,
stockholders would experience dilution of approximately 2.3% in their ownership
interest in Sound Federal Bancorp. The second plan would be a stock option plan,
and would reserve an amount equal to 10% of the shares sold in the offering, or
up to 676,591 shares at the maximum of the offering range, for key employees and
directors upon their exercise. If the shares issued upon the exercise of options
come from authorized but unissued shares, stockholders would experience dilution
of approximately 5.6% in their ownership interest in Sound Federal Bancorp.
Awards made under these plans would be subject to vesting over a period of
years.

      We also will convert options previously awarded under our current stock
option plan into options to purchase Sound Federal Bancorp common stock, with
the number and exercise price to be adjusted, based on the exchange ratio. The
term and vesting period of the previously awarded options will remain unchanged.

      The following table summarizes the number of shares and aggregate dollar
value of grants that are expected under the new stock recognition and retention
plan and the new stock option plan as a result of the conversion. A portion of
the stock grants shown in the table below may be made to non-management
employees.

                                       8
NUMBER OF SHARES TO BE AWARDED, GRANTED OR
                                                    PURCHASED
                                    -------------------------------------------    DILUTION
                                                                     AS A          RESULTING           VALUE OF GRANTS (1)
                                                                  PERCENTAGE         FROM         ---------------------------
                                         AT             AT         OF COMMON      ISSUANCE OF         AT               AT
                                      MINIMUM        MAXIMUM      STOCK TO BE     SHARES FOR        MINIMUM         MAXIMUM
                                    OF OFFERING    OF OFFERING    SOLD IN THE    STOCK BENEFIT    OF OFFERING     OF OFFERING
                                       RANGE          RANGE         OFFERING         PLANS           RANGE           RANGE
                                    ------------   -----------   -------------   -------------    ------------    -----------
Employee stock ownership plan...       400,071       541,273            8%            N/A         $4,000,710     $  5,412,730
Recognition and retention plan..       200,036       270,636            4%            2.3%         2,000,360        2,706,360
Stock option plan...............       500,089       676,591           10%            5.6%                --               --
                                    ----------    ----------       ------                         ----------     ------------
   Total........................     1,100,196     1,488,500          22%             7.9%        $6,001,070      $ 8,119,090
                                    ==========    ==========      ======                          ==========      ===========
------------------------------
(1)   The actual value of restricted stock grants will be determined based on
      their fair value as of the date grants are made. For purposes of this
      table, fair value is assumed to be the same as the offering price of
      $10.00 per share. No value is given for options because their exercise
      price will be equal to the fair market value of the common stock on the
      day the options are granted. As a result, value can be realized under an
      option only if the market price of the common stock increases after the
      option grant.

MARKET FOR COMMON STOCK

      Existing publicly held shares of our common stock trade on the Nasdaq
National Market under the symbol "SFFS." Upon completion of the conversion, the
new shares of common stock of Sound Federal Bancorp will replace existing shares
and will be traded on the Nasdaq National Market. For a period of 20 trading
days following completion of our offering, our symbol will be "SFFSD."
Thereafter it will be "SFFS." Keefe, Bruyette & Woods, Inc. currently intends to
remain a market maker in the common stock and will assist us in obtaining
additional market makers.

OUR DIVIDEND POLICY

      Sound Federal Bancorp currently pays a cash dividend of $0.09 per share
per quarter, or $0.36 per share per year. After the conversion, we intend to
continue to pay cash dividends on a quarterly basis. We expect such dividends to
equal $0.20 per share per year, which represents an annual dividend yield of
2.0% based upon a price of $10.00 per share. The amount of dividends that we
intend to pay after the conversion will approximately preserve or increase the
per share dividend amount, adjusted to reflect the exchange ratio, that Sound
Federal Bancorp stockholders currently receive. The dividend rate and the
continued payment of dividends will depend on a number of factors, including our
capital requirements, our financial condition and results of operations, tax
considerations, statutory and regulatory limitations, and general economic
conditions. No assurance can be given that we will continue to pay dividends or
that they will not be reduced in the future.

TAX CONSEQUENCES

      The conversion will not be a taxable transaction to Sound Federal, MHC,
Sound Federal Bancorp, Sound Federal Savings, existing stockholders of Sound
Federal Bancorp, or persons eligible to subscribe in the offering, with respect
to federal or state income tax.

CONDITIONS TO COMPLETION OF THE CONVERSION

      We cannot complete our conversion and related offering unless:

      o     The plan of conversion is approved by at least A MAJORITY OF VOTES
            ELIGIBLE to be cast by members of Sound Federal, MHC (depositors of
            Sound Federal Savings);

      o     The plan of conversion is approved by the holders of at least
            TWO-THIRDS OF THE OUTSTANDING SHARES of Sound Federal Bancorp common
            stock;

      o     The plan of conversion is approved by at least A MAJORITY OF THE
            VOTES CAST by stockholders of Sound Federal Bancorp common stock,
            not including those shares held by Sound Federal, MHC;

      o     We sell at least the minimum number of shares offered; and

                                       9
o     We receive the final approval of the Office of Thrift Supervision to
            complete the conversion and offering.

      Sound Federal, MHC intends to vote its ownership interest in favor of the
conversion. At June 30, 2002, Sound Federal, MHC owned 58.8% of the outstanding
common stock of Sound Federal Bancorp. In addition, as of October __, 2002,
directors and executive officers of Sound Federal Bancorp and their associates
owned _______ shares of Sound Federal Bancorp, or ___% of the outstanding
shares. They intend to vote those shares in favor of the plan of conversion.

ADDITIONAL INFORMATION

      Our branch personnel may not, by law, assist with investment-related
questions about the offering. If you have any questions regarding the
conversion, please call the stock information center at (___) ___-____, between
8:30 a.m. and 3:00 p.m. Monday through Wednesday and Friday, and between 8:30
a.m. and 6:00 p.m. on Thursday, New York Time.

      TO ENSURE THAT EACH PERSON RECEIVES A PROSPECTUS AT LEAST 48 HOURS PRIOR
TO THE EXPIRATION DATE OF DECEMBER ____, 2002 IN ACCORDANCE WITH FEDERAL LAW, NO
PROSPECTUS WILL BE MAILED ANY LATER THAN FIVE DAYS PRIOR TO DECEMBER ____, 2002
OR HAND-DELIVERED ANY LATER THAN TWO DAYS PRIOR TO DECEMBER ____, 2002.

                                       10
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
                     OF SOUND FEDERAL BANCORP AND SUBSIDIARY

      The following tables set forth selected consolidated historical financial
and other data of Sound Federal Bancorp for the periods and at the dates
indicated. On October 8, 1998, Sound Federal Savings was reorganized from a
mutual savings bank into a mutual holding company structure. Prior to that date,
Sound Federal Bancorp had no significant assets, liabilities or operations and,
accordingly, the financial and other data prior to that date represents the
consolidated financial condition and results of operations of Sound Federal
Savings. The information is derived in part from and should be read together
with the audited consolidated financial statements and notes thereto of Sound
Federal Bancorp and subsidiary beginning at page F-2 of this prospectus. The
information at March 31, 2000, 1999, and 1998 and for the years ended March 31,
1999 and 1998 was derived in part from audited consolidated financial statements
which are not included in this prospectus. The information at and for the three
months ended June 30, 2002 and 2001 is unaudited. However, in the opinion of
management of Sound Federal Bancorp, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the results of
operations for the unaudited periods have been made. The selected operating data
presented below for the three months ended June 30, 2002, are not necessarily
indicative of the results that may be expected for future periods.
AT OR FOR THE THREE                       AT OR FOR THE YEARS ENDED
                                       MONTHS ENDED JUNE 30,                              MARCH 31,
                                     -----------------------    ------------------------------------------------------------
                                         2002         2001         2002       2001(1)       2000         1999         1998
                                     ---------     ---------    ---------    ---------   ---------    ---------    ---------
                                                           (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FINANCIAL CONDITION:
  Total assets.................      $ 651,465     $ 549,040    $ 623,985    $ 552,934   $ 332,344    $ 295,311    $ 254,749
  Loans, net...................        437,419       320,730      418,368      293,807     180,932      143,536      128,558
  Mortgage-backed securities:
     Available for sale........        101,615       137,206      104,134      115,931      24,980       16,531           --
     Held to maturity..........             --            --           --       25,177      32,210       41,739       53,421
  Other securities:
     Available for sale........         42,227        43,047       46,097       41,595      37,385       22,871        2,994
     Held to maturity..........             --            --           --        3,038       3,448        3,851       11,477
  Deposits.....................        544,626       471,167      519,905      473,546     275,772      237,279      219,913
  Equity.......................         63,820        57,424       61,015       56,929      52,689       54,984       31,901

  RESULTS OF OPERATIONS:
   Net interest income.........      $   6,285     $   4,026    $  18,906    $  14,568   $  10,668    $   9,312    $   8,875
   Provision for loan losses...             75            25          175          208         100          272          155
   Non-interest income.........            170           196          731          382         294          171          186
   Contribution of common stock to
     charitable foundation(2)..             --            --           --           --          --        1,022           --
   Other non-interest expense(3)         2,843         2,334       10,316       10,033       7,027        4,898        3,956
                                     ---------     ---------    ---------    ---------   ---------    ---------    ---------
   Income before income tax expense      3,537         1,863        9,146        4,709       3,835        3,291        4,950
   Income tax expense..........          1,376           688        3,376        2,050       1,443        1,350        2,065
                                     ---------     ---------    ---------    ---------   ---------    ---------    ---------
   Net income(3)...............      $   2,161     $   1,175    $   5,770    $   2,659   $   2,392    $   1,941    $   2,885
                                     =========     =========    =========    =========   =========    =========    =========

 PERFORMANCE RATIOS:
   Return on average assets....           1.36%         0.86%        1.01%        0.56%       0.77%        0.70%        1.16%
   Return on average equity....          14.03          8.73         9.85         4.89        4.48         4.53         9.47
   Average interest rate spread(4)        4.02          2.90         3.31         2.96        2.99         3.01         3.29
   Net interest margin(5)......           4.19          3.13         3.51         3.26        3.55         3.51         3.69
   Efficiency ratio(6).........          44.04         59.04        52.72        64.80       62.19        51.65        43.66
   Dividend payout ratio(7)(8).          15.22         28.00        22.58        50.00       58.33          --           --

                                                                                                 (FOOTNOTES ON FOLLOWING PAGE)
11
AT OR FOR THE THREE                       AT OR FOR THE YEARS ENDED
                                       MONTHS ENDED JUNE 30,                              MARCH 31,
                                     -----------------------    ------------------------------------------------------------
                                         2002         2001         2002       2001(1)       2000         1999         1998
                                     ---------     ---------    ---------    ---------   ---------    ---------    ---------
                                                           (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PER COMMON SHARE DATA(8):
  Basic earnings per share(3)(9)     $    0.46     $    0.25    $    1.24    $    0.56   $    0.48    $    0.10    $      --
  Diluted earnings per share...           0.46          0.25         1.23         0.56        0.48         0.10           --
  Diluted earnings per share
    before goodwill amortization          0.46          0.25         1.23         0.72        0.48         0.10           --
  Book value per share(10).....          13.36         12.05        12.78        11.83       10.53        10.55           --
  Tangible book value per share          10.43          9.12         9.85         8.93       10.53        10.55           --
  Dividends per share(11)......           0.07          0.07         0.28         0.28        0.28           --           --

 CAPITAL RATIOS:
  Equity to total assets
    (consolidated).............           9.80%        10.46%        9.78%       10.30%      15.85%       18.62%       12.52%
  Tier 1 leverage capital (bank
    only)......................           6.63%         6.65%        6.54%        6.35%      13.72%       14.76%       12.52%

 ASSET QUALITY DATA:
  Total non-performing loans...      $     952     $   1,126    $     755    $     933   $     969    $   1,091    $  1,958
  Total non-performing assets..      $     952     $   1,245    $     869    $   1,130   $   1,024    $   1,379    $  2,087

 ASSET QUALITY RATIOS:
  Non-performing loans to total
    loans......................           0.22%         0.35%        0.18%        0.31%       0.53%        0.75%        1.50%
  Non-performing assets to total
    assets.....................           0.15          0.23         0.14         0.20        0.31         0.47         0.82
  Allowance for loan losses to
    total loans at end of period          0.52          0.64         0.53         0.69        0.65         0.75         0.75
  Allowance for loan losses to
    non-performing loans.......         241.18        184.01       294.20       219.40      122.60       100.27        50.26
  Ratio of net charge-offs to
    average loans outstanding..             --            --           --         0.05          --         0.12         0.01

 OTHER DATA:
  Number of full service offices             9             8            9            8           5            5            3
-----------------------
(1)   Information at or for the year ended March 31, 2001 includes the
      acquisition of Peekskill Financial Corporation, which was completed in
      July 2000. At the time of the acquisition, Peekskill Financial Corporation
      had total assets of $201.5 million and total deposits of $152.4 million.
(2)   Represents the expense recognized for the fair value of common shares
      contributed to establish the Sound Federal Savings and Loan Association
      Charitable Foundation.
(3)   Non-interest expense for the year ended March 31, 2001 includes goodwill
      amortization of $765,000 arising from the acquisition of Peekskill
      Financial Corporation. We adopted Statement of Financial Accounting
      Standards No. 142 effective April 1, 2001 and, accordingly, goodwill is no
      longer amortized as an expense. If goodwill had not been amortized during
      the year ended March 31, 2001, net income would have been $3.4 million,
      and basic and diluted earnings per share both would have been $0.72. See
      Note 2 of the Notes to Consolidated Financial Statements.
(4)   Represents the difference between the weighted average yield on
      interest-earning assets and the weighted average cost of interest-bearing
      liabilities.
(5)   Represents the net interest income as a percent of average
      interest-earning assets.
(6)   Computed by dividing non-interest expense (other than the special charge
      described in (2) above) by the sum of net interest income and non-interest
      income.
(7)   Dividend payout ratio is calculated by dividing cash dividends per share
      for the period by net income per share for the period.
(8)   Dividend payout ratio and income per share data are not presented for the
      year ended March 31, 1998, since no stock was outstanding prior to the
      initial public offering of Sound Federal Bancorp in October 1998.
(9)   Amount for fiscal 1999 was computed for the six-month period following the
      stock offering based on net income of $529,000 for that period and
      5,041,690 average common shares. Excluding the after-tax impact of the
      contribution to the charitable foundation, earnings per common share would
      have been $0.22 for the six-month period.
(10)  Computed based on total common shares issued, less treasury shares.
(11)  The following table sets forth historical dividend information for the
      periods indicated:
FOR THE THREE MONTHS
                                   ENDED JUNE 30,             FOR THE YEARS ENDED MARCH 31,
                                --------------------   -------------------------------------------
                                  2002        2001       2002        2001        2000       1999
                                --------    --------   --------    --------    --------   --------
                                                          (IN THOUSANDS)
Dividends paid to public
       stockholders...........  $    138    $    140   $    517    $    580    $    611   $     --
     Dividends paid to Sound
       Federal, MHC...........        --          --         --          --         393         --
                                --------    --------   --------    --------    --------   --------
     Total dividends paid.....  $    138    $    140   $    517    $    580    $  1,004   $     --
                                ========    ========   ========    ========    ========   ========
No dividends were paid during the year ended March 31, 1998, as no stock was
outstanding during that period. Payments listed above exclude cash dividends
waived by Sound Federal, MHC during the same periods of $197,000, $197,000,
$787,000, $787,000 and $394,000, respectively. Sound Federal, MHC, began waiving
dividends in October 1999, and, as of June 30, 2002, had waived dividends
totaling $2.2 million.

                                       12
RISK FACTORS

--------------------------------------------------------------------------------
You should consider carefully the following risk factors in evaluating an
investment in the common stock.
--------------------------------------------------------------------------------

CHANGES IN INTEREST RATES COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.

      At June 30, 2002, $367.3 million, or 83.7% of our total loans consisted of
fixed-rate loans. If interest rates rise, the amount of interest we pay on
deposits is likely to increase more quickly than the amount of interest we
receive on our loans and investments. This could cause our interest rate spread,
net interest income and profits to decrease, or could result in losses. If
interest rates continue to fall, however, many borrowers may refinance more
quickly, and competitive factors could prohibit our lowering interest rates on
deposit accounts any further. Although we have changed our lending priorities as
part of an effort to shorten the maturities or repricing of our interest earning
assets and, therefore, better match the maturities or repricing of our
interest-bearing liabilities, there can be no assurance that we will do so
successfully in the future.

      Management monitors interest rate sensitivity through the use of a model
that estimates the change in the present value of expected cash receipts and
cash payments from our assets, liabilities, and off-balance sheet items in
response to a range of assumed changes in market interest rates. Based on the
composition of our interest earning assets and interest bearing liabilities as
of June 30, 2002, in the event of an instantaneous and permanent 200 basis point
increase in interest rates we would expect to experience a 27.7% decrease in the
present value of cash flows (cash receipts from interest earnings assets minus
cash payments from interest bearing liabilities).

CHANGES IN THE VALUE OF GOODWILL COULD REDUCE OUR EARNINGS.

      On July 18, 2000, we completed our acquisition of Peekskill Financial
Corporation. We recorded the assets acquired and liabilities assumed from
Peekskill Financial Corporation at their fair values at the closing date. The
excess amount we paid for Peekskill Financial Corporation over the fair value of
the net assets acquired was recorded as goodwill, which is an intangible asset.
At June 30, 2002, the balance of goodwill on our balance sheet was $14.0
million.

      We are required by generally accepted accounting principles to test
goodwill for impairment at least annually. Testing for impairment of goodwill
involves the identification of reporting units and the estimation of fair
values. The estimation of fair values involves a high degree of judgment and
subjectivity in the assumptions utilized. If our goodwill were impaired and we
were required to charge-off the goodwill, the pro forma impact on our
stockholders' equity would be approximately $1.40 per share, assuming we issue
shares based on the midpoint of the valuation range.

IF OUR ALLOWANCE FOR LOAN LOSSES IS NOT SUFFICIENT TO COVER ACTUAL LOAN LOSSES,
OUR EARNINGS COULD DECREASE.

      Our loan customers may not repay their loans according to their terms and
the collateral securing the payment of these loans may be insufficient to pay
any remaining loan balance. We may experience significant loan losses, which
could have a material adverse effect on our operating results. We make various
assumptions and judgments about the collectability of our loan portfolio,
including the creditworthiness of our borrowers and the value of the real estate
and other assets serving as collateral for the repayment of many of our loans.
In determining the amount of the allowance for loan losses, we review our loans
and our loss and delinquency experience, and we evaluate economic conditions. If
our assumptions are incorrect, our allowance for loan losses may not be
sufficient to cover losses that have been incurred in our loan portfolio,
resulting in additions to our allowance. In addition, the federal banking
regulators periodically review our allowance for loan losses and may require us
to increase our provision for loan losses or recognize further loan charge-offs.
Any increase in our allowance for loan losses or loan charge-offs could have a
material adverse effect on our results of operations and financial condition.

                                       13
OUR RETURN ON STOCKHOLDERS' EQUITY WILL BE REDUCED AS A RESULT OF THE OFFERING.

      Net income divided by average stockholders' equity, known as "return on
equity," is a ratio many investors use to compare the performance of a financial
institution to its peers. We expect our return on equity to decrease as compared
to our performance in recent years until we are able to leverage the additional
capital raised in the offering. Until we can increase our net interest income
and non-interest income, we expect our return on equity to be below the industry
average, which may negatively impact the value of our common stock. For the year
ended March 31, 2002 and the three months ended June 30, 2002, our return on
average equity was 9.85% and 14.03%, respectively. On a pro forma basis,
however, at the maximum of the offering range, our return on average equity
would have been 7.77% for the three months ended June 30, 2002, which is lower
than the industry average of 8.78% and the comparable group average of 10.25%
for this period.

THE IMPLEMENTATION OF STOCK-BASED BENEFIT PLANS MAY DILUTE YOUR OWNERSHIP
INTEREST.

      We intend to adopt a stock option plan and recognition and retention plan
following the offering. These stock benefit plans will be funded either through
open market purchases, if permitted, or from the issuance of authorized but
unissued shares. While our intention is to fund these plans through open market
purchases, stockholders will experience a reduction or dilution in ownership
interest of 7.9% in the event newly issued shares are used to fund stock options
and stock awards made under the recognition and retention plan.

OUR RECOGNITION AND RETENTION PLAN WILL INCREASE OUR COSTS, WHICH WILL REDUCE
OUR PROFITABILITY AND STOCKHOLDERS' EQUITY.

      We intend to implement a recognition and retention plan after the
offering. Under this plan, our officers and directors may be awarded, at no cost
to them, shares of common stock in an aggregate amount equal to 4% of the shares
sold in the offering. We must recognize expense for shares awarded over their
vesting period at the fair market value of the shares on the date they are
awarded. The recognition and retention plan may not be implemented until at
least six months after the offering. If the plan is adopted within twelve months
after the offering, it is subject to Office of Thrift Supervision regulations.
Assuming the shares of common stock to be awarded under the plan are repurchased
in the open market and cost the same as the purchase price in the offering, the
reduction to stockholders' equity from the plan would be between $2.0 million at
the minimum of the offering range and $3.1 million at the adjusted maximum of
the offering range, and the reduction in earnings per share for the three months
ended June 30, 2002 and the year ended March 31, 2002 would be $0.01 and $0.03,
respectively.

STRONG COMPETITION WITHIN OUR MARKET AREA MAY LIMIT OUR GROWTH AND
PROFITABILITY.

      Competition in the banking and financial services industry is intense. We
compete in our market area with commercial banks, savings institutions, mortgage
banks, credit unions, finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms. Many of these competitors have
substantially greater resources and lending limits than we have and may offer
certain services that we do not provide. Our profitability depends upon our
continued ability to successfully compete in our market area.

THE FUTURE PRICE OF THE COMMON STOCK MAY BE LESS THAN THE PURCHASE PRICE IN THE
OFFERING.

      We cannot assure you that if you purchase common stock in the offering you
will be able to sell it later at or above the purchase price in the offering.
The final aggregate purchase price of the common stock in the conversion will be
based on an independent appraisal. The appraisal is not intended, and should not
be construed, as a recommendation of any kind as to the advisability of
purchasing shares of common stock. The valuation is based on estimates and
projections of a number of matters, all of which are subject to change from time
to time.

WE HAVE BROAD DISCRETION IN ALLOCATING THE PROCEEDS OF THE OFFERING. OUR FAILURE
TO EFFECTIVELY UTILIZE SUCH PROCEEDS COULD REDUCE OUR PROFITABILITY.

      Sound Federal Bancorp intends to contribute approximately 50% of the net
proceeds of the offering to Sound Federal Savings. Sound Federal Bancorp may use
the remaining net proceeds to finance the acquisition of

                                       14
other financial institutions, pay dividends to stockholders, repurchase common
stock, purchase investment securities, or for other general corporate purposes.
Sound Federal Bancorp expects to use a portion of the net proceeds to fund the
employee stock ownership plan purchases of shares in the offering. Sound Federal
Savings may use the proceeds it receives to establish or acquire new branches,
acquire financial institutions, fund new loans, purchase investment securities,
or for general corporate purposes. We have not allocated specific amounts of
proceeds for any of these purposes, and we will have significant flexibility in
determining how much of the net proceeds we apply to different uses and the
timing of such applications. Our failure to utilize these funds effectively
could reduce our profitability.

WE OPERATE IN A HIGHLY REGULATED ENVIRONMENT AND WE MAY BE ADVERSELY AFFECTED BY
CHANGES IN LAWS AND REGULATIONS.

      We are subject to extensive regulation, supervision and examination by the
Office of Thrift Supervision, our chartering authority, and by the Federal
Deposit Insurance Corporation, as insurer of our deposits. As a savings and loan
holding company, Sound Federal Bancorp is subject to regulation and supervision
by the Office of Thrift Supervision. Such regulation and supervision govern the
activities in which an institution and its holding company may engage, and are
intended primarily for the protection of the insurance fund and depositors.
Regulatory authorities have extensive discretion in their supervisory and
enforcement activities, including the imposition of restrictions on the
operation of an institution, the classification of assets by the institution and
determination of the level of an institution's allowance for loan losses. Any
change in such regulation and oversight, whether in the form of regulatory
policy, regulations or legislation, may have a material impact on our
operations.

VARIOUS FACTORS MAY MAKE TAKEOVER ATTEMPTS MORE DIFFICULT TO ACHIEVE.

      Our board of directors has no current intention to sell control of Sound
Federal Bancorp. Provisions of our certificate of incorporation and bylaws,
federal and state regulations and various other factors may make it more
difficult for companies or persons to acquire control of Sound Federal Bancorp
without the consent of our board of directors. It is possible, however, that you
would want a takeover attempt to succeed because, for example, a potential
acquiror could offer a premium over the then prevailing price of our common
stock. The factors that may discourage takeover attempts or make them more
difficult include:

      o     OFFICE OF THRIFT SUPERVISION REGULATIONS. Office of Thrift
            Supervision regulations prohibit, for three years following the
            completion of a mutual-to-stock conversion, the acquisition of more
            than 10% of any class of equity security of a converted institution
            without the prior approval of the Office of Thrift Supervision. The
            charter of Sound Federal Savings also will include a provision for a
            period of five years after the conversion, that prohibits any person
            from acquiring or offering to acquire, directly or indirectly, more
            than 10% of any class of equity security of Sound Federal Savings.

      o     CERTIFICATE OF INCORPORATION AND STATUTORY PROVISIONS. Provisions of
            the certificate of incorporation and bylaws of Sound Federal Bancorp
            and the corporate law of the State of Delaware, may make it more
            difficult and expensive to pursue a takeover attempt that management
            opposes. These provisions also make more difficult the removal of
            our current board of directors or management, or the appointment of
            new directors. These provisions include: limitations on voting
            rights of beneficial owners of more than 10% of our common stock;
            supermajority voting requirements for certain business combinations;
            and the election of directors to staggered terms of three years. Our
            bylaws also contain provisions regarding the timing and content of
            stockholder proposals and nominations and qualification for service
            on the board of directors.

      o     REQUIRED CHANGE IN CONTROL PAYMENTS. We have entered into employment
            agreements with certain executive officers that will require
            payments to be made to them in the event their employment is
            terminated following a change in control of Sound Federal Bancorp or
            Sound Federal Savings. These payments may have the effect of
            increasing the costs of acquiring Sound Federal Bancorp, thereby
            discouraging future attempts.

                                       15
THE RIGHTS OF STOCKHOLDERS AS A WHOLE UNDER OUR DELAWARE CERTIFICATE OF
INCORPORATION AND BYLAWS ARE MORE LIMITED THAN UNDER OUR FEDERAL CHARTER AND
BYLAWS

      As a result of the conversion, existing stockholders of Sound Federal
Bancorp, a federal corporation in the mutual holding company structure, will
become stockholders of Sound Federal Bancorp, a Delaware corporation with no
mutual holding company parent. The rights of stockholders of the new Delaware
corporation as a whole will be more limited than the rights stockholders
currently have. The differences in stockholder rights under the Delaware
certificate of incorporation and bylaws are not mandated by Delaware law but
have been chosen by management as being in the best interests of the corporation
and all of its stockholders.

      For example, Sound Federal Bancorp's current stockholders must submit
nominations for election of directors at an annual meeting of stockholders and
any new business to be taken up at such a meeting by filing the proposal in
writing with Sound Federal Bancorp at least five days before the date of any
such meeting. Sound Federal Bancorp's Delaware bylaws generally provide,
however, that any stockholder desiring to make a nomination for the election of
directors or a proposal for new business at a meeting of stockholders must
submit written notice to Sound Federal Bancorp at least 90 days prior to the
anniversary date of the mailing of proxy materials in connection with the
immediately preceding annual meeting of stockholders. Similarly, special
meetings of Sound Federal Bancorp's current stockholders may be called by the
holders of not less than one-tenth of the outstanding capital stock entitled to
vote at the meeting. Sound Federal Bancorp's Delaware certificate of
incorporation provides that special meetings of the stockholders of Sound
Federal Bancorp may be called only by a majority vote of the total authorized
directors. See "Comparison Of Stockholders' Rights" for a discussion of these
differences.

                                       16
FORWARD-LOOKING STATEMENTS

      This prospectus contains forward-looking statements, which can be
identified by the use of such words as estimate, project, believe, intend,
anticipate, plan, seek, expect and similar expressions. These forward-looking
statements include:

      o     statements of our goals, intentions and expectations;

      o     statements regarding our business plans, prospects, growth and
            operating strategies;

      o     statements regarding the asset quality of our loan and investment
            portfolios; and

      o     estimates of our risks and future costs and benefits.

      These forward-looking statements are subject to significant risks,
assumptions and uncertainties, including, among(other things, the following
important factors that could affect the actual outcome of future events:

      o     general economic conditions, either nationally or in our market
            areas, that are worse than expected;

      o     significantly increased competition among depository and other
            financial institutions;

      o     inflation and changes in the interest rate environment that reduce
            our margins or reduce the fair value of financial instruments;

      o     adverse changes in the securities markets;

      o     legislative or regulatory changes that adversely affect our
            business;

      o     our ability to enter new markets successfully and capitalize on
            growth opportunities;

      o     changes in consumer spending, borrowing and savings habits;

      o     changes in accounting policies and practices, as may be adopted by
            the bank regulatory agencies and the Financial Accounting Standards
            Board; and

      o     changes in our organization, compensation and benefit plans.

      Because of these and other uncertainties, our actual future results may be
materially different from the results indicated by these forward-looking
statements. We discuss some of these uncertainties and others in "Risk Factors"
beginning on page __.

               HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

      Although we cannot determine what the actual net proceeds from the sale of
the common stock in the offering will be until the offering is completed, we
anticipate that the net proceeds will be between $48.5 million and $66.0
million, or $76.0 million if the offering range is increased by 15%. Sound
Federal Bancorp estimates that it will invest in Sound Federal Savings between
$24.3 million and $33.0 million, or $38.0 million if the offering range is
increased by 15%. Sound Federal Bancorp intends to retain approximately 50% of
the net proceeds. Sound Federal Savings will, in all instances, receive at least
50% of the net proceeds from the offering.

                                       17
A summary of the anticipated net proceeds at the minimum, midpoint,
maximum and adjusted maximum of the offering range and anticipated distribution
of the net proceeds is as follows:
ADJUSTED
                                                 MINIMUM        MIDPOINT          MAXIMUM        MAXIMUM
                                               ------------    -----------      -----------    -----------
                                                                     (IN THOUSANDS)
Offering proceeds..................      $     50,009    $    58,834      $    67,659    $    77,807
      Less offering expenses.............             1,463          1,573            1,682          1,808
                                               ------------    -----------      -----------    -----------
      Net offering proceeds..............      $     48,546    $    57,261      $    65,977    $    75,999
                                               ============    ===========      ===========    ===========

      Distribution of net proceeds:
      To Sound Federal Savings...........      $     24,273    $    28,631      $    32,989    $    38,000
      Retained by Sound Federal Bancorp..      $     24,273    $    28,630      $    32,988    $    37,999
Payments for shares made through withdrawals from existing deposit
accounts will not result in the receipt of new funds for investment but will
result in a reduction of Sound Federal Savings' deposits. The net proceeds may
vary because total expenses relating to the offering may be more or less than
our estimates. For example, our expenses would increase if a syndicated
community offering were used to sell shares not purchased in the subscription
offering and community offering.

SOUND FEDERAL BANCORP MAY USE THE PROCEEDS IT RETAINS FROM THE OFFERING:

      o     to invest in securities;

      o     to pay cash dividends to stockholders;

      o     to repurchase its common stock;

      o     to finance the acquisition of financial institutions or branches or
            other financial service companies, although we do not currently have
            any specific acquisition plans; and

      o     for other general corporate purposes.

      Under current Office of Thrift Supervision regulations, we may not
repurchase shares of our common stock during the first year following the
conversion, except when extraordinary circumstances exist and with prior
regulatory approval.

SOUND FEDERAL SAVINGS MAY USE THE PROCEEDS IT RECEIVES FROM THE OFFERING:

      o     to fund new loans, including single-family mortgage loans,
            multi-family residential and commercial mortgage loans, commercial
            business loans, construction loans and consumer loans;

      o     to expand its retail banking franchise, by establishing or acquiring
            new branches or by acquiring other financial institutions, or other
            financial service companies, although we do not currently have any
            specific acquisition plans;

      o     to support new products and services;

      o     to invest in securities; and

      o     for other general corporate purposes.

                                       18
OUR DIVIDEND POLICY

      Sound Federal Bancorp currently pays a cash dividend of $0.09 per share
per quarter, or $0.36 per share per year. After the conversion, we intend to
continue to pay cash dividends on a quarterly basis. We expect such dividends to
equal $0.20 per share per year, which represents an annual dividend yield of
2.0%, based upon a stock price of $10.00 per share. The amount of dividends that
we intend to pay to our stockholders following the conversion is intended to
approximately preserve or increase the per share dividend amount, adjusted to
reflect the exchange ratio, that our stockholders currently receive on their
Sound Federal Bancorp common stock. The dividend rate and the continued payment
of dividends will depend on a number of factors including our capital
requirements, our financial condition and results of operations, tax
considerations, statutory and regulatory limitations, and general economic
conditions. We cannot assure you that we will not reduce or eliminate dividends
in the future.

      Under the rules of the Office of Thrift Supervision, Sound Federal Savings
will not be permitted to pay dividends on its capital stock to Sound Federal
Bancorp, its sole stockholder, if Sound Federal Savings' stockholder's equity
would be reduced below the amount of the liquidation account. See "The
Conversion--Liquidation Rights." For information concerning federal and state
law and regulations regarding the ability of Sound Federal Savings to make
capital distributions, including the payment of dividends, to Sound Federal
Bancorp, see "Taxation--Federal Taxation" and "Supervision and
Regulation--Federal Banking Regulation."

      Unlike Sound Federal Savings, Sound Federal Bancorp is not restricted by
Office of Thrift Supervision regulations on the payment of dividends to its
stockholders, although the source of dividends will depend on the net proceeds
retained by Sound Federal Bancorp and earnings thereon, and, as necessary, upon
dividends received from Sound Federal Savings. Sound Federal Bancorp, however,
is subject to the requirements of Delaware law, which generally limits dividends
to an amount equal to the excess of its stockholders' equity over its statutory
capital or, if there is no excess, to its net earnings for the current and/or
immediately preceding fiscal year.

      Additionally, we have committed to the Office of Thrift Supervision that
during the one-year period following the completion of the conversion, Sound
Federal Bancorp will not take any action to declare an extraordinary dividend to
our stockholders that would be treated by such stockholders as a tax-free return
of capital for federal income tax purposes, without prior approval of the Office
of Thrift Supervision.

      See "Selected Consolidated Financial and Other Data of Sound Federal
Bancorp and Subsidiary" for information regarding our historical dividend
payments.

                           MARKET FOR THE COMMON STOCK

      Sound Federal Bancorp common stock is currently listed on the Nasdaq
National Market under the symbol "SFFS," and there is an established market for
such common stock. At November __, 2002, we had _____________ market makers,
including Keefe, Bruyette & Woods, Inc. Upon completion of the conversion, the
new shares of common stock of Sound Federal Bancorp will replace existing shares
and be traded on the Nasdaq National Market. Keefe, Bruyette & Woods, Inc.
intends to remain a market maker in Sound Federal Bancorp common stock following
the conversion. Keefe, Bruyette & Woods, Inc. also will assist Sound Federal
Bancorp in obtaining other market makers after the conversion. We cannot assure
you that other market makers will be obtained or that an active and liquid
trading market for the common stock will develop or, if developed, will be
maintained. For a period of 20 trading days following completion of our
offering, our symbol will be "SFFSD," after which it will be "SFFS."

      The development of a public market having the desirable characteristics of
depth, liquidity and orderliness depends on the existence of willing buyers and
sellers, the presence of which is not within our control or that of any market
maker. The number of active buyers and sellers of our common stock at any
particular time may be limited, which may have an adverse effect on the price at
which our common stock can be sold. There can be no assurance that persons
purchasing the common stock will be able to sell their shares at or above the
$10.00 price per share in the offering. Purchasers of our common stock should
have a long-term investment intent and should recognize that there may be a
limited trading market in the common stock.

                                       19
The following table sets forth the high and low trading prices for Sound
Federal Bancorp common stock and cash dividends paid per share for the periods
indicated. As of June 30, 2002, there were 1,967,782 publicly held shares of
Sound Federal Bancorp common stock issued and outstanding. In connection with
the conversion, each existing share of common stock of Sound Federal Bancorp
will be converted into a number of new shares of common stock, based upon the
exchange ratio that is described in other parts of this prospectus.

      FISCAL YEAR ENDING                                         DIVIDEND PAID
      MARCH 31, 2003              HIGH               LOW           PER SHARE
      --------------           ---------          --------      --------------

      Third quarter (through   $                  $              $
        November ___, 2002)
      Second quarter                                                 0.09
      First quarter                23.849           15.020           0.07

      FISCAL YEAR ENDED                                          DIVIDEND PAID
      MARCH 31, 2002              HIGH               LOW           PER SHARE
      --------------           ---------          --------      --------------

      Fourth quarter           $   15.450         $ 13.050        $  0.07
      Third quarter                13.430           11.670           0.07
      Second quarter               15.100           11.100           0.07
      First quarter                11.500           10.000           0.07

      FISCAL YEAR ENDED                                          DIVIDEND PAID
      MARCH 31, 2001              HIGH               LOW           PER SHARE
      --------------           ---------          --------      --------------

      Fourth quarter           $   10.560         $  8.625        $  0.07
      Third quarter                 9.188            8.688           0.07
      Second quarter                9.250            8.250           0.07
      First quarter                 9.000            8.250           0.07

      On June 13, 2002, the business day immediately preceding the public
announcement of the conversion, and on November __, 2002, the closing prices of
Sound Federal Bancorp common stock as reported on the Nasdaq National Market
were $19.10 per share and $_____ per share, respectively. At November __, 2002,
Sound Federal Bancorp had approximately _____ stockholders of record. On the
effective date of the conversion, all publicly held shares of Sound Federal
Bancorp common stock, including shares held by our officers and directors, will
be converted automatically into and become the right to receive a number of
shares of Sound Federal Bancorp common stock determined pursuant to the exchange
ratio. See "The Conversion-Share Exchange Ratio." Options to purchase shares of
Sound Federal Bancorp common stock will be converted into options to purchase a
number of shares of Sound Federal Bancorp common stock determined pursuant to
the exchange ratio, for the same aggregate exercise price. See "Beneficial
Ownership of Common Stock."

                                       20
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE

      At June 30, 2002, Sound Federal Savings exceeded all of the applicable
regulatory capital requirements. The table below sets forth the historical
equity capital and regulatory capital of Sound Federal Savings at June 30, 2002
and the pro forma regulatory capital of Sound Federal Savings, assuming the
indicated number of shares were sold as of such date at $10.00 per share and
Sound Federal Savings received 50% of the net conversion proceeds.
SOUND FEDERAL                              PRO FORMA AT JUNE 30, 2002
                                   SAVINGS HISTORICAL ------------------------------------------------------------------------------
                                           AT                                                                    MAXIMUM AS ADJUSTED
                                     JUNE 30, 2002         MINIMUM             MIDPOINT           MAXIMUM              (1)
                                   -----------------  ------------------   -----------------  -----------------  -------------------
                                              PERCENT             PERCENT            PERCENT            PERCENT             PERCENT
                                                OF                  OF                  OF                OF                  OF
                                              ASSETS              ASSETS             ASSETS             ASSETS              ASSETS
                                   AMOUNT      (2)     AMOUNT      (2)      AMOUNT     (2)     AMOUNT     (2)     AMOUNT      (2)
                                  --------   -------  --------   -------   --------  -------  --------  -------  --------   -------
                                                                       (DOLLARS IN THOUSANDS)
Equity capital..................  $ 57,811     8.88%  $ 79,084     11.77%  $ 82,912   12.27%  $ 86,740   12.76%  $ 91,142    13.32%

Tangible capital (3)............  $ 42,113     6.63%  $ 63,386      9.66%  $ 67,214   10.18%  $ 71,042   10.70%  $ 75,444    11.29%
Tangible requirement............     9,528     1.50      9,846      1.50      9,904    1.50      9,961    1.50     10,027     1.50
                                  --------   ------   --------   -------   --------  ------   --------  ------   --------   ------
Excess..........................  $ 32,585     5.13%  $ 53,540     8.16%   $ 57,310    8.68%  $ 61,081    9.20%  $ 65,417     9.79%
                                  ========   ======   ========   ======    ========  ======   ========  ======   ========   ======

Core (leverage) capital (3).....  $ 42,113     6.63%  $ 63,386     9.66%   $ 67,214   10.18%  $ 71,042   10.70%  $ 75,444    11.29%
Core (leverage) requirement (4).    25,405     4.00     26,256     4.00      26,410    4.00     26,563    4.00     26,739     4.00
                                  --------   ------   --------   ------    --------  ------   --------  ------   --------   ------
Excess..........................  $ 16,708     2.63%  $ 37,130     5.66%   $ 40,804    6.18%  $ 44,479    6.70%  $ 48,705     7.29%
                                  ========   ======   ========   ======    ========  ======   ========  ======   ========   ======

Total risk-based capital (3)(5).  $ 44,410    13.78%  $ 65,683    19.73%   $ 69,511   20.76%  $ 73,339   21.77%  $ 77,741    22.93%
Risk-based requirement..........    25,788     8.00     26,639     8.00      26,792    8.00     26,946    8.00     27,122     8.00
                                  --------   ------   --------   ------    --------  ------   --------  ------   --------   ------
Excess..........................  $ 18,622     5.78%  $ 39,044    11.73%   $ 42,719   12.76%  $ 46,393   13.77%  $ 50,619    14.93%
                                  ========   ======   ========   ======    ========  ======   ========  ======   ========   ======
--------------------------------
(1)   As adjusted to give effect to an increase in the number of shares which
      could occur due to a 15% increase in the offering range to reflect changes
      in market or general financial conditions following the commencement of
      the offering.
(2)   Tangible and core capital levels are shown as a percentage of total
      adjusted assets. Risk-based capital levels are shown as a percentage of
      risk-weighted assets.
(3)   Pro forma capital levels assume repayment by Sound Federal Savings of the
      additional loan to the ESOP to enable it to purchase 8% of the common
      stock sold in the offering.
(4)   The current Office of Thrift Supervision core capital requirement for
      financial institutions is 3% of total adjusted assets for financial
      institutions that receive the highest supervisory rating for safety and
      soundness and a 4% to 5% core capital ratio requirement for all other
      financial institutions.
(5)   Pro forma amounts and percentages assume net proceeds are invested in
      assets that carry a 50% risk-weighting.

                                       21
CAPITALIZATION

      The following table presents the historical consolidated capitalization of
Sound Federal Bancorp at June 30, 2002 and the pro forma consolidated
capitalization of Sound Federal Bancorp after giving effect to the conversion,
based upon the assumptions set forth in the "Pro Forma Data" section.
13,225,000
                                                              8,500,000        10,000,000      11,500,000       MAXIMUM AS
                                                               MINIMUM          MIDPOINT        MAXIMUM          ADJUSTED
                                                  SOUND         SHARES           SHARES          SHARES           SHARES
                                                 FEDERAL      OUTSTANDING,     OUTSTANDING,    OUTSTANDING,     OUTSTANDING,
                                                 BANCORP       5,000,890        5,883,400       6,765,910        7,780,737
                                                HISTORICAL    SHARES SOLD      SHARES SOLD     SHARES SOLD      SHARES SOLD
                                                 AT JUNE     $10.00 PER        $10.00 PER      $10.00 PER        $10.00 PER
                                                   2002         SHARE             SHARE           SHARE          SHARE (1)
                                               -----------   ------------     ------------    ------------     ------------
                                                                          (DOLLARS IN THOUSANDS)
Deposits (2)............................      $   544,626   $    544,626     $    544,626    $    544,626     $    544,626
 Borrowings..............................           34,967         34,967           34,967          34,967           34,967
                                               -----------   ------------     ------------    ------------     ------------
   Total deposits and borrowings.........      $   579,593   $    579,593     $    579,593    $    579,593     $    579,593
                                               ===========   ============     ============    ============     ============

 Stockholders' equity:
  Preferred stock, $0.01 par value,
    1,000,000 shares authorized
    (post-conversion) (3)................               --             --               --              --               --
   Common stock $0.01 par value,
    24,000,000 shares authorized
    (post-conversion); shares to be
    issued as reflected (3) (4)..........              522             85              100             115              132
   Additional paid-in capital (3)........           22,596         71,952           80,652          89,416           99,358
   Retained earnings (5).................           44,589         44,589           44,589          44,589           44,589
   Accumulated comprehensive
    income, net of taxes.................            1,728          1,728            1,728           1,728            1,728
 Less:
   Treasury stock........................           (4,350)        (4,350)          (4,350)         (4,350)          (4,350)
   Common stock held by employee
     stock ownership plan................           (1,057)        (1,057)          (1,057)         (1,057)          (1,057)
   Common stock awards under the
    recognition and retention plan.......             (208)          (208)            (208)           (208)            (208)
   Common stock to be acquired by
    employee stock ownership plan (7)....               --         (4,001)          (4,708)         (5,413)          (6,225)
   Common stock to be acquired by
    recognition and retention plan (8)...               --         (2,000)          (2,354)         (2,706)          (3,112)
                                               -----------   ------------     ------------    ------------     ------------
     Total stockholders' equity..........      $    63,820   $    106,738     $    114,392    $    122,051     $    130,855
                                               ===========   ============     ============    ============     ============
     Total stockholders' equity as a
       percentage of total assets........             9.80%         15.37%           16.29%          17.20%           18.21%
     Tangible stockholders' equity as
       a percentage of total assets......             7.65%         13.36%           14.30%          15.23%           16.27%
-----------------------------------------
(1)   As adjusted to give effect to an increase in the number of shares which
      could occur due to a 15% increase in the offering range to reflect changes
      in market or general financial conditions following the commencement of
      the subscription and community offerings.
(2)   Does not reflect withdrawals from deposit accounts for the purchase of
      common stock in the conversion. These withdrawals would reduce pro forma
      deposits by the amount of the withdrawals.
(3)   Sound Federal Bancorp has 10,000,000 authorized shares of preferred stock
      and 20,000,000 authorized shares of common stock, par value $0.10 per
      share. Pro forma Sound Federal Bancorp common stock and additional paid-in
      capital have been increased to reflect the number of shares of Sound
      Federal Bancorp common stock to be outstanding. Pro forma additional
      paid-in capital reflects consolidation of $373,000 of capital from Sound
      Federal, MHC.
(4)   No effect has been given to the issuance of additional shares of Sound
      Federal Bancorp common stock pursuant to an additional stock option plan.
      If this plan is implemented, an amount equal to 10% of the shares of Sound
      Federal Bancorp common stock sold in the offering will be reserved for
      issuance upon the exercise of options under the stock option plan. No
      effect has been given to the exercise of options currently outstanding.
      See "Management of Sound Federal Bancorp-Stock Benefit Plans."
(5)   The retained earnings of Sound Federal Savings will be substantially
      restricted after the conversion. See "The Conversion-Liquidation Rights"
      and "Supervision and Regulation-Federal Banking Regulation."
(6)   Pro forma data assumes the cancellation of treasury stock as a result of
      the conversion and exchange of shares.

                                         (FOOTNOTES CONTINUED ON FOLLOWING PAGE)

                                       22
-----------------------------------------
(7)   Assumes that 8% of the shares sold in the offering will be acquired by the
      employee stock ownership plan financed by a loan from Sound Federal
      Bancorp. The loan will be repaid principally from Sound Federal Savings'
      contributions to the employee stock ownership plan. The amount of stock
      acquired by the employee stock ownership plan is shown in this table as a
      reduction of total stockholders' equity.
(8)   Assumes a number of shares of common stock equal to 4% of the common stock
      to be sold in the offering will be purchased by the recognition and
      retention plan in open market purchases. The dollar amount of common stock
      to be purchased is based on the $10.00 per share subscription price in the
      offering and represents unearned compensation. This amount does not
      reflect possible increases or decreases in the value of stock relative to
      the subscription price in the offering. As Sound Federal Bancorp accrues
      compensation expense to reflect the vesting of shares pursuant to the
      recognition and retention plan, the credit to capital will be offset by a
      charge to operations. Implementation of the recognition and retention plan
      will require stockholder approval. If the shares to fund the plan are
      assumed to come from authorized but unissued shares of Sound Federal
      Bancorp, the number of outstanding shares at the minimum, midpoint,
      maximum and the maximum, as adjusted, of the offering range would be
      8,700,036, 10,235,336, 11,770,636 and 13,536,229, respectively, total
      stockholders' equity would be $108.7 million, $116.7 million, $124.8
      million and $134.0 million, respectively, and total stockholders'
      ownership in Sound Federal Bancorp would be diluted by approximately 5.6%.

                                 PRO FORMA DATA

      The following table summarizes historical data of Sound Federal Bancorp
and pro forma data of Sound Federal Bancorp at or for the three months ended
June 30, 2002 and the year ended March 31, 2002, based on assumptions set forth
below and in the table, and should not be used as a basis for projections of
market value of the common stock following the conversion. No effect has been
given in the table to the possible issuance of additional shares pursuant to the
current outstanding stock option plan or for the possible issuance of additional
shares pursuant to any stock option plan or stock recognition and retention plan
that may be adopted by our stockholders no earlier than six months after the
conversion. Moreover, pro forma stockholders' equity per share does not give
effect to the liquidation account to be established in the conversion or, in the
event of a liquidation of Sound Federal Savings, to the tax effect of the
recapture of the bad debt reserve. See "The Conversion-Liquidation Rights."

      The net proceeds in the tables are based upon the following assumptions:

      (1)   all shares of common stock will be sold in the subscription and
            community offerings;

      (2)   108,000 shares of common stock will be purchased by our executive
            officers and directors, and their immediate families;

      (3)   our employee stock ownership plan will purchase 8.0% of the shares
            of common stock sold in the offering with a loan from Sound Federal
            Bancorp. The loan will be repaid in substantially equal principal
            payments over a period of 20 years;

      (4)   Keefe, Bruyette & Woods, Inc. will receive an aggregate fee equal to
            1.35% of the dollar amount of common stock sold in the subscription
            and community offerings. No fee will be paid with respect to shares
            of common stock purchased by the employee stock ownership plan and
            by our officers, directors and employees, and their immediate
            families; and

      (5)   total expenses of the offering, including the marketing fees to be
            paid to Keefe, Bruyette & Woods, Inc., will be between $1.5 million
            at the minimum of the offering range and $1.8 million at the maximum
            of the offering range, as adjusted.

      Pro forma consolidated net earnings of Sound Federal Bancorp for the three
months ended June 30, 2002 and the year ended March 31, 2002 has been calculated
as if the estimated net proceeds received by Sound Federal Bancorp and Sound
Federal Savings had been invested at an assumed interest rate of 3.34% (2.04% on
an after-tax basis) for the three months ended June 30, 2002 and for the year
ended March 31, 2001. The reinvestment rate was based on the three-year treasury
note rate. The effect of withdrawals from deposit accounts for the purchase of
common stock has not been reflected. Historical and pro forma per share amounts
have been calculated by dividing historical and pro forma amounts by the
indicated number of shares of common stock. No effect has been given in the pro
forma stockholders' equity calculations for the assumed earnings on the net
proceeds. It is assumed that Sound Federal Bancorp will retain 50% of the
estimated net conversion proceeds. The actual net proceeds from the sale of
common stock will not be determined until the conversion is completed. However,
we currently estimate the

                                       23
net proceeds to be between $48.5 million and $66.0 million, or $76.0 million if
the offering range is increased by 15%. It is assumed that all shares will be
sold in the subscription offering and community offering.

      The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur, and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amounts of assets and liabilities of Sound
Federal Bancorp. The pro forma stockholders' equity is not intended to represent
the fair market value of the common stock.

                                       24
AT OR FOR THE THREE MONTHS ENDED JUNE 30, 2002
                                                                             BASED UPON THE SALE AT $10.00 PER SHARE OF
                                                                   -----------------------------------------------------------
                                                                                                                   7,780,737
                                                                   5,000,890       5,883,400       6,765,910       SHARES (1)
                                                                     SHARES          SHARES          SHARES       15% ABOVE
                                                                   MINIMUM OF      MIDPOINT OF     MAXIMUM OF     MAXIMUM OF
                                                                    ESTIMATED      ESTIMATED       ESTIMATED       ESTIMATED
                                                                   PRICE RANGE    PRICE RANGE     PRICE RANGE     PRICE RANGE
                                                                   ------------   ------------    ------------    ------------
                                                                          (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross proceeds.................................................   $     50,009   $     58,834    $     67,659    $     77,807
 Expenses.......................................................         (1,463)        (1,573)         (1,682)         (1,808)
                                                                   ------------   ------------    ------------    ------------
    Estimated net proceeds......................................         48,546         57,261          65,977          75,999
 Common stock acquired by employee stock ownership plan (2).....         (4,001)        (4,708)         (5,413)         (6,235)
 Common stock acquired by recognition and retention plan (3)....         (2,000)        (2,354)         (2,706)         (3,112)
 Assets received from the MHC...................................            373            373             373             373
                                                                   ------------   ------------    ------------    ------------
    Estimated net proceeds, as adjusted.........................   $     42,918   $     50,564    $     58,231    $     67,005
                                                                   ============   ============    ============    ============

 FOR THE THREE MONTHS ENDED JUNE 30, 2002
 Consolidated net earnings:
    Historical..................................................   $      2,161   $      2,161    $      2,161    $      2,161
 Pro forma adjustments:
    Income on adjusted net proceeds.............................            217            256             295             340
    Employee stock ownership plan (2)...........................            (31)           (36)            (41)            (48)
    Recognition and retention plan (3)..........................            (61)           (72)            (83)            (95)
                                                                   ------------   ------------    ------------    ------------
      Pro forma net earnings....................................   $      2,286   $      2,309    $      2,332    $      2,358
                                                                   ============   ============    ============    ============

 Earnings per share (4):
    Historical..................................................   $       0.27   $       0.23    $       0.20    $       0.18
 Pro forma adjustments:
    Income on adjusted net proceeds.............................           0.03           0.03            0.03            0.03
    Employee stock ownership plan (2)...........................             --             --              --              --
    Recognition and retention plan (3)..........................          (0.01)         (0.01)          (0.01)          (0.01)
                                                                   ------------   ------------    ------------    ------------
      Pro forma earnings per share (4) (5)......................   $       0.29   $       0.25    $       0.22    $       0.20
                                                                   ============   ============    ============    ============

 Pro forma price to earnings....................................           8.62x         10.00x          11.36x          12.5x

 Number of shares used in earnings per share calculations.......      7,921,673      9,319,615      10,717,558      12,325,193

 AT JUNE 30, 2002 Stockholders' equity:
    Historical..................................................   $     63,820   $     63,820    $     63,820    $     63,820
    Estimated net proceeds......................................         48,546         57,261          65,977          75,999
    MHC capital consolidation...................................            373            373             373             373
    Common stock acquired by employee stock ownership plan (2)..         (4,001)        (4,708)         (5,413)         (6,225)
    Common stock acquired by recognition and retention plan (3).         (2,000)        (2,354)         (2,706)         (3,112)
                                                                    ------------   ------------    ------------    ------------
        Pro forma stockholders' equity (6)......................        106,738        114,392         122,051         130,855
    Intangible assets...........................................        (13,970)       (13,970)        (13,970)        (13,970)
                                                                   ------------   ------------    ------------    ------------
        Pro forma tangible stockholders' equity.................   $     92,768   $    100,422    $    108,081    $    116,885
                                                                   ============   ============    ============    ============

 Stockholders' equity per share (7):
    Historical..................................................   $       7.51   $       6.38    $       5.55    $       4.83
    Estimated net proceeds......................................           5.71           5.73            5.74            5.75
    MHC capital consolidation...................................           0.04           0.04            0.03            0.03
    Common stock acquired by employee stock ownership plan (2)..          (0.47)         (0.47)          (0.47)          (0.47)
    Common stock acquired by recognition and retention plan (3).   $      (0.24)  $      (0.24)   $      (0.24)   $      (0.24)
                                                                   ------------   ------------    ------------    ------------
        Pro forma stockholders' equity per share (6) (7)........   $      12.55   $      11.44    $      10.61    $       9.90
                                                                   ============   ============    ============    ============
    Intangible assets...........................................          (1.64)         (1.40)          (1.21)          (1.06)
                                                                   ------------   ------------    ------------    ------------
        Pro forma tangible stockholders' equity per share.......   $      10.91   $      10.04    $       9.40    $       8.84
                                                                   ============   ============    ============    ============

 Offering price as percentage of pro forma stockholders'
    equity per share............................................          79.68%         87.41%          94.25%         101.01%
 Offering price as percentage of pro forma tangible
    stockholders' equity per share..............................          91.66%         99.60%         106.38%         113.12%

 Number of shares used in book value per share calculations.....      8,500,000     10,000,000      11,500,000      13,225,000

                                                                                                       (FOOTNOTES ON NEXT PAGE)
25
--------------------------------
(1)   As adjusted to give effect to an increase in the number of shares which
      could occur due to a 15% increase in the offering range to reflect changes
      in market and financial conditions following the commencement of the
      offering.
(2)   Assumes that 8% of shares of common stock sold in the offering will be
      purchased by the employee stock ownership plan. For purposes of this
      table, the funds used to acquire these shares are assumed to have been
      borrowed by the employee stock ownership plan from the net proceeds of the
      offering retained by Sound Federal Bancorp. Sound Federal Savings intends
      to make annual contributions to the employee stock ownership plan in an
      amount at least equal to the principal of the debt. Sound Federal Savings'
      total annual payments on the employee stock ownership plan debt are based
      upon 20 equal annual installments of principal and interest. Statement of
      Position 93-6 requires that an employer record compensation expense in an
      amount equal to the fair value of the shares committed to be released to
      employees. The pro forma adjustments assume that the employee stock
      ownership plan shares are allocated in equal annual installments based on
      the number of loan repayment installments assumed to be paid by Sound
      Federal Savings, the fair value of the common stock remains that the
      subscription price and the employee stock ownership plan expense reflects
      an effective combined federal and state tax rate of 38.9%. The unallocated
      employee stock ownership plan shares are reflected as a reduction of
      stockholders' equity. No reinvestment is assumed on proceeds contributed
      to fund the employee stock ownership plan. The pro forma net income
      further assumes (i) that 9,700, 11,411, 13,123 and 15,092 shares were
      committed to be released during the period at the minimum, midpoint,
      maximum, and adjusted maximum of the offering range, respectively, and
      (ii) in accordance with Statement of Position 93-6, only the employee
      stock ownership plan shares committed to be released during the period
      were considered outstanding for purposes of net income per share
      calculations.
(3)   If approved by Sound Federal Bancorp's stockholders, the recognition and
      retention plan intends to purchase an aggregate number of shares of common
      stock equal to 4% of the shares to be sold in the offering. Stockholder
      approval of the recognition and retention plan and purchases by the plan
      may not occur earlier than six months after the completion of the
      conversion. The shares may be acquired directly from Sound Federal Bancorp
      or through open market purchases. The funds to be used by the recognition
      and retention plan to purchase the shares will be provided by Sound
      Federal Bancorp. The table assumes that (i) the recognition and retention
      plan acquires the shares through open market purchases at $10.00 per
      share, (ii) 5% of the amount contributed to the recognition and retention
      plan is amortized as an expense during the three months ended June 30,
      2002 and (iii) the recognition and retention plan expense reflects an
      effective combined federal and state tax rate of 38.9%. Assuming
      stockholder approval of the plan and that the plan shares are awarded
      through the use of authorized but unissued shares of common stock,
      stockholders would have their voting interests diluted by approximately
      2.3%.
(4)   Per share figures include publicly held shares of Sound Federal Bancorp
      common stock that will be exchanged for new shares of Sound Federal
      Bancorp common stock in the conversion. See "The Conversion-Share Exchange
      Ratio." Net income per share computations are determined by taking the
      number of shares assumed to be sold in the offering and the number of new
      shares assumed to be issued in exchange for publicly held shares and
      subtracting the recognition and retention plan shares and the employee
      stock ownership plan shares which have not been committed for release
      during the respective periods. See note 2 above. The number of shares of
      common stock actually sold and the corresponding number of exchange shares
      may be more or less than the assumed amounts.
(5)   No effect has been given to the issuance of additional shares of common
      stock pursuant to the stock option plan, which is expected to be adopted
      by Sound Federal Bancorp following the offering and presented to
      stockholders for approval not earlier than six months after the completion
      of the conversion. If the stock option plan is approved by stockholders, a
      number of shares equal to 10% of the shares sold in the offering will be
      reserved for future issuance upon the exercise of options to be granted
      under the stock option plan. The issuance of authorized but previously
      unissued shares of common stock pursuant to the exercise of options under
      such plan would dilute existing stockholders' interests by approximately
      5.6%.
(6)   The retained earnings of Sound Federal Savings will be substantially
      restricted after the conversion. See "Our Dividend Policy," "The
      Conversion-Liquidation Rights" and "Supervision and Regulation-Federal
      Banking Regulation-Capital Distributions."
(7)   Per share figures include publicly held shares of Sound Federal Bancorp
      common stock that will be exchanged for new shares of Sound Federal
      Bancorp common stock in the conversion. Stockholders' equity per share
      calculations are based upon the sum of (i) the number of subscription
      shares assumed to be sold in the offering and (ii) new shares to be issued
      in exchange for publicly held shares at the minimum, midpoint, maximum and
      adjusted maximum of the offering range, respectively. The exchange shares
      reflect an exchange ratio of 1.7782, 2.0920, 2.4058 and 2.7667,
      respectively, at the minimum, midpoint, maximum and adjusted maximum of
      the offering range, respectively. The number of subscription shares
      actually sold and the corresponding number of exchange shares may be more
      or less than the assumed amounts.

                                       26
AT OR FOR THE THREE MONTHS ENDED MARCH 31, 2002
                                                                             BASED UPON THE SALE AT $10.00 PER SHARE OF
                                                                   -----------------------------------------------------------
                                                                                                                   7,780,737
                                                                   5,000,890       5,883,400       6,765,910       SHARES (1)
                                                                     SHARES          SHARES          SHARES       15% ABOVE
                                                                   MINIMUM OF      MIDPOINT OF     MAXIMUM OF     MAXIMUM OF
                                                                    ESTIMATED      ESTIMATED       ESTIMATED       ESTIMATED
                                                                   PRICE RANGE    PRICE RANGE     PRICE RANGE     PRICE RANGE
                                                                   ------------   ------------    ------------    ------------
                                                                          (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross proceeds.................................................   $     50,009   $     58,834    $     67,659    $     77,807
 Expenses.......................................................         (1,463)        (1,573)         (1,682)         (1,808)
                                                                   ------------   ------------    ------------    ------------
    Estimated net proceeds......................................         48,546         57,261          65,977          75,999
 Common stock acquired by employee stock ownership plan (2).....         (4,001)        (4,708)         (5,413)         (6,235)
 Common stock acquired by recognition and retention plan (3)....         (2,000)        (2,354)         (2,706)         (3,112)
 Assets received from the MHC...................................            373            373             373             373
                                                                   ------------   ------------    ------------    ------------
    Estimated net proceeds, as adjusted.........................   $     42,918   $     50,564    $     58,231    $     67,005
                                                                   ============   ============    ============    ============

 FOR THE YEAR ENDED MARCH 31, 2002
 Consolidated net earnings:
    Historical..................................................   $      5,770   $      5,770    $      5,770    $      5,770
 Pro forma adjustments:
    Income on adjusted net proceeds.............................            868          1,024           1,180           1,360
    Employee stock ownership plan (2)...........................           (122)          (144)           (165)           (190)
    Recognition and retention plan (3)..........................           (244)          (288)           (331)           (380)
                                                                   ------------   ------------    ------------    ------------
      Pro forma net earnings....................................   $      6,272   $      6,362    $      6,454    $      6,560
                                                                   ============   ============    ============    ============

 Earnings per share (4):
    Historical..................................................   $       0.73   $       0.62    $       0.54    $       0.47
 Pro forma adjustments:
    Income on adjusted net proceeds.............................           0.11           0.11            0.11            0.11
    Employee stock ownership plan (2)...........................          (0.02)         (0.02)          (0.02)          (0.02)
    Recognition and retention plan (3)..........................          (0.03)         (0.03)          (0.03)          (0.03)
                                                                   ------------   ------------    ------------    ------------
      Pro forma earnings per share (4) (5)......................   $       0.79   $       0.68    $       0.60    $       0.53
                                                                   ============   ============    ============    ============

 Pro forma price to earnings....................................          12.66x         14.71x          16.67x          18.87x
 Number of shares used in earnings per share calculations.......      7,950,772      9,353,850      10,756,928      12,370,468

 AT MARCH 31, 2002
 Stockholders' equity:
    Historical..................................................   $     61,015   $     61,015    $     61,015    $     61,015
    Estimated net proceeds......................................         48,546         57,261          65,977          75,999
    MHC capital consolidation...................................            373            373             373             373
    Common stock acquired by employee stock ownership plan (2)..         (4,001)        (4,708)         (5,413)         (6,225)
    Common stock acquired by recognition and retention plan (3).         (2,000)        (2,354)         (2,706)         (3,112)
                                                                   ------------   ------------    ------------    ------------
        Pro forma stockholders' equity (6)......................        103,933        111,589         119,246         128,050
    Intangible assets...........................................        (13,970)       (13,970)        (13,970)        (13,970)
                                                                   ------------   ------------    ------------    ------------
        Pro forma tangible stockholders' equity.................   $     89,963   $     97,619    $    105,276    $    114,080
                                                                   ============   ============    ============    ============

 Stockholders' equity per share (7):
    Historical..................................................   $       7.18   $       6.10    $       5.31    $       4.61
    Estimated net proceeds......................................           5.71           5.73            5.74            5.75
    MHC capital consolidation...................................           0.04           0.04            0.03            0.03
    Common stock acquired by employee stock ownership plan (2)..          (0.47)         (0.47)          (0.47)          (0.47)
    Common stock acquired by recognition and retention plan (3).          (0.24)         (0.24)          (0.24)          (0.24)
                                                                   ------------   ------------    ------------    ------------
        Pro forma stockholders' equity per share (6) (7)........   $      12.22   $      11.16    $      10.37    $       9.68
                                                                   ============   ============    ============    ============
    Intangible assets...........................................          (1.64)         (1.40)          (1.21)          (1.06)
                                                                   ------------   ------------    ------------    ------------
        Pro forma tangible stockholders' equity per share.......   $      10.58   $       9.76    $       9.16    $       8.62
                                                                   ============   ============    ============    ============

 Offering price as percentage of pro forma stockholders'
    equity per share............................................          81.83%         89.61%          96.43%         103.31%
 Offering price as percentage of pro forma tangible
    stockholders' equity per share..............................          94.52%        102.46%         109.17%         116.01%

 Number of shares used in book value per share calculations.....      8,500,000     10,000,000      11,500,000      13,225,000

                                                                                                       (FOOTNOTES ON NEXT PAGE)
27
---------------------------------
(1)   As adjusted to give effect to an increase in the number of shares which
      could occur due to a 15% increase in the offering range to reflect changes
      in market and financial conditions following the commencement of the
      offering.
(2)   Assumes that 8% of shares of common stock sold in the offering will be
      purchased by the employee stock ownership plan. For purposes of this
      table, the funds used to acquire these shares are assumed to have been
      borrowed by the employee stock ownership plan from the net proceeds of the
      offering retained by Sound Federal Bancorp. Sound Federal Savings intends
      to make annual contributions to the employee stock ownership plan in an
      amount at least equal to the principal of the debt. Sound Federal Savings'
      total annual payments on the employee stock ownership plan debt are based
      upon 20 equal annual installments of principal and interest. Statement of
      Position 93-6 requires that an employer record compensation expense in an
      amount equal to the fair value of the shares committed to be released to
      employees. The pro forma adjustments assume that the employee stock
      ownership plan shares are allocated in equal annual installments based on
      the number of loan repayment installments assumed to be paid by Sound
      Federal Savings, the fair value of the common stock remains that the
      subscription price and the employee stock ownership plan expense reflects
      an effective combined federal and state tax rate of 38.9%. The unallocated
      employee stock ownership plan shares are reflected as a reduction of
      stockholders' equity. No reinvestment is assumed on proceeds contributed
      to fund the employee stock ownership plan. The pro forma net income
      further assumes (i) that 38,000, 45,646, 52,493 and 60,367 shares were
      committed to be released during the twelve months ended March 31, 2002 at
      the minimum, midpoint, maximum, and adjusted maximum of the offering
      range, respectively, and (ii) in accordance with Statement of Position
      93-6, only the employee stock ownership plan shares committed to be
      released during the period were considered outstanding for purposes of net
      income per share calculations.
(3)   If approved by Sound Federal Bancorp's stockholders, the stock recognition
      and retention plan intends to purchase an aggregate number of shares of
      common stock equal to 4% of the shares to be sold in the offering.
      Stockholder approval of the recognition and retention plan and purchases
      by the plan may not occur earlier than six months after the completion of
      the conversion. The shares may be acquired directly from Sound Federal
      Bancorp or through open market purchases. The funds to be used by the
      recognition and retention plan to purchase the shares will be provided by
      Sound Federal Bancorp. The table assumes that (i) the recognition and
      retention plan acquires the shares through open market purchases at $10.00
      per share, (ii) 20% of the amount contributed to the recognition and
      retention plan is amortized as an expense during the year ended March 31,
      2002 and (iii) the recognition and retention plan expense reflects an
      effective combined federal and state tax rate of 38.9%. Assuming
      stockholder approval of the plan and that the plan shares are awarded
      through the use of authorized but unissued shares of common stock,
      stockholders would have their voting interests diluted by approximately
      2.3%.
(4)   Per share figures include publicly held shares of Sound Federal Bancorp
      common stock that will be exchanged for new shares of Sound Federal
      Bancorp common stock in the conversion. See "The Conversion-Share Exchange
      Ratio." Net income per share computations are determined by taking the
      number of shares assumed to be sold in the offering and the number of new
      shares assumed to be issued in exchange for publicly held shares and
      subtracting the recognition and retention plan shares and the employee
      stock ownership plan shares which have not been committed for release
      during the respective periods. See note 2 above. The number of shares of
      common stock actually sold and the corresponding number of exchange shares
      may be more or less than the assumed amounts.
(5)   No effect has been given to the issuance of additional shares of common
      stock pursuant to the stock option plan, which is expected to be adopted
      by Sound Federal Bancorp following the offering and presented to
      stockholders for approval not earlier than six months after the completion
      of the conversion. If the stock option plan is approved by stockholders, a
      number of shares equal to 10% of the shares sold in the offering will be
      reserved for future issuance upon the exercise of options to be granted
      under the stock option plan. The issuance of authorized but previously
      unissued shares of common stock pursuant to the exercise of options under
      such plan would dilute existing stockholders' interests by approximately
      5.6%.
(6)   The retained earnings of Sound Federal Savings will be substantially
      restricted after the conversion. See "Our Dividend Policy," "The
      Conversion-Liquidation Rights" and "Supervision and Regulation-Federal
      Banking Regulation-Capital Distributions."
(7)   Per share figures include publicly held shares of Sound Federal Bancorp
      common stock that will be exchanged for new shares of Sound Federal
      Bancorp common stock in the conversion. Stockholders' equity per share
      calculations are based upon the sum of (i) the number of subscription
      shares assumed to be sold in the offering and (ii) new shares to be issued
      in exchange for publicly held shares at the minimum, midpoint, maximum and
      adjusted maximum of the offering range, respectively. The exchange shares
      reflect an exchange ratio of 1.7782, 2.0920, 2.4058 and 2.7667,
      respectively, at the minimum, midpoint, maximum and adjusted maximum of
      the offering range, respectively. The number of subscription shares
      actually sold and the corresponding number of exchange shares may be more
      or less than the assumed amounts.

                                       28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

      The discussion and analysis that follows focuses on the factors affecting
our consolidated financial condition at June 30, 2002 and March 31, 2002 and
2001, and our consolidated results of operations for the three months ended June
30, 2002 and 2001 and for the years ended March 31, 2002, 2001 and 2000. The
consolidated financial statements and related notes beginning at page F-1 of
this prospectus should be read in conjunction with this discussion.

GENERAL

      Our principal business has historically consisted of offering savings and
other deposits to the general public and using the funds from these deposits to
make loans secured by residential real estate. Our results of operations depend
primarily upon our net interest income, which is the difference between income
earned on interest-earning assets, such as loans and investments, and the
interest expense paid on deposits. To a much lesser degree, our operations are
affected by non-interest income, such as banking service charges and fees. Net
income is also affected by, among other things, provisions for loan losses and
non-interest expenses. Our principal non-interest expenses consist of
compensation and benefits, occupancy and equipment, data processing service
fees, advertising and promotion and other expenses, such as ATM expenses,
professional fees and insurance premiums. Our results of operations also are
affected significantly by general economic and competitive conditions,
particularly changes in market interest rates; government legislation and
policies affecting fiscal affairs, housing and financial institutions; monetary
policies of the Federal Reserve System; and the actions of bank regulatory
authorities.

CRITICAL ACCOUNTING POLICIES

      Accounting policies considered particularly critical to our financial
results include the allowance for loan losses and accounting for goodwill. The
methodology for determining the allowance for loan losses is considered a
critical accounting policy by management due to the high degree of judgment
involved, the subjectivity of the assumptions utilized and the potential for
changes in the economic environment that could result in changes to the amount
of the allowance for loan losses considered necessary. Management considers
accounting for goodwill to be a critical policy because goodwill must be tested
for impairment at least annually using a "two-step" approach that involves the
identification of reporting units and the estimation of fair values. The
estimation of fair values involves a high degree of judgment and subjectivity in
the assumptions utilized.

MANAGEMENT OF MARKET RISK

      Our most significant form of market risk is interest rate risk. Our assets
consist primarily of fixed-rate mortgage loans, which have longer maturities
than our liabilities, which consist primarily of deposits. Our interest rate
risk management program focuses primarily on evaluating and managing the
composition of assets and liabilities in the context of various interest rate
scenarios. Factors beyond management's control, such as market interest rates
and competition, also have an impact on interest income and interest expense. We
do not own any trading assets and have not engaged in hedging transactions such
as interest rate swaps and caps.

      We attempt to manage interest rate risk and to minimize the exposure of
earnings to changes in market interest rates. During the low interest rate
environment that has existed in recent years, we have followed the following
strategies to manage interest rate risk: (i) purchasing adjustable rate
mortgage-backed securities guaranteed by Fannie Mae or Ginnie Mae and (ii)
maintaining a high level of liquid interest-earning assets such as short-term
federal funds sold. In addition, in fiscal 2002, we began to originate a higher
volume of three-, five- and seven-year adjustable-rate mortgage loans, which
reprice annually after the initial term. By investing in short-term, liquid
securities we believe we are better positioned to react to increases in market
interest rates. However, investments in shorter term securities generally bear
lower yields than longer term investments. Thus, during the sustained period of
declining interest rates, these strategies have resulted in lower levels of
interest income than would be obtained by investing in longer term fixed rate
loans. Management believes, however, that maintaining a significant portion of
our assets in short-term investments, enables us to take advantage of increases
in interest rates, reduces the exposure of earnings to interest rate
fluctuations and enhances long-term profitability.

                                       29
Management monitors interest rate sensitivity through the use of a model
that estimates the change in Sound Federal Savings' net portfolio value ("NPV")
in response to a range of assumed changes in market interest rates. NPV is the
present value of expected cash flows from assets, liabilities, and off-balance
sheet items. Management is not aware of any known trends that would
significantly affect the timing or amount of the expected cash flows utilized in
the NPV model. The model estimates the effect on NPV of instantaneous and
permanent 100 to 300 basis point increases and a 100 basis point decrease in
market interest rates, with no effect given to any steps that management might
take to counter the effect of interest rate movements. We historically estimated
the effect on NPV of 100 to 300 basis point decreases in interest rates.
However, given the current low level of market interest rates and the low
probability of further significant declines in absolute rates, we did not
calculate NPV for interest rate decreases of greater than 100 basis points.

      The table below sets forth, as of June 30, 2002, the estimated changes in
Sound Federal Savings' NPV that would result from the designated instantaneous
changes in interest rates.

                 CHANGES IN                   ESTIMATED INCREASE
                  INTEREST                   (DECREASE) IN NPV(1)
                   RATES       ESTIMATED   ------------------------
               (BASIS POINTS)     NPV         AMOUNT       PERCENT
               -------------- ------------ -----------  -----------
                               (DOLLARS IN THOUSANDS)

                    +300      $   43,942   $  (33,028)      (42.9)%
                    +200          55,627      (21,343)      (27.7)
                    +100          67,353       (9,617)      (12.5)
                      0           76,970           --          --
                    -100          80,038        3,068         4.0

      -------------------
      (1)   Represents the increase (decrease) in the estimated NPV at the
            indicated change in interest rates compared to the NPV assuming no
            change in interest rates.

      Computations of prospective effects of hypothetical interest rate changes
are based on numerous assumptions including relative levels of market interest
rates, loan prepayments and deposit decay, and should not be relied upon as
indicative of actual results. Further, the computations do not reflect any
actions management may undertake in response to changes in interest rates.

      The above table indicates that at June 30, 2002, in the event of a 100
basis point decrease in interest rates, we would expect to experience a 4.0%
increase in NPV. In the event of a 200 basis point increase in interest rates,
we would expect to experience a 27.7% decrease in NPV. Subsequent to June 30,
2002, there have been no significant changes in our interest rate risk exposures
or how those exposures would be managed.

      Certain shortcomings are inherent in the NPV methodology. Modeling changes
in NPV requires that management make certain assumptions that may or may not
reflect the manner in which yields and costs will actually respond to changes in
market interest rates. Further, the computations do not reflect any actions
management may undertake in response to changes in interest rates. In this
regard, the NPV table presented assumes that (i) the composition of the interest
sensitive assets and liabilities existing at the beginning of a period will
remain constant over the period being measured and (ii) a particular change in
interest rates is reflected uniformly across the yield curve regardless of the
duration or repricing of specific assets and liabilities. Accordingly, although
the NPV table provides an indication of interest rate risk exposure at a
particular point in time, these measurements are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
our net interest income, and will differ from actual results. Additionally, the
interest rate risk guidelines established by the Board of Directors are not
strict limitations. While a goal of the Asset/Liability Management Committee and
the Board of Directors is to limit projected NPV changes within the Board's
guidelines, we will not necessarily limit projected changes in NPV if the
required action would present a disproportionate risk to continued
profitability.

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2002 AND MARCH 31, 2002

      ASSETS. Assets totaled $651.5 million at June 30, 2002 as compared to
$624.0 million at March 31, 2002. The increase in assets reflects increases in
loans and in cash and cash equivalents, partially offset by a decrease in

                                       30
securities. Net loans increased $19.0 million, or 4.6%, to $437.4 million at
June 30, 2002 as compared to $418.4 million at March 31, 2002. The increase in
net loans primarily reflects our continued strong level of loan originations,
which totaled $52.5 million during the quarter ended June 30, 2002, and which
were partially offset by loan principal repayments of $33.9 million during the
quarter. Cash and cash equivalents increased $15.2 million, or 56.9%, to $42.0
million at June 30, 2002, as compared to $26.8 million at March 31, 2002. These
increases were funded by an increase of $24.7 million in deposits and the $33.9
million in loan principal repayments. Securities, consisting of mortgage-backed
securities (including collateralized mortgage obligations), U.S. Government and
agency securities and mutual funds, decreased $6.4 million, or 4.3%, to $143.8
million at June 30, 2002 from $150.2 million at March 31, 2002. The decrease in
securities reflects the reinvestment into liquid assets as securities were
called or matured during the quarter.

      LIABILITIES. Deposits totaled $544.6 million at June 30, 2002 as compared
to $519.9 million at March 31, 2002. Certificates of deposit increased $12.5
million to $324.8 million from $312.3 million, savings and club accounts
increased $4.8 million to $123.4 million from $118.6 million and money market
accounts increased $5.6 million to $41.6 million from $36.0 million. Borrowings
totaled $35.0 million at June 30, 2002, as compared to $34.9 million at March
31, 2002. Borrowings at June 30, 2002 consisted of Federal Home Loan Bank
borrowings.

      STOCKHOLDERS' EQUITY. Stockholders' equity increased $2.8 million to $63.8
million at June 30, 2002 as compared to $61.0 million at March 31, 2002. The
increase in stockholders' equity reflects $2.2 million in net income and an
increase of $627,000 in accumulated other comprehensive income, partially offset
by dividends paid of $138,000.

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2002 AND 2001

      ASSETS. Assets totaled $624.0 million at March 31, 2002 as compared to
$552.9 million at March 31, 2001. Net loans increased $124.6 million, or 42.4%,
to $418.4 million at March 31, 2002 as compared to $293.8 million at March 31,
2001. The increase in total loans was a result of our increased loan
originations. We originated loans with principal balances of $219.9 million
during fiscal 2002 compared to $86.6 million originated in fiscal 2001. This
increase was funded principally by a decrease of $35.5 million in securities to
$150.2 million, an increase of $46.4 million in total deposits to $519.9 million
and an increase of $20.2 million in borrowings.

      LIABILITIES. Deposits increased $46.4 million, or 9.8%, to $519.9 million
at March 31, 2002 as compared to $473.5 million at March 31, 2001. Certificates
of deposit increased $16.6 million to $312.3 million from $295.7 million,
savings and club accounts increased $10.2 million to $118.6 million from $108.4
million, money market accounts increased $7.7 million to $36.0 million from
$28.3 million and NOW accounts increased $8.9 million to $47.6 million from
$38.7 million. The increase in deposits was due primarily to growth in our New
Rochelle branch, which opened in December 2001, as well as growth in other
branches due to our efforts to market certificates of deposit. Borrowings
increased $20.2 million to $34.9 million at March 31, 2002 from $14.7 million at
March 31, 2001. We borrowed funds from the Federal Home Loan Bank to fund loan
growth.

      STOCKHOLDERS' EQUITY. Total stockholders' equity increased $4.1 million to
$61.0 million at March 31, 2002 as compared to $56.9 million at March 31, 2001.
The increase in stockholders' equity reflects net income of $5.8 million during
the year ended March 31, 2002, which was partially offset by a decrease of $1.2
million in accumulated other comprehensive income, dividends paid of $517,000
and treasury stock purchases of $483,000.

                                       31
AVERAGE BALANCE SHEETS

      The following tables set forth average balance sheets, average yields and
costs, and certain other information for the three months ended June 30, 2002
and 2001 and the years ended March 31, 2002, 2001 and 2000. The tables reflect
the average yield on interest-earning assets and the average cost of
interest-bearing liabilities (derived by dividing interest income or expense by
the monthly average balance of interest-earning assets or interest-bearing
liabilities, respectively), as well as the net yield on interest-earning assets.
Management believes that the use of monthly average balances rather than daily
average balances did not have a material effect on the data presented. No
tax-equivalent adjustments were made, as the effect thereof was not material.
Nonaccrual loans were included in the computation of average balances, but have
been included in the tables as loans having a zero yield. The yields set forth
below include the effect of deferred origination fees and costs, and purchase
discounts and premiums that are amortized or accreted to interest income.
FOR THE THREE MONTHS ENDED JUNE 30,
                                          AT JUNE 30,      -------------------------------------------------------------------
                                              2002                       2002                              2001
                                    ---------------------  -------------------------------  ----------------------------------
                                                  AVERAGE    AVERAGE               AVERAGE    AVERAGE                 AVERAGE
                                    OUTSTANDING    YIELD/  OUTSTANDING              YIELD/  OUTSTANDING                YIELD/
                                      BALANCE       RATE     BALANCE    INTEREST     RATE     BALANCE     INTEREST      RATE
                                    -----------   -------  -----------  --------   -------  -----------   --------   ---------
                                                                   (DOLLARS IN THOUSANDS)
Interest-earning assets:
  Loans(1).......................   $   437,419     7.12%  $   426,530  $  7,614     7.16%  $   305,697   $  5,813     7.63%
  Mortgage-backed securities(2)..        98,662     6.03        97,513     1,512     6.22       138,427      2,482     7.19
  Other securities(2)............        42,195     4.98        44,287       528     4.78        38,780        665     6.88
  Federal funds and other
    overnight deposits(3)........        35,370     1.63        28,963       105     1.45        27,544        307     4.47
  Certificates of deposit........            --      --             --        --      --          1,856         22     4.75
  Other(4).......................         4,299     4.52         4,225        65     6.17         3,834         76     7.95
                                    -----------            -----------  --------            -----------   --------
   Total interest-earning assets.       617,945     6.47       601,518     9,824     6.55       516,138      9,365     7.28
                                                                        --------                          --------
Non-interest earning assets......        33,520                 33,262                           31,856
                                    -----------            -----------                      -----------
   Total assets..................   $   651,465            $   634,780                      $   547,994
                                    ===========            ===========                      ===========

Interest-bearing liabilities:
  Passbook and club accounts.....   $   123,397     1.00%  $   118,692  $    311     1.05%  $   107,822   $    511     1.90%
  Money market accounts..........        41,560     1.34        35,980       148     1.65        31,523        185     2.35
  NOW accounts...................        48,514     0.75        47,206        86     0.73        37,015         94     1.02
  Certificates of deposit........       324,773     3.15       320,550     2,558     3.20       293,506      4,264     5.83
  Borrowings.....................        34,967     4.18        34,938       416     4.78        14,724        269     7.33
  Mortgage escrow funds..........         4,402     2.00         4,427        20     1.81         4,697         16     1.37
                                    -----------            -----------  --------            -----------   --------
   Total interest-bearing
    liabilities..................       577,613     2.43       561,793     3,539     2.53       489,287      5,339     4.38
                                                                        --------                          --------
Non-interest bearing
    liabilities..................        10,032                 11,200                            4,729
                                    -----------            -----------                      -----------
   Total liabilities.............       587,645                572,993                          494,016
Stockholders' equity.............        63,820                 61,787                           53,978
                                    -----------            -----------                      -----------
   Total liabilities and
    stockholders' equity.........   $   651,465            $   634,780                      $   547,994
                                    ===========            ===========                      ===========
Net interest income..............                                       $  6,285                          $  4,026
                                                                        ========                          ========
Average interest rate spread(5)..                   4.04%                            4.02%                             2.90%
Net earning assets(6)............   $    40,332            $    39,725                      $    26,851
                                    ===========            ===========                      ===========
Net interest margin(7)...........                                                    4.19%                             3.13%
Ratio of interest-earning assets
    to interest-bearing
    liabilities..................          1.07x                  1.07x                            1.05x

                                                                                         (FOOTNOTES BEGIN ON FOLLOWING PAGE)
32
FOR THE YEARS ENDED MARCH 31,
                                ---------------------------------------------------------------------------------------------------
                                              2002                              2001                             2000
                                --------------------------------  -------------------------------   -------------------------------
                    (             AVERAGE                AVERAGE   AVERAGE                AVERAGE    AVERAGE              AVERAGE
                                OUTSTANDING               YIELD/  OUTSTANDING              YIELD/   OUTSTANDING              YIELD/
                                  BALANCE     INTEREST     RATE     BALANCE     INTEREST    RATE      BALANCE     INTEREST   RATE
                                -----------   --------   -------  -----------   --------   ------   -----------   --------  -------
                                                                      (DOLLARS IN THOUSANDS)
Interest-earning assets:
  Loans(1)....................  $   342,447   $ 25,560     7.46%  $   253,320   $ 19,837    7.83%   $   162,753   $12,427    7.64%
  Mortgage-backed
    securities(2).............      120,307      8,629     7.17       114,185      8,194    7.18         56,951     3,353    5.89
  Other securities(2).........       42,357      2,209     5.22        42,864      3,143    7.33         38,628     2,443    6.32
  Federal funds and other
    overnight deposits(3).....       28,537        777     2.72        25,769      1,577    6.12         27,855     1,472    5.28
  Certificates of deposit.....          865         43     4.97         5,836        437    7.47         11,316       654    5.78
  Other(4)....................        3,716        227     6.11         5,440        388    7.13          3,033       187    6.17
                                -----------   --------            -----------   --------            -----------   -------
   Total interest-earning
    assets....................      538,229     37,445     6.96       447,414     33,576    7.50        300,536    20,536    6.83
                                              --------                          --------                          -------
Non-interest earning assets...       32,907                            28,225                            11,161
                                -----------                       -----------                       -----------
   Total assets...............  $   571,136                       $   475,639                       $   311,697
                                ===========                       ===========                       ===========

Interest-bearing liabilities:
  Passbook and club accounts..  $   109,469   $  1,609     1.47%  $    94,032   $  2,420    2.57%   $    60,144   $ 1,245    2.07%
  Money market accounts.......       36,126        674     1.87        26,849        631    2.35         18,929       510    2.69
  NOW accounts................       38,954        360     0.92        32,658        470    1.44         24,232       370    1.53
  Certificates of deposit.....      302,786     14,760     4.87       249,145     14,487    5.81        151,511     7,696    5.08
  Borrowings..................       16,348      1,065     6.51        12,030        927    7.71             86         8    9.30
  Mortgage escrow funds.......        4,314         71     1.64         3,508         73    2.08          2,069        39    1.89
                                -----------   --------            -----------   --------            -----------   -------
   Total interest-bearing
    liabilities...............      507,997     18,539     3.65       418,222     19,008    4.54        256,971     9,868    3.84
                                              --------                          --------                          -------
Non-interest bearing
  liabilities.................        4,545                             3,109                             1,366
                                -----------                       -----------                       -----------
      Total liabilities.......      512,542                           421,331                           258,377
Stockholders' equity..........       58,594                            54,308                            53,360
                                -----------                       -----------                       -----------
   Total liabilities and
    stockholders' equity......  $   571,136                       $   475,639                       $   311,697
                                ===========                       ===========                       ===========
Net interest income...........                $ 18,906                          $ 14,568                          $10,668
                                              ========                          ========                          =======
Average interest rate
spread(5).....................                             3.31%                            2.96%                            2.99%
Net earning assets(6).........  $    30,232                       $    29,192                       $    43,565
                                ===========                       ===========                       ===========
Net interest margin(7)........                             3.51%                            3.26%                            3.55%
Ratio of interest-earning
  assets to interest-bearing
  liabilities.................         1.06x                             1.07x                             1.17x
---------------------------
(1)   Balances are net of construction loans in process and the allowance for
      loan losses.
(2)   Average outstanding balances are based on amortized cost.
(3)   Other overnight deposits represents Sound Federal Savings'
      interest-earning demand account at the Federal Home Loan Bank of New York.
(4)   Consists primarily of Federal Home Loan Bank stock.
(5)   Net interest rate spread represents the difference between the yield on
      average interest-earning assets and the cost of average interest-bearing
      liabilities.
(6)   Net earning assets represent total interest-earning assets less total
      interest-bearing liabilities.
(7)   Net interest margin represents net interest income divided by average
      total interest-earning assets.

RATE/VOLUME ANALYSIS

      The following table presents the dollar amount of changes in interest
income and interest expense for the major categories of our interest-earning
assets and interest-bearing liabilities. Information is provided for each
category of interest-earning assets and interest-bearing liabilities, with
respect to (i) changes attributable to changes in volume (i.e., changes in
balances multiplied by the prior-period rate) and (ii) changes attributable to
rate (i.e., changes in rate multiplied by prior-period balances). For purposes
of this table, changes attributable to both rate and volume, which cannot be
segregated, have been allocated proportionately to the change due to volume and
the change due to rate.

                                       33
YEAR ENDED MARCH 31,
                              THREE MONTHS ENDED JUNE 30,     -------------------------------------------------------------------
                                     2002 VS. 2001                     2002 VS. 2001                       2001 VS. 2000
                            ------------------------------    --------------------------------    -------------------------------
                            INCREASE(DECREASE)                 INCREASE (DECREASE)                INCREASE (DECREASE)
                                  DUE TO            TOTAL           DUE TO                              DUE TO
                            -------------------   INCREASE    --------------------   INCREASE     ------------------     INCREASE
                            VOLUME       RATE    (DECREASE)   VOLUME       RATE     (DECREASE)    VOLUME      RATE      (DECREASE)
                                                                   (IN THOUSANDS)
Interest-earning
 assets:
  Loans...................  $ 4,045    $(2,244)  $   1,801    $ 6,698    $  (975)   $   5,723     $ 7,093    $   317    $   7,410
  Mortgage-backed
    securities............     (666)      (304)       (970)       446        (11)         435       3,974        867        4,841
  Other securities........      474       (611)       (137)       (37)      (897)        (934)        285        415          700
  Federal funds and
    other overnight
    deposits..............      103       (305)       (202)       154       (954)        (800)       (116)       221          105
  Certificates of
    deposit...............      (88)        66         (22)      (282)      (112)        (394)       (373)       156         (217)
  Other...................       39        (50)        (11)      (111)       (50)        (161)        169         32          201
                            -------    -------   ---------    -------    -------    ---------     -------    -------    ---------

     Total
      interest-earning
      assets..............    3,907     (3,448)        459      6,868     (2,999)       3,869      11,032      2,008       13,040
                            -------    -------   ---------    -------    -------    ---------     -------    -------    ---------

Interest-bearing
 liabilities:
  Passbook and club
    accounts..............      301       (501)       (200)       349     (1,160)        (811)        822        353        1,175
  Money market
    accounts..............      130       (167)        (37)       183       (140)          43         191        (70)         121
  NOW accounts............      102       (110)         (8)        83       (193)        (110)        123        (23)         100
  Certificates of
    deposit...............    2,330     (4,036)     (1,706)     2,830     (2,557)         273       5,553      1,238        6,791
  Borrowings..............      716       (569)        147        297       (159)         138         920         (1)         919
  Mortgage escrow
    funds.................       (6)        10           4         15        (17)          (2)         30          4           34
                            -------    -------   ---------    -------    -------    ---------     -------    -------    ---------

    Total
     interest-bearing
     liabilities..........    3,573     (5,373)     (1,800)     3,757     (4,226)        (469)      7,639      1,501        9,140
                            -------    -------   ---------    -------    -------    ---------     -------    -------    ---------

Net interest income.......  $   334    $ 1,925   $   2,259    $ 3,111    $ 1,227    $   4,338     $ 3,393    $   507    $   3,900
                            =======    =======   =========    =======    =======    =========     =======    =======    =========
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND
2001

      NET INCOME. Net income amounted to $2.2 million, or $0.46 per common
share, for the quarter ended June 30, 2002, as compared to $1.2 million, or
$0.25 per common share, for the quarter ended June 30, 2001. The increase in net
income was due primarily to an increase of $2.3 million in net interest income,
partially offset by increases of $509,000 in non-interest expense and $688,000
in income tax expense.

      INTEREST INCOME. Interest income totaled $9.8 million during the quarter
ended June 30, 2002 as compared to $9.4 million for the same period in the prior
year. This increase was due to an increase of $85.4 million in average
interest-earning assets to $601.5 million during the quarter ended June 30, 2002
as compared to $516.1 million for the same quarter in the prior year, offset
partially by a decrease of 73 basis points in the average yield on
interest-earning assets to 6.55% from 7.28%. The increase in the average balance
of interest-earning assets was due primarily to an increase in loans and other
securities, partially offset by decreases in mortgage-backed securities. The
decrease in the average yield on interest-earning assets reflects the
origination of fixed-rate loans and the repricing of our adjustable-rate
securities portfolio during periods of declining interest rates, and
particularly during the second half of calendar 2001.

      LOANS. Interest income on loans increased $1.8 million, or 31.0%, to $7.6
million for the quarter ended June 30, 2002 as compared to $5.8 million for the
same quarter in 2001. This increase was due to an increase of $120.8 million in
the average balance of loans to $426.5 million from $305.7 million, partially
offset by a 47 basis point decrease in the average yield earned to 7.16% from
7.63%.

                                       34
The growth of the loan portfolio was principally a result of increased
mortgage loan originations, as borrowers sought to take advantage of the lowest
market interest rates in 40 years. The low market interest rates created a
robust housing market and also compelled many consumers to refinance their
existing mortgage loans. We originated $52.5 million of loans during the quarter
ended June 30, 2002, as compared to $47.4 million for the same quarter in the
prior year. These loans were originated at lower rates than the yields being
earned on the existing loan portfolio. As a result, the average yield earned on
the loan portfolio decreased during fiscal 2002 and the first quarter of fiscal
2003. The yield on the loan portfolio may decrease further until market interest
rates begin to increase.

      MORTGAGE-BACKED SECURITIES. Interest on mortgage-backed securities
decreased $970,000, or 39.1%, to $1.5 million for the quarter ended June 30,
2002, due primarily to a decrease of $40.9 million in the average balance to
$97.5 million and a decrease of 97 basis points in the average yield to 6.22%
from 7.19%. The lower average balances in the current year reflect principal
repayments and prepayments on mortgage-backed securities, which we used to fund
loan growth.

      OTHER SECURITIES. Interest on other securities decreased $137,000, or
20.6%, to $528,000 for the quarter ended June 30, 2002, as compared to $665,000
for the same quarter in 2001, due to a 210 basis point decrease in the average
yield to 4.78% from 6.88%, which was partially offset by an increase of $5.5
million in the average balance to $44.3 million. The decrease in the average
yield earned reflects the decrease in market interest rates during fiscal 2002.

      FEDERAL FUNDS SOLD AND OTHER OVERNIGHT DEPOSITS. For the quarter ended
June 30, 2002, interest on Federal funds sold and other overnight deposits
decreased $202,000, or 65.8%, to $105,000, reflecting a 302 basis point decrease
in the average yield earned to 1.45%, partially offset by an increase of $1.4
million in the average balance to $29.0 million. The decrease in the average
yield earned reflects the decrease in market interest rates during fiscal 2002.

      INTEREST EXPENSE. Interest expense decreased $1.8 million, or 33.7%, to
$3.5 million for the quarter ended June 30, 2002, as compared to $5.3 million
for the quarter ended June 30, 2001. The decrease in interest expense was due to
a decrease in the average cost of liabilities to 2.53% from 4.38%, reflecting
the decrease in market interest rates during fiscal 2002. The average balance of
interest-bearing liabilities increased $72.5 million to $561.8 million for the
quarter ended June 30, 2002, from $489.3 million for the same quarter in the
prior year.

      Interest expense on certificates of deposit decreased $1.7 million, or
40.0%, to $2.6 million for the 2002 quarter as compared to $4.3 million for the
same quarter in 2001. The decrease was due primarily to a 263 basis point
decrease in the average cost to 3.20% from 5.83%, offset partially by an
increase of $27.1 million in the average balance of certificates of deposit to
$320.6 million from $293.5 million in the same quarter in the prior year.
Interest on savings accounts amounted to $311,000 for the current quarter as
compared to $511,000 for the quarter ended June 30, 2001, a decrease of
$200,000, or 39.1%. The decrease was a result of an 85 basis point decrease in
the average cost of savings accounts to 1.05% from 1.90%, offset partially by an
increase of $10.9 million in the average balance of savings accounts to $118.7
million. Interest expense on other deposits (NOW and money market accounts)
amounted to $234,000 for the quarter ended June 30, 2002 as compared to $279,000
for the same quarter in the prior year. The average cost of these accounts
decreased 50 basis points to 1.13% and the average balance increased $14.6
million to $83.2 million. The increase in deposits reflects growth throughout
our branch network, as well as the opening of our New Rochelle branch in
December 2001.

      For the quarter ended June 30, 2002, interest expense on borrowings
amounted to $416,000 as compared to $269,000 in the prior year. The average
balance of borrowings for the current quarter was $34.9 million and the average
cost was 4.78%. For the quarter ended June 30, 2001, the average balance of
borrowings was $14.7 million and the average cost was 7.33%. We used the
increase in Federal Home Loan Bank borrowings to fund loan originations during
fiscal 2002.

      NET INTEREST INCOME. Net interest income for the quarter ended June 30,
2002 amounted to $6.3 million, an increase of $2.3 million, or 56.1% from the
same period in the prior year. The interest rate spread was 4.02% and 2.90% for
the quarters ended June 30, 2002 and 2001, respectively. The net interest margin
for those periods was

                                       35
4.19% and 3.13%, respectively. The increases in the interest rate spread and net
interest margin were the result of declining market interest rates during
calendar 2001. The decrease in market interest rates reduced the cost of our
interest-bearing liabilities faster than the rates on our interest-earning
assets. However, if market interest rates decrease further, our interest rate
spread and net interest margin may decrease since market and competitive factors
could inhibit our ability to lower interest rates on deposit accounts any
further. In addition, if interest rates increase, the cost of our
interest-bearing liabilities will increase faster than the rates on our
interest-earning assets, also causing decreases in our net interest rate spread
and net interest margin.

      PROVISION FOR LOAN LOSSES. Management regularly reviews our loan portfolio
and makes provisions for loan losses in amounts required to maintain the
allowance for loan losses in accordance with generally accepted accounting
principles. The allowance consists of known and inherent losses that are both
probable and estimable at the date of the financial statements. The allowance
for loan losses consists of amounts allocated to specific nonperforming loans
and to loans in each major portfolio category. Loan categories such as
single-family residential mortgage loans, which represented 90.7% of total loans
at June 30, 2002, are generally evaluated on an aggregate or "pool" basis. Our
allowance for loan losses is predominately determined on a pool basis by
applying loss factors to the current balances of the various loan categories.
The loss factors are determined by management based on an evaluation of our
historical loss experience, delinquency trends, volume and type of lending
conducted, and the impact of current economic conditions in our market area.

      The provision for loan losses was $75,000 for the quarter ended June 30,
2002, as compared to $25,000 for the quarter ended June 30, 2001. Non-performing
loans amounted to $952,000, or 0.22% of total loans at June 30, 2002, as
compared to $1.1 million, or 0.35% of total loans at June 30, 2001. The
allowance for loan losses amounted to $2.3 million, or 0.52% of total loans at
June 30, 2002, and $2.2 million, or 0.53% of total loans at March 31, 2002.

      NON-INTEREST INCOME. Non-interest income totaled $170,000 and $196,000 for
the quarters ended June 30, 2002 and 2001, respectively. Non-interest income
consists principally of service charges on deposit accounts, late charges on
loans and various other service fees. Service fees amounted to $170,000 for the
quarter ended June 30, 2002 as compared to $139,000 for the same quarter in
2001. Service fees include fees of $41,000 and $15,000 generated by Mamaroneck
Advisors, Inc. during the three months ended June 30, 2002 and 2001,
respectively. Mamaroneck Advisors, Inc. is our service corporation that sells
investment and insurance products. Non-interest income for the quarter ended
June 30, 2001 included a gain on the sale of real estate owned of $57,000.

      NON-INTEREST EXPENSE. Non-interest expense totaled $2.8 million for the
quarter ended June 30, 2002 as compared to $2.3 million for the quarter ended
June 30, 2001. The increase was due primarily to increases of $203,000 in
compensation and benefits, $123,000 in occupancy and equipment and $154,000 in
other non-interest expenses. The increase in compensation and benefits was
primarily due to a new branch location opened in December 2001, increased costs
related to lending operations and overall internal growth. Occupancy and
equipment expense was higher in the 2002 quarter as a result of refund of
$125,000 for property taxes related to branch locations that reduced expenses
for the quarter ended June 30, 2001. Other non-interest expense increased
primarily due to the new branch location and internal growth to support lending
and branch operations.

      INCOME TAXES. Income tax expense amounted to $1.4 million and $688,000 for
the quarters ended June 30, 2002 and 2001, respectively. The effective tax rates
for those same periods were 38.9% and 36.9%, respectively.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 2002 AND 2001

      NET INCOME. Net income amounted to $5.8 million, or diluted earnings per
share of $1.23, for the year ended March 31, 2002 as compared to $2.7 million,
or $0.56 per share for the prior year. This increase was due primarily to an
increase of $4.3 million in net interest income and an increase of $349,000 in
non-interest income, partially offset by an increase of $283,000 in non-interest
expense and an increase of $1.3 million in income tax expense.

      We completed the acquisition of Peekskill Financial Corporation on July
18, 2000. This transaction was accounted for as a purchase business combination.
Accordingly, our operating results for the year ended March 31,

                                       36
2001 include the effect of the acquired business for the period of approximately
nine months after the acquisition date. In addition, our operating results for
fiscal 2001 include $765,000 in goodwill amortization expense prior to the
adoption, effective April 1, 2001, of a new accounting standard that prohibits
further amortization of goodwill. If goodwill had not been amortized in fiscal
2001, net income and earnings per share would have been $3.4 million and $0.72,
respectively.

      INTEREST INCOME. Interest income totaled $37.4 million for the year ended
March 31, 2002 as compared to $33.6 million for the prior year. The increase was
due to an increase of $90.8 million in average interest-earning assets to $538.2
million as compared to $447.4 million for the prior year, partially offset by a
54 basis point decrease in the average yield on interest-earning assets to
6.96%. The increase in the average balance of interest-earning assets was due
primarily to growth in the loan portfolio, which was funded by deposits and
redemptions of securities. The increase in the average balance of
interest-earning assets was also due to the assets acquired from Peekskill
Financial Corporation being included in the average balance for the entire 2002
fiscal year. The decrease in the average yield on interest-earning assets
reflects declining market interest rates during 2001.

      LOANS. Interest income on loans increased $5.7 million, or 28.9%, to $25.6
million during fiscal 2002 as compared to $19.8 million for 2001. This increase
was due to an increase of $89.1 million in the average balance of loans to
$342.4 million, partially offset by a 37 basis point decrease in the average
yield earned to 7.46%.

      The growth of the loan portfolio was principally a result of the lowest
mortgage interest rates in forty years. The low market interest rates created a
robust housing market and also compelled many consumers to refinance existing
mortgage loans. We originated $219.9 million of loans during the year ended
March 31, 2002 as compared to $86.6 million in the prior year. These loans were
originated at lower rates than the yields being earned on the existing loan
portfolio. As a result, the average yield earned on the loan portfolio decreased
during fiscal 2002. The yield on the loan portfolio may decrease further until
market interest rates begin to increase.

      MORTGAGE-BACKED SECURITIES. Interest on mortgage-backed securities
amounted to $8.6 million for the year ended March 31, 2002 as compared to $8.2
million for the prior year. The average balance of mortgage-backed securities
increased $6.1 million to $120.3 million and the average yield remained
virtually unchanged at 7.17%. The increase in the average balance was a result
of the securities acquired in the acquisition of Peekskill Financial Corporation
being included in the average balance for the entire 2002 fiscal year, as
compared to only a portion of the 2001 fiscal year following the acquisition.

      OTHER SECURITIES. Interest on other securities decreased $934,000, or
29.7%, to $2.2 million for the year ended March 31, 2002, as compared to $3.1
million for the prior year, due to a decrease of $507,000 in the average balance
of other securities to $42.4 million and a 211 basis point decrease in the
average yield earned to 5.22%. The decreases in average balance and average
yield earned in the 2002 fiscal year primarily reflect the issuer redemptions of
securities as interest rates decreased during fiscal 2002. The proceeds from
these redemptions were used to fund loan originations.

      FEDERAL FUNDS AND OTHER OVERNIGHT DEPOSITS. For the year ended March 31,
2002, interest on Federal funds and other overnight deposits decreased $800,000
to $777,000, reflecting a 340 basis point decrease in the average yield earned
to 2.72%, partially offset by an increase of $2.8 million in the average balance
to $28.5 million. Other overnight deposits consist of a demand deposit at the
Federal Home Loan Bank of New York, which earns interest at a rate approximating
the Federal funds rate. The decrease in the average yield earned reflects the
declining interest rate environment during 2001.

      CERTIFICATES OF DEPOSIT. Interest on certificates of deposit decreased
$394,000 to $43,000 for the year ended March 31, 2002 from $437,000 for the year
ended March 31, 2001. The average outstanding balance of certificates of deposit
decreased to $865,000 for the year ended March 31, 2002 from $5.8 million for
the year ended March 31, 2001.

      INTEREST EXPENSE. Interest expense for the year ended March 31, 2002
totaled $18.5 million, as compared to $19.0 million for the year ended March 31,
2001. The decrease in interest expense reflects the decrease in the cost of
interest-bearing liabilities. The average balance of interest-bearing
liabilities increased $89.8 million, to

                                       37
$508.0 million for the year ended March 31, 2002 from $418.2 million for the
prior year. The average cost of these liabilities decreased 89 basis points to
3.65%. The decrease in the cost of interest-bearing liabilities was the result
of declining market interest rates. The increase in average interest-bearing
liabilities was due primarily to the deposits of Peekskill Financial Corporation
being included in the average balance for the entire 2002 fiscal year, as
compared to only a portion of the 2001 fiscal year following the acquisition,
and to deposits received at the New Rochelle branch, which opened in December
2001.

      Interest expense on certificates of deposit totaled $14.8 million for the
year ended March 31, 2002 year as compared to $14.5 million for the prior year.
The increase was due primarily to an increase of $53.7 million in the average
balance of certificates of deposit to $302.8 million for the year ended March
31, 2002 as compared to $249.1 million for the prior year. This increase was
partially offset by a 94 basis point decrease in the average cost to 4.87%. The
decrease in the average cost was due to a decrease in market interest rates
during 2001. The increase in the average balance of time deposits was primarily
a result of the time deposits of Peekskill Financial Corporation being included
in the average balance for the entire 2002 fiscal year, as compared to only a
portion of the 2001 fiscal year following the acquisition, and the new branch,
which opened in December 2001. Certificates of deposit amounted to $312.3
million at March 31, 2002 as compared to $295.7 million at March 31, 2001.

      Interest expense on savings accounts amounted to $1.6 million for the year
ended March 31, 2002, as compared to $2.4 million for the year ended March 31,
2001. The average balance of savings accounts increased $15.4 million to $109.5
million, and the average cost decreased 110 basis points to 1.47%. The increase
in the average balance of savings accounts was primarily a result of savings
accounts of Peekskill Financial Corporation being included in the average
balance for the entire 2002 fiscal year, as compared to only a portion of the
2001 fiscal year following the acquisition, and an increase in the number of
savings accounts. The decrease in the average cost was due to decreases in
market interest rates during 2001. Savings accounts amounted to $118.6 million
at March 31, 2002 as compared to $108.4 million at March 31, 2001.

      Interest expense on other deposits (NOW and money market accounts)
amounted to $1.0 million for the year ended March 31, 2002 as compared to $1.1
million for the prior year. The average balance of these accounts increased
$15.6 million to $75.1 million and the average cost decreased 47 basis points to
1.38%, reflecting the lower level of interest rates in fiscal 2002 compared to
2001. Other deposits amounted to $89.0 million at March 31, 2002 as compared to
$69.4 million at March 31, 2001.

      For the year ended March 31, 2002, interest paid on borrowings amounted to
$1.1 million, as compared to $927,000 for the prior year. The average balance of
borrowings for fiscal 2002 was $16.3 million and the average cost was 6.51%. For
the year ended March 31, 2001, the average balance of borrowings was $12.0
million and the average cost was 7.71%. The increase in borrowings consisted of
Federal Home Loan Bank borrowings that were a component of Peekskill Financial
Corporation's management strategy and that we assumed in the acquisition, as
well as Federal Home Loan Bank borrowings we used to fund loan originations
during fiscal 2002. Borrowings amounted to $34.9 million at March 31, 2002 and
had a weighted average coupon rate of 4.17%. The average cost of the borrowings
was higher than the average coupon rate as a result of the amortization of
purchase accounting adjustments made to the carrying values of the borrowings
assumed from Peekskill Financial Corporation.

      NET INTEREST INCOME. Net interest income amounted to $18.9 million for the
year ended March 31, 2002 as compared to $14.6 million for 2001. The interest
rate spread was 3.31% and 2.96% and the net interest margin was 3.51% and 3.26%
for the respective years. The increase in interest rate spread and net interest
margin were the result of decreasing market interest rates during calendar 2001.
The decrease in market interest rates reduced the cost of our interest-bearing
liabilities faster than the rates on our interest-earning assets.

      PROVISION FOR LOAN LOSSES. The provision for loan losses was $175,000 for
the year ended March 31, 2002 as compared to $208,000 for the prior year.
Non-performing loans amounted to $755,000, or 0.18% of total loans at March 31,
2002 as compared to $933,000, or 0.32% of total loans at March 31, 2001. The
allowance for loan losses amounted to $2.2 million and $2.0 million at March 31,
2002 and 2001, respectively. Charge-offs, net of recoveries, amounted to $1,000
for the year ended March 31, 2002 as compared to $133,000 for the year ended
March 31, 2001.

                                       38
NON-INTEREST INCOME. Non-interest income totaled $731,000 and $382,000 for
the years ended March 31, 2002 and 2001, respectively. Service fees amounted to
$662,000 for the year ended March 31, 2002, as compared to $354,000 for fiscal
2001. The increase in service fees was due to increased levels of service
charges on deposit accounts, fees earned from the sale of investment products
and various other service fees. We began selling investment products during
fiscal 2002. Non-interest income for the year ended March 31, 2002 included a
gain of $69,000 on the sale of real estate owned as compared to $28,000 for
fiscal 2001.

      NON-INTEREST EXPENSE. Non-interest expense totaled $10.3 million for the
year ended March 31, 2002, as compared to $10.0 million for the year ended March
31, 2001. Compensation and benefits increased $484,000, data processing fees
increased $230,000 and other non-interest expenses increased $451,000. The
increases were substantially offset by a decrease of $71,000 in occupancy and
equipment, a decrease of $46,000 in advertising and promotion and the absence of
$765,000 in goodwill amortization. As described in Note 2 of the Notes to
Consolidated Financial Statements, we ceased amortizing goodwill as an expense
effective April 1, 2001, when we adopted a new financial accounting standard.
Occupancy and equipment expense for fiscal 2002 was reduced by a refund of
$170,000 of real estate taxes related to branch locations.

      INCOME TAXES. Income tax expense amounted to $3.4 million and $2.1 million
for the years ended March 31, 2002 and 2001, respectively. The effective tax
rates for those same periods were 36.9% and 43.5%, respectively. The higher
effective tax rate in the 2001 fiscal year was primarily the result of the
non-deductibility of goodwill amortization.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 2001 AND 2000

      NET INCOME. Net income amounted to $2.7 million, or $0.56 per common share
for the year ended March 31, 2001 as compared to $2.4 million, or $0.48 per
common share for the year ended March 31, 2000. The increase in net income was
due primarily to an increase of $3.9 million in net interest income,
substantially offset by an increase of $3.0 million in non-interest expense and
an increase of $607,000 in income tax expense.

      The results for the year ended March 31, 2001 reflect increases in income
and expense largely attributable to the acquisition of Peekskill Financial
Corporation, as the related operating results are included for approximately
nine months of the 2001 fiscal year.

      INTEREST INCOME. For the year ended March 31, 2001, interest income
totaled $33.6 million as compared to $20.5 million for the prior fiscal year.
The increase was due to an increase of $146.9 million in the average balance of
interest-earning assets to $447.4 million and a 67 basis point increase in the
yield earned to 7.50%. The increase in the average balance of interest-earning
assets was due primarily to the acquisition of Peekskill Financial Corporation.
The increase in the average yield on interest-earning assets reflects fixed-rate
loan growth and adjustable-rate security repricings during periods of rising
interest rates (particularly the first half of calendar 2000), as well as
higher-yielding securities recorded in the acquisition of Peekskill Financial
Corporation.

      LOANS. For the year ended March 31, 2001, interest income on loans
increased $7.4 million, or 59.6%, to $19.8 million as compared to $12.4 million
for fiscal 2000. This increase was due to an increase of $90.6 million in the
average balance of loans to $253.3 million and a 19 basis point increase in the
yield earned to 7.83%. The growth of the loan portfolio was principally a result
of the acquisition, as Peekskill Financial Corporation had net loans of $67.3
million at the acquisition date, as well as our efforts to expand the loan
products we offer and the markets we serve, and the strong demand for fixed rate
loans, our primary mortgage loan product. We originated $82.5 million of fixed
rate loans for the year ended March 31, 2001 as compared to $62.3 million in the
prior year.

      MORTGAGE-BACKED SECURITIES. Interest income from mortgage-backed
securities increased $4.8 million, to $8.2 million for the year ended March 31,
2001, due primarily to an increase of $57.2 million in the average balance of
mortgage-backed securities to $114.2 million and an increase of 129 basis points
in the average yield to 7.18%. The higher average balances in the 2001 fiscal
year reflects securities acquired in the acquisition of Peekskill Financial
Corporation. At March 31, 2001, mortgage-backed securities had a total carrying
value of $141.1 million, of which $83.7 million were adjustable rate securities.
The increases in market interest rates during the first half of

                                       39
fiscal 2001 resulted in our adjustable rate securities repricing to higher
rates. However, recent declines in interest rates caused these securities to
reprice to lower rates and also cause repayments of principal amounts to
accelerate.

      OTHER SECURITIES. Interest income from other securities increased
$700,000, to $3.1 million for the year ended March 31, 2001 as compared to $2.4
million for the year ended March 31, 2000, due to an increase of $4.2 million in
the average balance of other securities to $42.9 million and a 101 basis point
increase in the average yield earned to 7.33%. The higher average balances in
the 2001 fiscal year reflect the impact of securities acquired in the
acquisition of Peekskill Financial Corporation, net of sales of securities which
were made in order to fund a portion of the acquisition.

      FEDERAL FUNDS. Interest income from Federal funds increased $105,000, to
$1.6 million, reflecting an 84 basis point increase in the average yield earned
to 6.12%, partially offset by a decrease of $2.1 million in the average balance
to $25.8 million. The lower level of Federal funds in the 2001 fiscal year
reflects the utilization of Federal funds to fund a portion of the cost of
acquiring Peekskill Financial Corporation.

      INTEREST EXPENSE. For the year ended March 31, 2001, interest expense
totaled $19.0 million, as compared to $9.9 million for the year ended March 31,
2000. The average balance of interest-bearing liabilities increased $161.2
million to $418.2 million for the year ended March 31, 2001 from $257.0 million
in the prior year. The average cost of these liabilities increased 70 basis
points to 4.54%. The increase in interest-bearing liabilities was due primarily
to the acquisition of Peekskill Financial Corporation. The increase in the cost
of interest-bearing liabilities was due to borrowings that were assumed in the
acquisition, an increase in the amount of certificates of deposit in relation to
total deposits and, to a lesser extent, an increase in interest rates during
calendar year 2000. Certificates of deposit carry interest rates that are higher
than those for other deposit accounts. For the year ended March 31, 2001, the
average balance of time deposits accounted for 61.9% of average total deposits
as compared to 59.5% for the prior year.

      Interest expense on certificates of deposit totaled $14.5 million for the
year ended March 31, 2001 as compared to $7.7 million for the prior fiscal year.
The increase was due to an increase of $97.6 million in the average balance of
certificates of deposit and a 73 basis point increase in the average cost to
5.81%.

      Interest on savings accounts amounted to $2.4 million for the year ended
March 31, 2001 as compared to $1.2 million for the prior fiscal year. The
average balance of savings accounts increased $33.9 million to $94.0 million,
and the average cost increased 50 basis points to 2.57%.

      Interest expense on other deposits (NOW and money market accounts)
amounted to $1.1 million for the year ended March 31, 2001 as compared to
$880,000 for the prior fiscal year. The average balance of these accounts
increased $16.3 million to $59.5 million, and the average cost decreased 19
basis points to 1.85%.

      For the year ended March 31, 2001, interest on borrowings amounted to
$927,000 as compared to $8,000 for the prior year. The average balance of
borrowings for the year ended March 31, 2001 was $12.0 million and the average
cost was 7.71%. The increase in borrowings consisted of securities repurchase
agreements with the Federal Home Loan Bank that were a component of Peekskill
Financial Corporation's management strategy and that we assumed in the
acquisition.

      NET INTEREST INCOME. Net interest income for the year ended March 31, 2001
amounted to $14.6 million as compared to $10.7 million for the prior fiscal
year. The interest rate spread was 2.96% and 2.99%, respectively. The net
interest margin was 3.26% for the year ended March 31, 2001 as compared to 3.55%
for the 2000 fiscal year. The decrease in net interest margin was primarily a
result of a decrease in the ratio of interest-earning assets to interest-bearing
liabilities, to 1.07 for fiscal 2001 from 1.17 for the prior year. The lower
ratio in the 2001 fiscal year reflects higher levels of non-earning assets
(primarily goodwill) and the use of earning assets to fund stock repurchases. In
addition, the decreases in interest rate spread and net interest margin were
also caused by the rising market interest rates during the first half of
calendar 2000. While the yield on interest-earning assets increased as a result
of the rising market interest rates, the cost of interest-bearing liabilities
grew faster as borrowings and time deposits accounted for a greater percentage
of these funds. The average balances of time deposits and borrowings accounted
for 62.4% of interest-bearing liabilities during fiscal 2001 as compared to
59.0% during the prior year.

                                       40
PROVISION FOR LOAN LOSSES. The provision for loan losses was $208,000 for
the year ended March 31, 2001 as compared to $100,000 for the prior year.
Non-performing loans amounted to $933,000, or 0.32% of total loans at March 31,
2001 as compared to $969,000, or 0.53% of total loans at March 31, 2000. The
allowance for loan losses amounted to $2.0 million and $1.2 million at March 31,
2001 and 2000, respectively. The increase in the allowance for loan losses was
primarily a result of Peekskill Financial Corporation's allowance for loan
losses that was transferred in the acquisition. Charge-offs, net of recoveries,
amounted to $133,000 for the year ended March 31, 2001 as compared to $6,000 for
the year ended March 31, 2000.

      NON-INTEREST INCOME. Non-interest income amounted to $382,000 and $294,000
for the years ended March 31, 2001 and 2000, respectively. For the years ended
March 31, 2001 and 2000, service fees amounted to $354,000 and $192,000,
respectively. The year ended March 31, 2001 included net gains on the sale of
real estate owned of $28,000, as compared to $102,000 in the prior year.

      NON-INTEREST EXPENSE. Non-interest expense totaled $10.0 million for
fiscal 2001 as compared to $7.0 million for fiscal 2000. This increase was due
primarily to increases of $1.2 million in compensation and benefits, $708,000 in
occupancy and equipment costs, $211,000 in data processing service fees,
$101,000 in advertising and promotion, and $765,000 in goodwill amortization,
partially offset by a decrease of $13,000 in other non-interest expenses.

      The increases in non-interest expenses were due primarily to the
acquisition, as well as continuing internal growth. In addition to ongoing
expenses attributable to the acquired operations, non-interest expense for the
2001 fiscal year includes $216,000 in costs related to the conversion of
Peekskill Financial Corporation's operations to our data processing system and
customer service costs incurred during the conversion process, and a charge of
$148,000 for benefits that vested under our recognition and retention plan for
participants who retired during the year. Other non-interest expense for fiscal
2000 included $225,000 related to the establishment of a real estate investment
trust.

      INCOME TAX EXPENSE. Income tax expense amounted to $2.1 million and $1.4
million for the fiscal years ended March 31, 2001 and 2000, respectively. The
effective tax rate for those same periods was 43.5% and 37.6%, respectively. The
higher effective tax rate in the 2001 fiscal year was primarily due to the
amortization of goodwill, which was not deductible for tax purposes.

IMPACT OF INFLATION AND CHANGING PRICES

      The Consolidated Financial Statements and related Notes have been prepared
in conformity with accounting principles generally accepted in the United States
of America, which require the measurement of financial position and operating
results without considering the change in the relative purchasing power of money
over time due to inflation. The impact of inflation is reflected in the
increased cost of our operations. Unlike industrial companies, nearly all of our
assets and liabilities are financial in nature. As a result, our net income is
directly impacted by changes in interest rates, which are influenced by
inflationary expectations. Our ability to match the interest sensitivity of our
financial assets to the interest sensitivity of our financial liabilities as
part of our interest rate risk management program may reduce the effect that
changes in interest rates have on our net income. Changes in interest rates do
not necessarily move to the same extent as changes in prices of goods and
services. In the current interest rate environment, liquidity and the maturity
structure of our assets and liabilities are critical to the maintenance of
acceptable levels of net income. Management believes that by maintaining a
significant portion of our assets in short-term investments and adjustable rate
mortgage-backed securities, we will be able to redeploy our assets in a rising
interest rate environment.

LIQUIDITY AND CAPITAL RESOURCES

      Our liquidity management objective is to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for expansion. Liquidity management addresses our ability to meet
deposit withdrawals on demand or at contractual maturity, to repay borrowings as
they mature, and to fund new loans and investments as opportunities arise.

                                       41
Our primary investing activities are the origination of mortgage loans,
and the purchase of short-term investments, government agency bonds and
adjustable rate mortgage-backed securities. These activities are funded
primarily by deposit growth and principal repayments on loans, mortgage-backed
securities and other investment securities. During the three months ended June
30, 2002 and the fiscal year ended March 31, 2002, we originated loans of $52.5
million and $219.9 million, respectively, and purchased securities of $13.3
million and $57.7 million, respectively. These disbursements in the three months
ended June 30, 2002 and the fiscal year ended March 31, 2002, respectively, were
funded by $20.8 million and $90.2 million in principal payments, maturities and
calls of securities; $33.9 million and $95.0 million in loan principal
repayments; $0 and $20.0 million in borrowings; and increased deposits of $24.7
million and $46.4 million.

      At June 30, 2002, we had outstanding loan origination commitments of $65.6
million. If we require funds beyond our internal funding capabilities,
additional borrowings are available from the Federal Home Loan Bank of New York.
At June 30, 2002, approximately $270.4 million in certificates of deposit were
scheduled to mature within one year. Our experience has been that a substantial
portion of our maturing certificate of deposit accounts are renewed.

      Office of Thrift Supervision regulations also require savings
associations, such as Sound Federal Savings, to meet three minimum capital
standards: a tangible capital ratio requirement of 1.5% of total assets as
adjusted under the Office of Thrift Supervision regulations; a leverage ratio
requirement of 4.0% of core capital to such adjusted total assets; and a
risk-based capital ratio requirement of 8.0% of core and supplementary capital
to total risk-based assets. We satisfied these minimum capital standards at June
30, 2002 with tangible and leverage capital ratios of 6.6% and a total
risk-based capital ratio of 13.8%, and we were classified as a well-capitalized
institution for regulatory purposes. In determining the amount of risk-weighted
assets for purposes of the risk-based capital requirement, a savings association
multiplies its assets and credit equivalent amounts for certain off-balance
sheet items by risk-weights, which range from 0% for cash and obligations issued
by the U.S. Government or its agencies to 100% for assets such as consumer and
commercial loans, as assigned by the Office of Thrift Supervision capital
regulations. These capital requirements, which are applicable to Sound Federal
Savings only, do not consider additional capital retained by Sound Federal
Bancorp.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

      Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities", requires entities to
recognize all derivatives as either assets or liabilities in the balance sheet
at fair value. If certain conditions are met, a derivative may be specifically
designated as a fair value hedge, a cash flow hedge, or a foreign currency
hedge. A specific accounting treatment applies to each type of hedge. Entities
were permitted to reclassify securities from the held-to-maturity category to
the available-for-sale category at the time of adopting SFAS No. 133. As
amended, SFAS No. 133 was effective for fiscal years beginning after June 15,
2000. We adopted SFAS No. 133 on April 1, 2001 and reclassified all of our
held-to-maturity securities to the available-for-sale portfolio. We have not
engaged in derivatives and hedging activities covered by the new standard, nor
do we expect to do so in the foreseeable future.

      In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires use of the purchase method of
accounting for all business combinations initiated after June 30, 2001. SFAS No.
142 requires that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at least annually
using a "two-step" approach that involves the identification of reporting units
and the estimation of fair values. SFAS No. 142 also requires that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of."

      We adopted SFAS Nos. 141 and 142 as of April 1, 2001. As a result, we
ceased recording goodwill amortization. Goodwill resulting from the acquisition
of Peekskill Financial Corporation totaled $15.2 million, and the remaining
balance at June 30, 2002 was $14.0 million. As of April 1, 2001 (the date of
adoption of SFAS No. 142) and as of June 30, 2002, we were not required to
recognize any impairment of our goodwill. The elimination

                                       42
of goodwill amortization increased our net income and earnings per share
subsequent to March 31, 2001. See Notes 2 and 3 of the Notes to the Consolidated
Financial Statements.

      SFAS No. 143, "Accounting for Asset Retirement Obligations," is effective
for financial statements issued for fiscal years beginning after June 15, 2002.
SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. Management does not expect that the adoption of this
pronouncement will impact our results of operations or financial condition.

      In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001.
The standard addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. The adoption of this pronouncement did not affect
our results of operations or financial condition.

      SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections," was issued in April 2002.
Among other things, the standard changes the income statement classification of
gains and losses from early extinguishments of debts. Management does not expect
that the provisions of this statement will impact our results of operations or
financial condition.

      SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," was issued in June 2002 and requires that a liability be recognized
for these costs only when incurred, while existing practice calls for
recognition of a liability when an entity commits to an exit plan. This
statement is effective for exit or disposal activities initiated after December
31, 2002 and is not expected to impact our results of operations or financial
condition.

                        BUSINESS OF SOUND FEDERAL BANCORP
                 AND SOUND FEDERAL SAVINGS AND LOAN ASSOCIATION

GENERAL

SOUND FEDERAL BANCORP

      Sound Federal Bancorp is a federal corporation that was organized in
October 1998. Sound Federal Bancorp's principal asset is its investment in Sound
Federal Savings. Sound Federal Bancorp is majority owned by Sound Federal, MHC,
a federally-chartered mutual holding company. On October 8, 1998, Sound Federal
Bancorp sold 2,299,508 shares of its common stock to the public, issued
2,810,510 shares of common stock to Sound Federal, MHC, and contributed 102,200
shares of common stock to the Sound Federal Savings and Loan Association
Charitable Foundation. As of June 30, 2002, 1,967,782 shares of common stock
were held by public stockholders other than Sound Federal, MHC. At June 30,
2002, Sound Federal Bancorp had total consolidated assets of $651.5 million,
total deposits of $544.6 million, and total stockholders' equity of $63.8
million.

SOUND FEDERAL SAVINGS

      Sound Federal Savings is a federally chartered savings association
headquartered in Mamaroneck, New York. Sound Federal Savings' deposits are
insured by the Federal Deposit Insurance Corporation. Sound Federal Savings was
organized as a New York chartered savings bank in 1891 and became a federally
chartered savings association in 1934. In July 2000, Sound Federal Bancorp and
Sound Federal Savings completed the acquisition of Peekskill Financial
Corporation and its wholly owned subsidiary, First Federal Savings Bank. At June
30, 2002, Sound Federal Savings operated from nine locations in New York and
Connecticut. In July 2002, we opened our tenth branch location in Somers, New
York.

                                       43
BUSINESS STRATEGY

      Our business strategy is designed to continue our profitable operations
consistent with safety and soundness guidelines and principles. The strategies
we employ to achieve our objective are (i) operating a community-oriented
financial institution that provides quality service by monitoring the needs of
its customers and offering customers personalized services; (ii) emphasizing
one-to-four family residential real estate lending; (iii) maintaining
appropriate levels of liquid investments and adjustable-rate securities; (iv)
maintaining asset quality; and (v) expanding our market presence.

      COMMUNITY ORIENTED INSTITUTION. We were established in Mamaroneck, New
York in 1891 and have been operating continuously since that time. We have been,
and continue to be, committed to meeting the financial needs of the communities
in which we operate and we are dedicated to providing quality service to our
customers. We believe that we can be more effective than many of our competitors
in serving our communities because of our ability to promptly and effectively
provide senior management responses to customer needs and inquiries. Our ability
to provide these services is enhanced by the stability of senior management,
which has an average tenure in the savings and loan industry of over 21 years.

      EMPHASIS ON RESIDENTIAL REAL ESTATE LENDING. We have emphasized the
origination of one-to-four family residential loans within Westchester and
Rockland Counties in New York and Fairfield County in Connecticut. As of June
30, 2002, approximately $351.5 million, or 80.2% of our loan portfolio consisted
of one-to-four family mortgage loans. We have historically emphasized the
origination of fixed-rate residential mortgage loans, although beginning in
fiscal 2002 we have attempted to increase our origination of adjustable-rate
mortgage loans. Of the $219.9 million loans originated in fiscal 2002, $161.2
million had fixed rates of interest.

      MAINTAINING APPROPRIATE LEVELS OF LIQUID INVESTMENTS AND ADJUSTABLE-RATE
SECURITIES. Because we have historically emphasized the origination of fixed
rate residential mortgage loans, we have sought to manage our interest rate risk
by maintaining other assets in liquid investments and adjustable rate
securities. In order to be better positioned to redeploy assets profitably in a
rising interest rate environment, management has determined to invest a
significant portion of our assets in liquid investments. At June 30, 2002, our
securities portfolio totaled $143.8 million, or 22.1% of total assets, all of
which are classified as available for sale. We maintain a portion of our assets
in U.S. Government and agency securities and other interest-earning assets,
consisting of federal funds sold and other overnight deposits. At June 30, 2002,
U.S. Government and agency securities due in five years or less totaled $11.2
million, and total cash and cash equivalents (consisting of federal funds sold,
overnight deposits and cash and due from banks) totaled $42.0 million, or 6.5%
of our assets. In addition, $75.8 million, or 74.6%, of our mortgage-backed
securities portfolio had adjustable rates of interest.

      MAINTAINING ASSET QUALITY. Our high asset quality is a result of our
conservative underwriting standards, the diligence of our loan collection
personnel and the stability of the local economy. In addition, we also invest in
mortgage-backed securities issued by Ginnie Mae, Freddie Mac and Fannie Mae and
other investment securities, primarily U.S. Government securities and federal
agency obligations. Our ratio of nonperforming assets to total assets was 0.15%,
0.14% and 0.20% at June 30, 2002, March 31, 2002 and March 31, 2001,
respectively.

      EXPANDING OUR MARKET PRESENCE. Since our mutual holding company
reorganization in 1998 we have sought to expand our presence in our market area
and the contiguous areas. At the time of our mutual holding company
reorganization, we operated from our main office in Mamaroneck and two branches,
all of which were located in Southern Westchester County. A principal component
of our branch expansion has been to identify attractive locations for opening
new branches that either complement our existing operations or provide access to
new customers within our market area. Since our reorganization we have expanded
our branch network through the acquisition of Peekskill Financial Corporation
and its wholly-owned subsidiary, First Federal Savings Bank, and a controlled
strategy of opening new branches. Our acquisition of Peekskill Financial
Corporation added three branches in Northern Westchester County.

      We have opened new branch offices in Westchester and Rockland Counties,
New York and in Fairfield County, Connecticut. As a consequence of our efforts,
we have grown to ten branch locations as of July 2002, and have expanded our
market area to include Rockland and Fairfield Counties. We intend to continue to
expand our

                                       44
branch franchise in a prudent and disciplined manner. We expect to open one
branch per year over the next five years. However, we have no existing
commitments to use any of the net proceeds from this offering for branch
expansion.

COMPETITION

      Sound Federal Savings has significant competition in originating loans
from savings and loan associations, savings banks, mortgage banking companies,
insurance companies and commercial banks, many of which have greater financial
and marketing resources than Sound Federal Savings. Sound Federal Savings also
faces significant competition in attracting deposits from savings and loan
associations, savings banks, commercial banks and credit unions. Sound Federal
Savings faces additional competition for deposits from common stock mutual
funds, money market funds and other corporate and government securities funds,
and from other financial service providers such as brokerage firms and insurance
companies.

      Sound Federal Savings attracts and retains deposits by offering
personalized service, convenient office locations and competitive interest
rates. Loan originations are obtained primarily through (i) direct contacts by
employees with individuals, businesses and attorneys in Sound Federal Savings'
community, (ii) mortgage brokers, (iii) personalized service that Sound Federal
Savings provides borrowers and (iv) competitive pricing. Competition is affected
by, among other things, the general availability of lendable funds, general and
local economic conditions, current interest rate levels, and other factors that
management cannot readily predict.

      As of June 30, 2001, the latest date for which deposit market share
information is available, Sound Federal Savings had deposits of $426.3 million
in Westchester County. These deposits represented 2.1% of all bank and thrift
deposits in Westchester County as of that date, making us the ninth largest
financial institution out of 30 financial institutions in terms of deposits in
that county. As of June 30, 2001, we had deposits of $17.0 million in Rockland
County, representing 0.3% of all bank and thrift deposits in Rockland County as
of that date, making us the 30th largest financial institution out of 30
financial institutions in terms of deposits in that county. As of June 30, 2001,
we had deposits of $39.1 million in Fairfield County. These deposits represented
0.2% of all bank and thrift deposits in Fairfield County as of that date, making
us the 23rd largest financial institution out of 30 financial institutions in
terms of deposits in that county.

MARKET AREA

      Sound Federal Savings is a community-oriented financial institution that
offers a variety of financial products and services from its main office and
branch offices. Sound Federal Savings' loan origination activities are primarily
concentrated in Westchester County, New York and Fairfield County, Connecticut.
Most of Sound Federal Savings' deposit customers are residents of Westchester
County. Sound Federal Savings also obtains deposits from persons in Rockland
County and Fairfield County. Sound Federal Savings' market area consists of
middle income and upper income communities. Significant employers headquartered
in Westchester County include IBM and Pepsico. However, the local economy is not
dependent upon any single employer, but rather is affected by the general
economy of the New York City metropolitan area.

      From 1990 to 2001, Westchester County, Rockland County and Fairfield
County experienced annual population growth of 6.0%, 8.8% and 7.2%,
respectively. This growth exceeded the overall population growth rate of 1.4% in
the United States during that same period. From 1990 to 2001, median household
income grew in Westchester County, Rockland County and Fairfield County by
58.0%, 51.3% and 67.8%, respectively. During that same period, median household
income grew by 43.5% in the State of New York, 45.8% in the State of Connecticut
and 49.6% in the United States.

LENDING ACTIVITIES

      Historically, our principal lending activity has been the origination of
fixed-rate first mortgage loans for the purchase or refinancing of one-to-four
family residential real property. In fiscal 2002, we began to originate
adjustable-rate mortgage loans with fixed-rates for initial terms of three, five
and seven years. After the initial terms, the interest rate on the loan adjusts
annually. We currently retain all one-to-four family residential mortgage

                                       45
loans that we originate, although we may sell such loans on a servicing-retained
basis in the future. One-to-four family residential mortgage loans represented
$351.5 million, or 80.2%, of our loan portfolio at June 30, 2002. Home equity
lines of credit represented $45.9 million, or 10.5%, of our loan portfolio at
June 30, 2002. We also offer multi-family mortgage loans, commercial mortgage
loans and construction loans. Multi-family mortgage loans totaled $6.9 million,
or 1.6% of the loan portfolio, at June 30, 2002. Commercial mortgage loans
totaled approximately $29.8 million, or 6.8% of the loan portfolio, at June 30,
2002. Construction loans totaled $1.9 million, or 0.4% of the loan portfolio, at
June 30, 2002. We also originate consumer loans, which primarily consist of
automobile, passbook, home improvement and secured personal loans. Consumer
loans totaled $2.4 million, or 0.5% of the loan portfolio, at June 30, 2002.

                                       46
LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition
of our loan portfolio by type of loan at the dates indicated.
AT MARCH 31,
                                                      ----------------------------------------------------------------------------
                                  AT JUNE 30, 2002          2002                2001                 2000               1999
                                 ------------------   -----------------   -----------------   -----------------  -----------------
                                  AMOUNT    PERCENT    AMOUNT   PERCENT    AMOUNT   PERCENT    AMOUNT   PERCENT   AMOUNT   PERCENT
                                 --------   -------   --------  -------   --------  -------   --------  -------  --------  -------
                                                                      (DOLLARS IN THOUSANDS)
Mortgage loans:
  One-to-four family..........  $ 351,509    80.2%   $ 334,683   79.7%   $ 221,617    75.1%  $ 138,375    76.1%  $ 119,015   82.3%
  Home equity lines of credit.     45,867    10.5       47,889   11.4       47,315    16.0      24,337    13.4      16,441   11.4
  Multi-family................      6,900     1.6        8,347    2.0        3,959     1.3       4,621     2.5         396    0.3
  Commercial..................     29,764     6.8       23,701    5.6       16,771     5.7      10,795     5.9       5,930    4.1
  Construction................      1,944     0.4        3,733    0.9        3,659     1.2       2,922     1.6       1,821    1.3
                                ---------  ------    --------- ------    ---------  ------   ---------  ------   --------- ------
     Total mortgage loans.....    435,984    99.5      418,353   99.6      293,321    99.3     181,050    99.5     143,603   99.4
                                ---------  ------    --------- ------    ---------  ------   ---------  ------   --------- ------

Consumer loans:
  Automobile loans............        427     0.1          785    0.2        1,154     0.4         467     0.3         609    0.4
  Other (1)...................      2,005     0.4          684    0.2          746     0.3         353     0.2         395    0.2
                                ---------  ------    --------- ------    ---------  ------   ---------  ------   --------- ------
     Total consumer loans.....      2,432     0.5        1,469    0.4        1,900     0.7         820     0.5       1,004    0.6
                                ---------  ------    --------- ------    ---------  ------   ---------  ------   --------- ------

     Total loans..............    438,416   100.0%     419,822  100.0%     295,221   100.0%    181,870   100.0%    144,607  100.0%
                                           ======              ======               ======              ======             ======

Allowance for loan losses.....     (2,296)              (2,221)             (2,047)             (1,188)             (1,094)
Deferred loan origination
  costs (fees), net...........      1,299                  767                 633                 250                  23
                                ---------            ---------           ---------           ---------           ---------
    Total loans, net..........  $ 437,419            $ 418,368           $ 293,807           $ 180,932           $ 143,536
                                =========            =========           =========           =========           =========
------------------
                                        1998
                                 ------------------
                                  AMOUNT    PERCENT
                                 --------   -------
Mortgage loans:
  One-to-four family..........   $ 109,207   84.1%
  Home equity lines of credit.      13,138   10.1
  Multi-family................         412    0.3
  Commercial..................       3,811    3.0
  Construction................       1,227    0.9
                                 --------- ------
     Total mortgage loans.....     127,795   98.4
                                 --------- ------

Consumer loans:
  Automobile loans............       1,011    0.8
  Other (1)...................       1,016    0.8
                                 --------- ------
     Total consumer loans.....       2,027    1.6
                                 --------- ------

     Total loans..............     129,822  100.0%
                                           ======

Allowance for loan losses.....        (984)
Deferred loan origination
  costs (fees), net...........        (280)
                                 ---------
    Total loans, net..........   $ 128,558
                                 =========
----------------------------------
(1)   Primarily secured personal loans, loans secured by deposit accounts and
      home improvement loans.

                                       47
The following table sets forth the composition of our loan portfolio by
fixed and adjustable rates at the dates indicated.
AT MARCH 31,
                                                      ----------------------------------------------------------------------------
                                  AT JUNE 30, 2002          2002                2001                 2000               1999
                                 ------------------   -----------------   -----------------   -----------------  -----------------
                                  AMOUNT    PERCENT    AMOUNT   PERCENT    AMOUNT   PERCENT    AMOUNT   PERCENT   AMOUNT   PERCENT
                                 --------   -------   --------  -------   --------  -------   --------  -------  --------  -------
                                                                      (DOLLARS IN THOUSANDS)
Fixed Rate Loans:
Mortgage loans:
  One-to-four family..........  $ 281,813    64.3%   $ 272,203   64.8%   $ 215,202    72.9%  $ 135,912    74.7%  $ 116,113   80.3%
  Home equity lines of credit.     45,710    10.4       47,724   11.4       46,908    15.9      23,940    13.2      15,590   10.8
  Multi-family................      6,900     1.6        8,347    2.0        3,959     1.3       4,621     2.5         396    0.3
  Commercial..................     28,504     6.5       23,296    5.6       16,771     5.7      10,740     5.9       5,930    4.1
  Construction................      1,944     0.4        3,733    0.9        3,659     1.2       2,922     1.6       1,821    1.3
                                ---------  ------    --------- ------    ---------  ------   ---------  ------   --------- ------

     Total mortgage loans.....    364,871    83.2      355,303   84.6      286,499    97.0     178,135    97.9     139,850   96.8
Consumer loans................      2,432     0.5        1,469    0.4        1,900     0.7         820     0.5       1,004    0.6
                                ---------  ------    --------- ------    ---------  ------   ---------  ------   --------- ------
     Total fixed rate loans...    367,303    83.7      356,772   85.0      288,399    97.7     178,955    98.4     140,854   97.4
                                ---------  ------    --------- ------    ---------  ------   ---------  ------   --------- ------

Adjustable Rate Loans:
Mortgage loans:
  One-to-four family..........     69,696    15.9       62,480   14.9        6,415     2.2       2,463     1.4       2,902    2.0
  Home equity lines of credit.        157     0.1          165     --          407     0.1         397     0.2         851    0.6
  Commercial..................      1,260     0.3          405    0.1           --      --          55      --          --     --
                                ---------  ------    --------- ------    ---------  ------   ---------  ------   --------- ------
     Total adjustable rate
       loans..................     71,113    16.3       63,050   15.0        6,822     2.3       2,915     1.6       3,753    2.6
                                ---------  ------    --------- ------    ---------  ------   ---------  ------   --------- ------

Total loans...................    438,416   100.0%     419,822  100.0%     295,221   100.0%    181,870   100.0%    144,607  100.0%
                                           ======              ======               ======              ======             ======

Allowance for loan losses......    (2,296)              (2,221)             (2,047)             (1,188)             (1,094)
Deferred loan origination
    costs (fees), net..........     1,299                  767                 633                 250                  23
                                ---------            ---------           ---------           ---------           ---------
     Total loans, net.......... $ 437,419            $ 418,368           $ 293,807           $ 180,932           $ 143,536
                                =========            =========           =========           =========           =========
------------------
                                        1998
                                 ------------------
                                  AMOUNT    PERCENT
                                 --------   -------
Fixed Rate Loans:
Mortgage loans:
  One-to-four family..........  $ 103,887   80.0%
  Home equity lines of credit.     12,094    9.3
  Multi-family................        412    0.3
  Commercial..................      3,811    3.0
  Construction................      1,227    1.0
                                --------- ------

     Total mortgage loans.....    121,431  93.6
Consumer loans................      2,027   1.6
                                --------- ------
     Total fixed rate loans...    123,458   95.1
                                --------- ------

Adjustable Rate Loans:
Mortgage loans:
  One-to-four family..........      5,320    4.1
  Home equity lines of credit.      1,044    0.7
  Commercial..................         --     --
                                --------- ------
     Total adjustable rate
       loans..................      6,364    4.8
                                --------- ------

Total loans...................    129,822  100.0%
                                          ======

Allowance for loan losses......      (984)
Deferred loan origination
    costs (fees), net..........      (280)
                                ---------
     Total loans, net.......... $128, 558
                                =========
-------------------------------
(1)   Primarily secured personal loans, loans secured by deposit accounts and
      home improvement loans.

                                       48
LOAN MATURITY SCHEDULE. The following table summarizes the contractual
maturities of our loan portfolio at March 31, 2002. Loans with adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract is due. The table reflects the entire unpaid principal balance of a
loan in the maturity period that includes the final payment date, and
accordingly, does not reflect the effects of scheduled payments, possible
prepayments or enforcement of due-on-sale clauses.
MULTI-FAMILY AND
                       ONE-TO-FOUR FAMILY (1)     COMMERCIAL           CONSTRUCTION            CONSUMER               TOTAL
                       -------------------    --------------------  --------------------  -------------------  --------------------
                                  WEIGHTED               WEIGHTED              WEIGHTED              WEIGHTED              WEIGHTED
                                  AVERAGE                AVERAGE               AVERAGE               AVERAGE               AVERAGE
                        AMOUNT      RATE       AMOUNT      RATE      AMOUNT      RATE      AMOUNT      RATE      AMOUNT      RATE
                       --------   --------    --------   --------   --------   --------   --------   --------   --------   --------
                                                                  (DOLLARS IN THOUSANDS)
Due During the Years
 Ending March 31,
2003(2)............    $     959    7.65%     $   1,021     7.09%   $   3,733     7.63%   $     616     5.42%   $   6,329     7.33%
2004...............        1,452    8.29          1,181     7.79           --      --           619     7.18        3,252     7.89
2005...............          854    8.09            919     7.47           --      --         1,191     7.74        2,964     7.76
2006 to 2008.......        5,530    7.45          3,931     7.90           --      --            --      --         9,461     7.63
2009 to 2012.......       18,804    7.35         12,163     8.40           --      --         4,408     7.80       35,375     7.77
2013 to 2017.......       74,771    6.52          1,507     8.31           --      --         1,005     7.44       77,283     6.57
2018 and following.      280,202    5.96          2,979     7.49           --      --         1,977     7.62      285,158     5.99
                       ---------              ---------             ---------             ---------             ---------
     Total.........    $ 382,572    6.18%     $  23,701     8.07%   $   3,733     7.63%   $   9,816     7.53%   $ 419,822     6.33%
                       =========              =========             =========             =========             =========
----------------
(1)   Includes home equity lines of credit.
(2)   Includes demand loans having no stated maturity.

         The following table sets forth the dollar amount of all fixed rate and
adjustable rate loans at March 31, 2002 that are contractually due after March
31, 2003.

                                             FIXED      ADJUSTABLE       TOTAL
                                          -----------   ----------    ----------
                                                      (IN THOUSANDS)

  One-to-four family......................$   319,133   $   62,480    $ 381,613
  Commercial..............................     22,275          405       22,680
  Construction............................         --           --           --
  Multi-family and consumer...............      9,200           --        9,200
                                          -----------   ----------    ---------
     Total................................$   350,608   $   62,885    $ 413,493
                                          ===========   ==========    =========

      ONE-TO-FOUR FAMILY RESIDENTIAL LOANS. Our primary lending activity is the
origination of one-to-four family residential mortgage loans secured by property
located in our primary lending area. Generally, one-to-four family residential
mortgage loans are made in amounts up to 95% of the lesser of the appraised
value or purchase price of the property, with private mortgage insurance
required for loans with a loan-to-value ratio over 80%. Generally, fixed-rate
loans are originated for terms of up to 30 years. One-to-four family loans are
offered with a monthly or bi-weekly payment feature. We have not historically
sold loans that we originate.

      We primarily originate fixed-rate loans; however, we also offer adjustable
rate mortgage loans with a fixed rate for initial terms of three, five and seven
years and then subsequent one year adjustment periods. At June 30, 2002, 80.2%
of our one-to-four family residential loans had fixed interest rates. The
interest rate on adjustable rate mortgage loans is indexed to the one-year
constant maturity Treasury bill. Our adjustable rate mortgage loans currently
provide for maximum rate adjustments of 2.00% per year and 5.00% over the term
of the loan. We do not offer adjustable rate mortgage loans with initial
interest rates that are below market, referred to as "teaser rates." Residential
adjustable rate mortgage loans amortize over terms of up to 30 years.

      Adjustable rate mortgage loans decrease the risk associated with changes
in market interest rates by periodically repricing, but involve other risks
because as interest rates increase, the underlying payments by the borrower
increase, thus increasing the potential for default by the borrower. At the same
time, the marketability of the underlying collateral may be adversely affected
by higher interest rates. Upward adjustment of the contractual interest rate is
also limited by the maximum periodic and lifetime interest rate adjustment
permitted by the terms of

                                       49
the ARM loans, and, therefore, is potentially limited in effectiveness during
periods of rapidly rising interest rates. At June 30, 2002, 19.8% of our
one-to-four family residential loans had adjustable interest rates.

      All one-to-four family residential mortgage loans we originate include
"due-on-sale" clauses, which give us the right to declare a loan immediately due
and payable in the event that, among other things, the borrower, without our
consent, sells or otherwise disposes of the real property subject to the
mortgage and the loan is not repaid.

      All one-to-four family residential mortgage borrowers are required to
obtain title insurance. We also require homeowner's insurance, fire and casualty
insurance and, where appropriate, flood insurance.

      At June 30, 2002, approximately $351.5 million, or 80.2% of our loan
portfolio, consisted of one-to-four family residential loans. Approximately
$952,000 of such loans (representing 10 loans) were nonperforming loans at that
date. See "Nonperforming and Problem Assets."

      HOME EQUITY LINES OF CREDIT. We offer home equity lines of credit that are
secured by the borrower's primary residence. The borrower is permitted to draw
on the home equity line of credit during the first five years after it is
originated and may repay the outstanding balance over a term not to exceed 20
years from the date the line of credit is originated. Virtually all of our home
equity lines of credit are originated with fixed rates of interest. Home equity
lines of credit are generally underwritten under the same criteria that we use
to underwrite one-to-four family fixed-rate loans. Home equity lines of credit
may be underwritten with a loan-to-value ratio of 80% when combined with the
principal balance of the existing mortgage loan, however, the maximum principal
amount of a home equity line of credit may not exceed $500,000 unless approved
by the Board of Directors. We appraise the property securing the loan at the
time of the loan application in order to determine the value of the property
securing the home equity line of credit. At the time we close a home equity line
of credit, we file a mortgage to perfect our security interest in the underlying
collateral. At June 30, 2002, the outstanding balances of home equity lines of
credit totaled $45.9 million, or 10.5% of our loan portfolio.

      COMMERCIAL MORTGAGE LOANS. At June 30, 2002, $29.8 million, or 6.8%, of
our total loan portfolio consisted of commercial mortgage loans. Commercial
mortgage loans are secured by office buildings, private schools, religious
facilities and other commercial properties. We generally originate fixed-rate
commercial mortgage loans with maximum terms of up to 20 years. The maximum
loan-to-value ratio of commercial mortgage loans is 75%. At June 30, 2002, we
had 62 commercial mortgage loans, the largest of which had a principal balance
of $1.8 million and was secured by a combination of office building and retail
stores. As of June 30, 2002, there were no nonperforming commercial mortgage
loans.

      In underwriting commercial mortgage loans, we review a number of factors,
such as the expected net operating income generated by the real estate to ensure
that it is at least 125% of the amount of the monthly debt service; the age and
condition of the collateral; the financial resources and income level of the
borrower; and the borrower's business experience. Personal guarantees are
typically required from commercial mortgage borrowers.

      Loans secured by commercial real estate generally are larger than
one-to-four family residential loans and involve a greater degree of risk.
Commercial mortgage loans can involve large loan balances to single borrowers or
groups of related borrowers. Payments on these loans depend to a large degree on
the results of operations and management of the properties or underlying
businesses, and may be affected to a greater extent by adverse conditions in the
real estate market or in the economy in general. Accordingly, the nature of
commercial real estate loans makes them more difficult to monitor and evaluate.

      MULTI-FAMILY MORTGAGE LOANS. Loans secured by multi-family real estate
totaled approximately $6.9 million, or 1.6% of the total loan portfolio at June
30, 2002. Multi-family mortgage loans generally are secured by multi-family
rental properties (including mixed-use buildings and walk-up apartments). At
June 30, 2002, we had 14 multi-family mortgage loans, the largest of which had a
principal balance of $1.0 million. Multi-family mortgage loans generally are
offered with both fixed and adjustable interest rates, although in the current
interest rate environment we have not recently originated adjustable rate
multi-family loans. Multi-family loans are originated for terms of up to 30
years.

                                       50
In underwriting multi-family mortgage loans, we consider a number of
factors, which include the net operating income projected to be generated by the
real estate to ensure that it is at least 125% of the amount of the monthly debt
service; the age and condition of the collateral; the financial resources and
income level of the borrower; and the borrower's experience in owning or
managing similar properties. Multi-family mortgage loans are originated in
amounts up to 75% of the appraised value of the property securing the loan.
Personal guarantees are obtained when possible from multi-family mortgage
borrowers.

      Loans secured by multi-family real estate generally involve a greater
degree of credit risk than one-to-four family residential mortgage loans and
carry larger loan balances. This increased credit risk is a result of several
factors, including the concentration of principal in a limited number of loans
and borrowers, the effects of general economic conditions on income producing
properties, and the increased difficulty of evaluating and monitoring these
types of loans. Furthermore, the repayment of loans secured by multi-family real
estate typically depends upon the successful operation of the related real
estate property. If the cash flow from the project is reduced, the borrower's
ability to repay the loan may be impaired.

      CONSTRUCTION LENDING. To a limited extent, we originate residential
construction loans to local home builders, generally with whom we have an
established relationship, and to individuals who have a contract with a builder
for the construction of their residence. Construction loans are disbursed as
certain portions of the project are completed. Our construction loans are
secured by property located in our market area. At June 30, 2002, we had
construction loans totaling $1.9 million, or 0.4% of total loans.

      Our construction loans to home builders generally have fixed interest
rates, are for a term of 12 months and have a maximum loan to value ratio of
80%. Loans to builders are made on either a pre-sold or speculative (unsold)
basis. Construction loans to individuals are generally originated pursuant to
the same policy guidelines regarding loan-to-value ratios and interest rates
that are used in connection with loans secured by one-to-four family residential
real estate. Construction loans to individuals who intend to occupy the
completed dwelling may be converted to permanent financing after the
construction phase is completed.

      We generally limit the number of outstanding loans on unsold homes under
construction to individual builders, with the amount dependent on the financial
strength, including existing borrowings, of the builder and prior sales of homes
in the development. Prior to making a commitment to fund a construction loan, we
require an appraisal of the property from a qualified appraiser approved by us,
and all appraisals are reviewed by management. Loan proceeds are disbursed after
an inspection of the property based on a percentage of completion. Monthly
payment of accrued interest is required.

      Construction loans are generally considered to involve a higher degree of
risk than single-family permanent mortgage loans because of the inherent
difficulty in estimating both a property's value at completion of the project
and the estimated cost of the project. If the estimate of construction costs is
inaccurate, we may be required to advance funds beyond the amount originally
committed to permit completion of the project. If the estimate of value upon
completion is inaccurate, the value of the property may be insufficient to
assure full repayment. Projects may also be jeopardized by disagreements between
borrowers and builders and by the failure of builders to pay subcontractors.
Loans to builders to construct homes for which no purchaser has been identified
carry more risk because the repayment of the loan depends on the builder's
ability to sell the property prior to the time that the construction loan is
due. We have attempted to minimize these risks by, among other things, limiting
its construction lending primarily to residential properties and generally
requiring personal guarantees from the principals of its corporate borrowers.

      CONSUMER LENDING. Our consumer loans primarily consist of automobile
loans, secured personal loans, passbook loans and home improvement loans. At
June 30, 2002, consumer loans totaled $2.4 million, or 0.5% of the total loan
portfolio.

      Consumer loans generally have shorter terms and higher interest rates than
one-to-four family mortgage loans. While consumer loans expand the products and
services we offer, these loans generally involve greater credit risk than
residential mortgage loans because of the difference in the underlying
collateral. Repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance

                                       51
because of the greater likelihood of damage to, loss of or depreciation in the
underlying collateral. The remaining deficiency often does not warrant further
substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections depend on the
borrower's personal financial stability. Furthermore, the application of various
federal and state laws, including federal and state bankruptcy and insolvency
laws, may limit the amount that can be recovered on such loans.

      Our underwriting procedures for consumer loans include an assessment of
the applicant's credit history and the ability to meet existing and proposed
debt obligations. Although the applicant's creditworthiness is the primary
consideration, the underwriting process also includes a comparison of the value
of the security, to the proposed loan amount.

      LOAN APPROVAL PROCEDURES AND AUTHORITY. The loan approval process is
intended to assess the borrower's ability to repay the loan, the viability of
the loan, and the adequacy of the value of the property that will secure the
loan. To assess the borrower's ability to repay, we review the employment and
credit history and information on the historical and projected income and
expenses of borrowers. Loans of up to $1.5 million may be approved by two of
three designated lending officers acting together. All loans in excess of $1.5
million must be approved by the Board of Directors. In addition, the Board of
Directors reviews and confirms all loan commitments. We will generally not
originate a loan with a principal balance in excess of $2.0 million.

      We require appraisals of real property securing loans. Appraisals are
performed by independent appraisers, who are approved by the Board of Directors
annually. We require fire and extended coverage insurance in amounts adequate to
protect our principal balance. Where appropriate, flood insurance is also
required. Private mortgage insurance is required for all residential mortgage
loans with loan-to-value ratios greater than 80%.

      ORIGINATION OF LOANS. We originate mortgage loans pursuant to underwriting
standards that generally conform with the Fannie Mae guidelines. Loan
origination activities are primarily concentrated in Westchester County, New
York and Fairfield County, Connecticut. New loans are generated primarily from
mortgage brokers, customer referrals, local real estate agents, local attorneys
and other parties with whom we do business, and from the efforts of employees
and advertising.

                                       52
The following table sets forth our loan originations, principal repayments
and other portfolio activity for the periods indicated. We did not purchase or
sell any loans during the periods indicated.
THREE MONTHS ENDED JUNE 30,           YEARS ENDED MARCH 31,
                                                         -----------------------      ------------------------------------
                                                           2002          2001           2002          2001          2000
                                                         ---------     ---------      ---------     ---------    ---------
                                                                                  (IN THOUSANDS)
Unpaid  principal  balances at  beginning of period...   $ 419,822     $ 295,221      $ 295,221     $ 181,870    $ 144,607
                                                         ---------     ---------      ---------     ---------    ---------
Loans acquired in acquisition of Peekskill
  Financial Corporation(1)............................          --            --             --        67,845           --

LOANS ORIGINATED BY TYPE:
Fixed rate:
    Mortgage loans:
      One-to-four family..............................      24,638        23,088        107,782        35,623       32,403
      Advances under home equity lines of credit......       7,679         7,020         27,214        34,890       16,676
      Multi-family....................................          --           150          4,823           440        4,404
      Commercial......................................       6,872         4,702         15,288         5,887        4,466
      Construction....................................         934         3,788          4,892         4,216        3,678
    Consumer loans....................................       1,014           463          1,244         1,471          679
                                                         ---------     ---------      ---------     ---------    ---------
      Total fixed rate................................      41,137        39,211        161,243        82,527       62,306

Adjustable rate mortgage loans:
    One-to-four family................................      10,539         8,193         58,609         4,114           --
    Commercial........................................         855            --             --            --           55
                                                         ---------     ---------      ---------     ---------    ---------
      Total loans originated..........................      52,531        47,404        219,852        86,641       62,361
                                                         ---------     ---------      ---------     ---------    ---------

PRINCIPAL REPAYMENTS:
    Mortgage loans....................................     (33,886)      (20,103)       (93,308)      (39,925)     (24,111)
    Consumer loans....................................         (51)         (265)        (1,675)         (758)        (863)
                                                         ---------     ---------      ---------     ---------    ---------
      Total principal repayments......................     (33,937)      (20,368)       (94,983)      (40,683)     (24,974)
                                                         ---------     ---------      ---------     ---------    ---------

Charge-offs...........................................          --            --            (15)         (162)          (6)
Transfers to real estate owned........................          --          (118)          (253)         (290)        (118)
                                                         ---------     ---------      ---------     ---------    ---------
Unpaid principal balances at end of period............     438,416       322,139        419,822       295,221      181,870

Allowance for loan losses.............................      (2,296)       (2,072)        (2,221)       (2,047)      (1,188)
Deferred loan origination costs (fees), net...........       1,299           663            767           633          250
                                                         ---------     ---------      ---------     ---------    ---------
Net loans at end of period............................   $ 437,419     $ 320,730      $ 418,368     $ 293,807    $ 180,932
                                                         =========     =========      =========     =========    =========
-----------------
(1)   Represents primarily fixed-rate one-to-four family mortgage loans.

NONPERFORMING AND PROBLEM ASSETS

      After a mortgage loan becomes fifteen days past due, we deliver a computer
generated delinquency notice to the borrower. When loans become 30 days past
due, we send additional delinquency notices and we attempt to make personal
contact with the borrower by letter or telephone to establish acceptable
repayment schedules. The Board of Directors is advised of all loans delinquent
60 days or more. The Board will consider the borrower's willingness to comply
with the loan terms, our actions to date, and the value of the loan collateral
in determining what actions, if any, are to be taken. Generally, when a mortgage
loan is 90 days delinquent and no acceptable resolution has been reached, we
will send the borrower a demand letter. If the delinquency is not cured within
120 days, we will generally refer the matter to our attorney. Generally,
management will begin foreclosure proceedings on any loan after it is delinquent
over 120 days unless management is engaged in active discussions with the
borrower.

      Mortgage loans are reviewed on a regular basis and such loans are placed
on nonaccrual status when they become 90 days delinquent. When loans are placed
on nonaccrual status, unpaid accrued interest is fully reserved, and further
income is recognized only to the extent of interest payments actually received.

                                       53
NONPERFORMING ASSETS. The table below sets forth the amounts and
categories of our nonperforming assets at the dates indicated. At each date
presented, we had no troubled debt restructurings (which involve forgiving a
portion of interest or principal or making loans at rates significantly less
than current market rates).
AT MARCH 31,
                                            AT JUNE 30,   --------------------------------------------------------
                                              2002         2002        2001         2000        1999        1998
                                            --------     --------    --------     --------    --------    --------
                                                                    (DOLLARS IN THOUSANDS)
Nonaccrual loans:
  Mortgage loans:
     One-to-four family(1)...............   $    952     $    755    $    933     $    969    $  1,077    $  1,721
     Commercial..........................          c           --          --           --          --         236
  Consumer loans.........................         --           --          --           --          14           1
                                            --------     --------    --------     --------    --------    --------
     Total nonaccrual loans..............        952          755         933          969       1,091       1,958

Real estate owned:
  One-to-four family.....................         --          144         197           55         288         129
                                            --------     --------    --------     --------    --------    --------

     Total nonperforming assets..........   $    952     $    869    $  1,130     $  1,024    $  1,379    $  2,087
                                            ========     ========    ========     ========    ========    ========

Ratios:
     Nonperforming loans to total loans..       0.22%        0.18%       0.31%        0.53%       0.75%       1.50%
     Nonperforming assets to total assets       0.15%        0.14%       0.20%        0.31%       0.47%       0.82%
     Ratio of net charge-offs to average
       loans outstanding.................         --%          --%       0.05%          --%       0.12%       0.01%
----------------
(1)   Includes home equity lines of credit.

      For the three months ended June 30, 2002 and for the year ended March 31,
2002, gross interest income that would have been recorded had nonaccrual loans
been current in accordance with their original terms amounted to $20,000 and
$67,000 respectively. Interest amounts on such loans that were included in
interest income totaled $6,600 for the three months ended June 30, 2002 and
$20,000 for the year ended March 31, 2002.

      The following table sets forth certain information with respect to our
loan portfolio delinquencies at the dates indicated.
LOANS DELINQUENT FOR:
                                 ----------------------------------------------------     ------------------------
                                       60-89 DAYS                 90 DAYS AND OVER                  TOTAL
                                 -----------------------      -----------------------     ------------------------
                                   NUMBER        AMOUNT         NUMBER        AMOUNT        NUMBER         AMOUNT
                                 ---------     ---------      ---------     ---------     ---------      ---------
                                                                (DOLLARS IN THOUSANDS)
AT JUNE 30, 2002
   One-to-four family........            5     $     930             10     $     952            15      $   1,882
   Consumer..................           --            --             --            --            --             --
                                 ---------     ---------      ---------     ---------     ---------      ---------
        Total................            5     $     930             10     $     952            15      $   1,882
                                 =========     =========      =========     =========     =========      =========

   AT MARCH 31, 2002
   One-to-four family........           10     $   1,115             11     $     755            21      $   1,870
   Consumer..................           --            --             --            --            --             --
                                 ---------     ---------      ---------     ---------     ---------      ---------
        Total................           10     $   1,115             11     $     755            21      $   1,870
                                 =========     =========      =========     =========     =========      =========

   AT MARCH 31, 2001
   One-to-four family........            8     $     508             14     $     933            22      $   1,441
   Consumer..................           --            --             --            --            --             --
                                 ---------     ---------      ---------     ---------     ---------      ---------
        Total................            8     $     508             14     $     933            22      $   1,441
                                 =========     =========      =========     ==========    =========      =========

   AT MARCH 31, 2000
   One-to-four family........            7     $     829             11     $     969            18      $   1,798
   Consumer..................            3             9             --            --             3              9
                                 ---------     ---------      ---------     ---------     ----------     ---------
        Total................           10     $     838             11     $     969            21      $   1,807
                                 =========     =========      =========     =========     =========      =========
CLASSIFIED ASSETS. Federal regulations and our Asset Classification Policy
provide for the classification of loans and other assets, such as debt and
equity securities, considered by the Office of Thrift Supervision to be of
lesser quality as "substandard," "doubtful" or "loss" assets. An asset is
considered "substandard" if it is inadequately

                                       54
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. "Substandard" assets include those characterized by
the "distinct possibility" that the institution will sustain "some loss" if the
deficiencies are not corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectable" and of such little value that their continuance as assets is not
warranted.

      An insured institution is required to establish general allowances for
loan losses in an amount deemed prudent by management for loans classified
substandard or doubtful, as well as for other problem loans. General allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies problem assets as "loss," it is required either to
establish a specific allowance for losses equal to 100% of the amount of the
asset so classified or to charge off such amount. An institution's determination
as to the classification of its assets and the amount of its valuation
allowances is subject to review by the Office of Thrift Supervision, which can
order the establishment of additional general or specific loss allowances.

      At June 30, 2002, our assets classified as substandard totaled $952,000,
representing all loans delinquent for 90 days or more. At June 30, 2002 we had
no assets classified as doubtful or loss. The loan portfolio is reviewed on a
regular basis to determine whether any loans require classification in
accordance with applicable regulations.

ALLOWANCE FOR LOAN LOSSES

      Management regularly reviews our loan portfolio and makes provisions for
loan losses in order to maintain the adequacy of the allowance for loan losses.
All loan losses are charged to the allowance and all recoveries are credited to
it. Additions to the allowance for loan losses are provided by charges to income
based on various factors which, in management's judgment, deserve current
recognition in estimating losses that are inherent in the loan portfolio and
that are both probable and estimable. The allowance for loan losses consists of
amounts specifically allocated to nonperforming loans and potential problem
loans (if any) as well as allowances determined for each major loan category.
Loan categories, such as one-to-four family residential mortgages and home
equity lines of credit (which represent a combined 90.7% of our total loans at
June 30, 2002) are generally evaluated on an aggregate or "pool" basis. Our
allowance for loan losses is predominantly determined on a pool basis by
applying loss factors to the current balances of the various loan categories.
The loss factors are determined by management based on an evaluation of our
historical loss experience, delinquency trends, volume and type of lending
conducted, and the impact of current economic conditions in our market area. The
carrying values of loans are periodically evaluated and the allowance is
adjusted accordingly. While management uses the best information available to
make evaluations, future adjustments to the allowance may be necessary if
conditions differ substantially from the assumptions used in making the
evaluations.

      In addition, various regulatory agencies, as an integral part of their
examination process, periodically review our allowance for loan losses. Such
agencies may require us to recognize additions to the allowance based on their
judgments of information available to them at the time of their examination.

                                       55
The following table sets forth activity in our allowance for loan losses
for the periods indicated.
THREE MONTHS ENDED
                                                    JUNE 30,                            YEARS ENDED MARCH 31,
                                             ----------------------   ---------------------------------------------------------
                                               2002         2001        2002         2001       2000        1999        1998
                                             ---------    ---------   ---------   ---------   ---------   ---------   ---------
                                                                          (DOLLARS IN THOUSANDS)
Balance at beginning of period.............  $   2,221    $   2,047   $   2,047   $   1,188   $   1,094   $     984   $     845
                                             ---------    ---------   ---------   ---------   ---------   ---------   ---------

Provision for loan losses..................         75           25         175         208         100         272         155

Allowance transferred in acquisition
  of Peekskill Financial Corporation.......         --           --          --         784          --          --          --

Charge-offs:
  One-to-four family mortgage loans........         --           --         (15)       (162)         (6)       (162)        (16)

Recoveries:
  One-to-four family mortgage loans........         --           --          14          29          --          --          --
                                             ---------    ---------   ---------   ---------   ---------   ---------   ---------
Net charge-offs............................         --           --          (1)       (133)         (6)       (162)        (16)

Balance at end of period...................  $   2,296    $   2,072   $   2,221   $   2,047   $   1,188   $   1,094   $     984
                                             =========    =========   =========   =========   =========   =========   =========

Ratios:
  Allowance for loan losses to nonperforming
    loans..................................     241.18%     184.01%    294.20%     219.40%     122.60%     100.27%      50.26%
  Allowance for loan losses to total loans.       0.52%       0.64%      0.53%       0.69%       0.65%       0.75%       0.75%
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES. The following table presents an
analysis of the allocation of the allowance for loan losses at the dates
indicated. The allocation of the allowance to each category is not necessarily
indicative of future loss in any particular category and does not restrict the
use of the allowance to absorb losses in other categories.
AT MARCH 31,
                                                             -----------------------------------------------------------------
                                    AT JUNE 30, 2002                        2002                              2001
                            ------------------------------   -------------------------------   -------------------------------
                                                  PERCENT                           PERCENT                           PERCENT
                                                  OF LOANS                          OF LOANS                          OF LOANS
                                       LOAN       IN EACH                LOAN       IN EACH                LOAN       IN EACH
                            LOAN       BALANCES   CATEGORY    LOAN       BALANCES   CATEGORY    LOAN       BALANCES   CATEGORY
                            LOSS       BY         TO TOTAL    LOSS       BY         TO TOTAL    LOSS       BY         TO TOTAL
                            ALLOWANCE  CATEGORY     LOANS     ALLOWANCE  CATEGORY     LOANS     ALLOWANCE  CATEGORY     LOANS
                            ---------  ---------  --------    ---------  ---------  --------    ---------  ---------  --------
                                                               (DOLLARS IN THOUSANDS)
Mortgage loans:
    One-to-four family(1)   $   1,130  $ 397,376      90.7%   $   1,090  $ 382,572      91.1%   $   1,009  $ 268,932      91.1%
    Multi-family.......           120      6,900       1.6          150      8,347       2.0          150      3,959       1.3
    Commercial.........           841     29,764       6.8          741     23,701       5.6          600     16,771       5.7
    Construction.......            50      1,944       0.4           90      3,733       0.9           90      3,659       1.2
Consumer...............           155      2,432       0.5          150      1,469       0.4          198      1,900       0.7
                            ---------  ---------  --------    ---------  ---------  --------    ---------  ---------  --------
       Total...........     $   2,296  $ 438,416     100.0%   $   2,221  $ 419,822     100.0%   $   2,047  $ 295,221     100.0%
                            =========  =========  ========    =========  =========  ========    =========  =========  ========
-------------------
(1)   Includes home equity lines of credit.

                                       56
AT MARCH 31,
                            --------------------------------------------------------------------------------------------------
                                          2000                              1999                              1998
                            ------------------------------   -------------------------------   -------------------------------
                                                  PERCENT                           PERCENT                           PERCENT
                                                  OF LOANS                          OF LOANS                          OF LOANS
                                       LOAN       IN EACH                LOAN       IN EACH                LOAN       IN EACH
                            LOAN       BALANCES   CATEGORY    LOAN       BALANCES   CATEGORY    LOAN       BALANCES   CATEGORY
                            LOSS       BY         TO TOTAL    LOSS       BY         TO TOTAL    LOSS       BY         TO TOTAL
                            ALLOWANCE  CATEGORY     LOANS     ALLOWANCE  CATEGORY     LOANS     ALLOWANCE  CATEGORY     LOANS
                            ---------  ---------  --------    ---------  ---------  --------    ---------  ---------  --------
                                                               (DOLLARS IN THOUSANDS)
Mortgage loans:
    One-to-four family(1)   $     633  $ 162,712      89.5%   $     718  $ 135,456      93.7%   $     668  $ 122,345      94.2%
    Multi-family.......           125      4,621       2.5           26        396       0.3           27        412       0.3
    Commercial.........           300     10,795       5.9          237      5,930       4.1          152      3,811       3.0
    Construction.......            70      2,922       1.6           43      1,821       1.3           36      1,227       0.9
Consumer...............            60        820       0.5           70      1,004       0.6          101      2,027       1.6
                            ---------  ---------  --------    ---------  ---------  --------    ---------  ---------  --------
       Total...........     $   1,188  $ 181,870     100.0%   $   1,094  $ 144,607     100.0%   $     984  $ 129,822     100.0%
                            =========  =========  ========    =========  =========  ========    =========  =========  ========
------------
(1)   Includes home equity lines of credit.

INVESTMENT ACTIVITIES

      Our investments include mortgage-backed securities, collateralized
mortgage obligations, U.S. Government and agency securities, federal funds sold,
mutual funds and Federal Home Loan Bank stock. Management invests a significant
portion of our assets in overnight and short-term investments and adjustable
rate mortgage-backed securities in order to increase our ability to reinvest
assets in higher yielding securities in a rising interest rate environment.
Under Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," entities were permitted to
reclassify securities from the held-to-maturity category to the
available-for-sale category at the adoption date. We adopted SFAS No. 133 on
April 1, 2001 and reclassified all of our held-to-maturity securities to the
available-for-sale portfolio. We have not engaged in derivatives and hedging
activities covered by SFAS No. 133, nor do we expect to do so in the foreseeable
future.

      Our mortgage-backed securities portfolio had a carrying value of $101.6
million, or 15.6% of total assets at June 30, 2002. Of this amount, $75.8
million of mortgage-backed securities had adjustable rates of interest and $25.8
million had fixed rates of interest.

      Mortgage-backed securities are created by the pooling of mortgages and the
issuance of a security with an interest rate that is less than the interest rate
on the underlying mortgages. Our mortgage-backed securities at June 30, 2002
consist of pass-through securities of $89.4 million insured or guaranteed by
Fannie Mae, Ginnie Mae or Freddie Mac, and collateralized mortgage obligations
("CMOs") of $12.2 million. Mortgage-backed securities increase our liquidity and
credit quality. We have not invested in privately issued mortgage-backed
securities.

      CMOs are typically issued by a special-purpose entity, which may be
organized in a variety of legal forms, such as a trust, a corporation or a
partnership. The entity aggregates pools of pass-through securities, which are
used to collateralize the CMO. Once combined, the cash flows are divided into
"tranches" or "classes" of individual bonds, thereby creating more predictable
average duration for each bond than the underlying pass-through pools.
Accordingly, under the CMO structure, all principal pay-downs from the various
mortgage pools are allocated to a CMO's first class until it has been paid off,
then to a second class until such class has been paid off and then to the next
classes. The loans underlying our CMOs are either guaranteed by Freddie Mac or
Fannie Mae. Virtually all of our CMOs were held by Peekskill Financial
Corporation prior to the acquisition in July 2000. We have not purchased a
significant amount of CMOs.

      At June 30, 2002, the carrying value of our investment securities other
than mortgage-backed securities included $23.2 million in U.S. Government and
agency securities, which consisted of fixed rate Federal Home Loan Bank, Federal
Farm Credit and Fannie Mae issues with maturities of 20 years or less, as well
as adjustable rate Small Business Administration participation certificates that
are guaranteed by the U.S. Government with contractual terms of up to 30 years.
The U. S. Government and agency securities typically have call dates of six
months to three years. At June 30, 2002, we had also invested $18.0 million in
three mutual funds that provide a

                                       57
rate of return that adjusts daily. The first mutual fund, in which we have a
$2.0 million investment, invests primarily in repurchase agreements secured by
U.S. Government and agency securities and federal funds. The average maturities
of the underlying securities can be from one to seven days, but primarily are
overnight. The second mutual fund, in which we have a $12.0 million investment,
is an adjustable rate mortgage fund that invests primarily in securities backed
by or representing an interest in mortgages on residential properties meeting
the definition of such assets for purposes of the qualified thrift lender test
under Office of Thrift Supervision regulations. The third mutual fund, in which
we have a $3.0 million investment, invests in mortgage-backed securities, which
are collateralized by mortgages on properties located in our primary lending
area. These mutual fund investments are permissible investments as set forth in
our investment policy. The securities were purchased, as part of our ongoing
interest rate risk management process, to provide interest earning liquid funds
and an adjustable interest rate.

      Our earning assets also include overnight federal funds sold and an
interest-earning checking account at the Federal Home Loan Bank of New York. At
June 30, 2002, $35.4 million, or 5.4% of our total assets, were invested in such
instruments.

      The following table sets forth the composition of our securities
classified as available for sale and other earning assets at the dates
indicated:
AT MARCH 31,
                                                              -------------------------------------------------------------------
                                         AT JUNE 30, 2002              2002                   2001                   2000
                                       ---------------------  ---------------------   --------------------   --------------------
                                       AMORTIZED     FAIR     AMORTIZED      FAIR     AMORTIZED     FAIR     AMORTIZED     FAIR
                                         COST       VALUE       COST        VALUE       COST       VALUE       COST       VALUE
                                       ---------   ---------  ---------   ---------   ---------  ---------   ---------  ---------
(IN THOUSANDS)
Mortgage-backed securities:
 Adjustable rate:
   Mortgage pass-through securities:
     Ginnie Mae......................  $  46,194   $  47,120  $  45,867   $  46,496   $  37,294  $  38,032   $  10,493  $  10,370
     Fannie Mae......................     18,808      19,026     17,154      17,285      12,008     12,196       5,515      5,500
     Freddie Mac.....................      9,458       9,652     10,789      10,892       7,035      7,188       4,202      4,120
  Collateralized mortgage
   obligations.......................         --          --         --          --       1,518      1,526          --         --
 Fixed rate:
  Mortgage pass-through securities:
     Ginnie Mae......................      1,106       1,166      1,246       1,298       1,384      1,413         916        865
     Fannie Mae......................      3,283       3,541      3,518       3,731       5,667      5,992       1,621      1,545
     Freddie Mac.....................      8,458       8,862      9,824      10,173      18,848     19,536       2,738      2,580
  Collateralized mortgage
   obligations.......................     11,355      12,248     13,238      14,259      28,316     30,048          --         --
                                       ---------   ---------  ---------   ---------   ---------  ---------   ---------  ---------
     Total mortgage-backed
       securities....................     98,662     101,615    101,636     104,134     112,070    115,931      25,485     24,980

U.S. Government agency securities....     23,349      23,246     29,788      29,229      32,804  $   2,649      35,891     34,417
Mutual fund investments..............     18,000      18,024     16,000      15,946       8,000      7,996       3,000      2,968
Municipal securities.................        846         957        845         922         840        950          --         --

    Total securities available for
       sale..........................    140,857   $ 143,842    148,269   $ 150,231     153,714  $ 157,526   $  64,376  $  62,365
                                                   =========              =========              =========              =========

Other earning assets:
  Federal funds sold.................      3,000                  3,000                  35,000                 25,000
  Other overnight deposits...........     32,370                 16,847                   2,491                 10,075
  FHLB stock.........................      4,141                  4,141                   3,745                  2,195
                                       ---------              ---------               ---------              ---------
     Total...........................  $ 180,368              $ 172,257               $ 194,950              $ 101,646
                                       =========              =========               =========              =========
58
The following table sets forth the composition of our securities
classified as held to maturity at the dates indicated. At June 30, 2002 and
March 31, 2002, we did not have any securities classified as held to maturity.
AT MARCH 31,
                                                   ----------------------------------------------
                                                            2001                     2000
                                                   ---------------------     --------------------
                                                   AMORTIZED     FAIR        AMORTIZED    FAIR
                                                     COST        VALUE         COST       VALUE
                                                   --------     --------     --------    --------
                                                                  (IN THOUSANDS)
Mortgage pass-through securities:
        Adjustable rate:
          Ginnie Mae.........................      $ 21,613     $ 21,682     $ 27,772    $ 27,171
          Fannie Mae.........................         3,114        3,127        3,827       3,711
        Fixed rate:
          Ginnie Mae.........................           429          452          571         570
          Fannie Mae.........................            21           21           40          38
                                                   --------     --------     --------    --------
          Total mortgage pass-through........        25,177       25,282       32,210      31,490

      Federal agency obligations.............         3,038        3,035        3,448       3,309
                                                   --------     --------     --------    --------
          Total securities held to maturity..      $ 28,215     $ 28,317     $ 35,658    $ 34,799
                                                   ========     ========     ========    ========
The following table sets forth the activity in our mortgage-backed
securities portfolio for the periods indicated.
THREE MONTHS ENDED JUNE 30,          YEARS ENDED MARCH 31,
                                                      ------------------------   -------------------------------------
                                                         2002           2001         2002          2001         2000
                                                      ----------    ----------   ----------    ----------    ---------
                                                                              (IN THOUSANDS)
Amortized cost at beginning of period...............  $  101,636    $  137,247   $  137,247    $   57,695    $  58,318
Acquired in acquisition of Peekskill
  Financial Corporation.............................          --            --           --        97,784           --
Purchases of mortgage-backed securities.............       9,272        11,189       28,944        15,075       13,257
Principal repayments................................     (12,361)      (15,029)     (65,392)      (33,538)     (13,660)
Premium  amortization and discount accretion, net...         115          (305)         837           231         (220)
                                                      ----------    ----------   ----------    ----------    ---------
Amortized cost at end of period.....................  $   98,662    $  133,102   $  101,636    $  137,247    $  57,695
                                                      ==========    ==========   ==========    ==========    =========
59
The composition and contractual maturities of our mortgage-backed
securities and other debt securities at June 30, 2002 are indicated in the
following table. All of our securities were classified as available for sale at
June 30, 2002. The table does not reflect the impact of prepayments or
redemptions that may occur.
MORE THAN ONE YEAR  MORE THAN FIVE YEARS
                                             ONE YEAR OR LESS    THROUGH FIVE YEARS    THROUGH TEN YEARS   MORE THAN TEN YEARS
                                            -------------------  -------------------  ------------------- --------------------
                                                       WEIGHTED             WEIGHTED             WEIGHTED           WEIGHTED
                                            AMORTIZED  AVERAGE   AMORTIZED  AVERAGE   AMORTIZED  AVERAGE  AMORTIZED  AVERAGE
                                              COST      YIELD      COST      YIELD       COST     YIELD      COST     YIELD
                                            ---------  --------  ---------  --------  ---------  -------- --------- ----------
                                                                          (DOLLARS IN THOUSANDS)
Mortgage-backed securities:
Pass-through securities:
  Ginnie Mae...........................     $     2     6.50%    $    285    8.27%    $    124    8.79%   $ 46,889    6.07%
  Fannie Mae...........................       1,000     5.13        2,063    5.96        2,027    7.00      17,001    5.28
  Freddie Mac..........................         645     7.27        5,263    7.11           46    9.37      11,962    6.20
Collateralized mortgage obligations....          --       --           --      --          336    7.00      11,019    6.06
                                            -------              --------              -------            --------
     Total mortgage-backed securities..       1,647     5.97        7,611    6.84        2,533    7.13      86,871    5.93

Other debt securities:
  Federal agency obligations...........       5,999     5.18        5,000    5.25        3,745    5.28       8,605    4.46
  Municipal securities.................          --       --           --      --           --      --         846    5.79
                                            -------              --------              -------            --------

     Total securities available for
         sale..........................     $ 7,646     5.35%    $ 12,611    6.21%     $ 6,278    6.03%   $ 96,322    5.80%
                                            =======              ========              =======            ========
TOTAL SECURITIES
                                            ---------------------------------
                                                                    WEIGHTED
                                            AMORTIZED     FAIR       AVERAGE
                                              COST        VALUE      YIELD
                                            ---------   ---------   ---------
Mortgage-backed securities:
Pass-through securities:
  Ginnie Mae...........................     $  47,300   $  48,286    6.09%
  Fannie Mae...........................        22,091      22,567    5.50
  Freddie Mac..........................        17,916      18,514    6.51
Collateralized mortgage obligations....        11,355      12,248    6.09
                                            ---------   ---------
     Total mortgage-backed securities..        98,662     101,615    6.03

Other debt securities:
  Federal agency obligations...........        23,349      23,246    4.95
  Municipal securities.................           846         957    5.79
                                            ---------   ---------

     Total securities available for
         sale..........................     $ 122,857   $ 125,818    5.83%
                                            =========   =========
60
SOURCES OF FUNDS

      GENERAL. Deposits have traditionally been our primary source of funds for
our lending and investment activities. In addition to deposits, funds are
derived from a variety of sources including scheduled loan payments, investment
maturities, loan prepayments and income on earning assets. While scheduled loan
payments and income on earning assets are relatively stable sources of funds,
deposit inflows and outflows can vary widely and are influenced by prevailing
interest rates, market conditions and levels of competition. In addition,
borrowings from the Federal Home Loan Bank of New York may be used in the
short-term to compensate for reductions in deposits and to fund growth. We used
$20.0 million of fixed-rate borrowings during fiscal 2002 to fund a portion of
our loan originations. In addition, we assumed certain borrowings at the time we
acquired Peekskill Financial Corporation, which had a remaining balance of $14.9
million at June 30, 2002.

      DEPOSITS. We obtain deposits primarily from customers who live or work in
the New York counties of Westchester and Rockland and Fairfield County,
Connecticut. We offer a selection of deposit instruments, including savings and
club accounts, money market accounts, NOW accounts, commercial checking and
fixed-term certificate of deposit accounts. We do not actively solicit deposits
outside of our market area. Deposit account terms vary, with the principal
differences being the minimum balance required, the amount of time the funds
must remain on deposit and the interest rate. We do not pay broker fees for any
deposits.

      Interest rates paid, maturity terms, service fees and withdrawal penalties
are established on a periodic basis. Deposit rates and terms are based primarily
on current operating strategies and market rates, liquidity requirements, rates
paid by competitors and growth goals. We rely upon personalized customer service
and long-standing relationships with customers to attract and retain deposits.

      The flow of deposits is influenced significantly by general economic
conditions, changes in money markets and other prevailing interest rates and
competition. The variety of deposit accounts offered allows us to be competitive
in obtaining funds and responding to changes in consumer demand. In recent
years, we have become more susceptible to short-term fluctuations in deposit
flows as customers have become more interest rate conscious. We price our
deposits to reflect our interest rate risk management and profitability
objectives. Based on experience, management believes that passbook accounts and
money market accounts are relatively stable sources of deposits. However, the
ability to attract and maintain certificates of deposit, and the rates paid on
these deposits, have been and will continue to be significantly affected by
market conditions. At June 30, 2002, $324.8 million, or 59.6% of our deposit
accounts were certificates of deposit, of which $270.4 million have maturities
of one year or less.

                                       61
The following table sets forth the distribution of our deposit accounts by
account type at the dates indicated.
AT MARCH 31,
                                                                  ---------------------------------------------------------
                                          AT JUNE 30, 2002                   2002                         2001
                                    ---------------------------   --------------------------- -----------------------------
                                                       WEIGHTED                      WEIGHTED                     WEIGHTED
                                                       AVERAGE                       AVERAGE                      AVERAGE
                                     AMOUNT   PERCENT   RATE       AMOUNT   PERCENT   RATE     AMOUNT    PERCENT   RATE
                                    --------  -------  --------   --------  ------- --------- --------   -------  --------
                                                                    (DOLLARS IN THOUSANDS)
Transaction accounts and
  savings deposits:
   Savings and club accounts.....  $ 123,397    22.7%   1.00%    $ 118,578   22.8%    1.00%   $ 108,371    22.9%   2.00%
   Money market accounts.........     41,560     7.6    1.34        36,012    6.9     1.43       28,333     6.0    2.60
   NOW accounts..................     48,514     8.9    0.75        47,578    9.2     0.76       38,710     8.2    1.27
   Commercial checking...........      6,382     1.2      --         5,436    1.0       --        2,390     0.5      --
                                   ---------   -----             ---------  -----             ---------   -----
     Total.......................    219,853    40.4    0.98       207,604   39.9     0.99      177,804    37.6    1.91
                                   ---------   -----             ---------  -----             ---------   -----

Certificates of deposit maturing:
  Within one year................    270,443    49.6    3.03       268,116   51.6     3.24      272,570    57.6    6.01
  After one but within
    three years..................     42,424     7.8    3.52        37,622    7.2     3.66       20,619     4.4    5.41
  After three years..............     11,906     2.2    4.67         6,563    1.3     4.62        2,553     0.4    4.85
                                   ---------   -----             ---------  -----             ---------   -----
     Total.......................    324,773    59.6    3.15       312,301   60.1     3.32      295,742    62.4    5.96
                                   ---------   -----             ---------  -----             ---------   -----

Total deposits...................  $ 544,626   100.0%   2.27%    $ 519,905  100.0%    2.39%   $ 473,546   100.0%   4.44%
                                   =========   =====             =========  =====             =========   =====
---------------------------
                                                2000
                                    ---------------------------
                                                       WEIGHTED
                                                       AVERAGE
                                     AMOUNT   PERCENT   RATE
                                    --------  -------  --------
Transaction accounts and
  savings deposits:
   Savings and club accounts.....   $ 60,567    22.0%   2.00%
   Money market accounts.........     18,583     6.7    1.77
   NOW accounts..................     26,664     9.7    1.53
   Commercial checking...........         --      --      --
                                    --------   -----
     Total.......................    105,814    38.4    1.84
                                    --------   -----

Certificates of deposit maturing:
  Within one year................    158,085    57.3    5.23
  After one but within
    three years..................     10,653     3.9    5.69
  After three years..............      1,220     0.4    3.88
                                    --------   -----
     Total.......................    169,958    61.6    5.25
                                    --------   -----

Total deposits...................   $275,772  100.0%    3.94%
                                    ========  =====
62
The following table sets forth our deposit activity for the periods
indicated.
THREE MONTHS ENDED JUNE 30,           YEARS ENDED MARCH 31,
                                               ------------------------     -------------------------------------
                                                  2002          2001          2002          2001          2000
                                               ---------      ---------     ---------     ---------     ---------
                                                                     (DOLLARS IN THOUSANDS)
Balance at beginning of period.............    $ 519,905      $ 473,546     $   473,546   $   275,772   $   237,279
Deposits assumed in acquisition of Peekskill
  Financial Corporation....................           --             --            --       152,361            --
Deposits...................................      270,878        149,622       761,735       502,757       349,460
Withdrawals................................     (249,242)      (157,065)     (732,730)     (475,352)       (320,788)
Interest credited..........................        3,085          5,064        17,354        18,008         9,821
                                               ---------      ---------     ---------     ---------     ---------

Balance at end of period...................    $ 544,626      $ 471,167     $   519,905   $  473,546    $   275,772
                                               =========      =========     ===========   ==========    ===========

Net increase (decrease) during the period:
    Amount.................................    $  24,721      $  (2,379)    $  46,359     $ 197,774     $    38,493
    Percent................................         4.8%            (0.5)%        9.8%         71.7%         16.2%
The following table indicates the amount of our certificates of deposits
by time remaining until maturity as of June 30, 2002.
MATURITY
                                                      --------------------------------------------------------
                                                       3 MONTHS     OVER 3 TO 6     OVER 6 TO 12     OVER 12
                                                        OR LESS        MONTHS          MONTHS         MONTHS         TOTAL
                                                      -----------  -----------     -----------     -----------    -----------
                                                                                  (IN THOUSANDS)
Certificates   of  deposit  less  than $100,000...    $   100,592  $    53,415     $    64,464     $    42,827    $   261,298
Certificates of deposit of $100,000 or
 more (1).........................................         21,369       13,610          16,993          11,503         63,475
                                                      -----------  -----------     -----------     -----------    -----------

Total of certificates of deposit..................    $   121,961  $    67,025     $    81,457     $    54,330    $   324,773
                                                      ===========  ===========     ===========     ===========    ===========
-----------------
(1)   The weighted average interest rates for these accounts, by maturity
      period, are 2.86% for 3 months or less; 3.09% for 3 to 6 months; 3.07% for
      6 to 12 months; and 3.86% for over 12 months. The overall weighted average
      rate for accounts of $100,000 or more was 3.15%.

      BORROWED FUNDS. We utilize securities repurchase agreements with the
Federal Home Loan Bank of New York to fund loan originations and to provide cash
during periods of reduced deposits. We transfer U.S. Government and agency
securities and mortgage-backed securities and agree to repurchase the identical
securities from the Federal Home Loan Bank at a fixed price in the future. The
underlying securities are included in our securities portfolio.

      The following table sets forth certain information regarding our
borrowings from the Federal Home Loan Bank under securities repurchase
agreements at the dates and for the periods indicated:
AT OR FOR THE
                                                            THREE MONTHS ENDED                  AT OR FOR THE
                                                                 JUNE 30,                   YEARS ENDED MARCH 31,
                                                         -----------------------   -----------------------------------
                                                            2002         2001         2002         2001         2000
                                                         ----------   ----------   ----------   ----------   ---------
                                                                              (DOLLARS IN THOUSANDS)
Average principal balance outstanding.............     $   35,084   $   15,085   $   16,348   $   12,030   $      --
  Maximum principal balance outstanding at any month
    end during the period...........................         35,084       15,085       35,084       15,086          --
  Principal balance outstanding at end of period....         35,084       15,085       35,084       15,086          --
  Weighted average interest rate during the period..           4.17%        5.18%        4.17%        5.18%         --%
  Weighted average interest rate at end of period...           4.17%        5.18%        4.17%        5.18%         --%
63
The following table sets forth the maturity dates of our borrowings under
securities repurchase agreements at the dates indicated.
AT MARCH 31,
                                         ----------------------------------------------------------------------------
           AT JUNE 30, 2002                              2002                                   2001
---------------------------------------  -------------------------------------  -------------------------------------
   MATURITY DATE       AMORTIZED COST      MATURITY DATE      AMORTIZED COST      MATURITY DATE      AMORTIZED COST
-------------------  ------------------  -----------------  ------------------  -----------------  ------------------
                                               (DOLLARS IN THOUSANDS)
1/08(1)      $        9,883              1/08(1)     $        9,838             1/08(1)    $        9,685
        12/08(2)               5,000             12/08(2)              5,000            12/08(2)             4,927
         3/03                  7,000             03/03                 7,000             --                    --
         3/04                  7,000             03/04                 7,000             --                    --
         3/05                  6,000             03/05                 6,000             --                    --
-----------------
(1)   Callable on a quarterly basis beginning January 2003.
(2)   Callable on a quarterly basis beginning November 2001.

SUBSIDIARY ACTIVITIES

      Sound Federal Savings has three active subsidiaries, Sound REIT, Inc.,
First Federal REIT, Inc. and Mamaroneck Advisors. In April 1999, Sound REIT,
Inc. was incorporated as a special purpose real estate investment trust under
New York law. First Federal REIT was also formed as a real estate investment
trust by Peekskill Financial Corporation prior to our acquiring Peekskill
Financial Corporation. Sound REIT, Inc. and First Federal REIT hold a portion of
our mortgage-related assets.

      In February 2001, Mamaroneck Advisors was incorporated as a New York
corporation for the purpose of providing investment and insurance products to
Sound Federal Savings' customers. For the year ended March 31, 2002, Mamaroneck
Advisors had net income of $47,000. Mamaroneck Advisors did not have any
meaningful operations in fiscal 2001.

      OTS regulations permit federal savings associations to invest in the
capital stock, obligations or other specified types of securities of
subsidiaries (referred to as "service corporations") and to make loans to such
subsidiaries and joint ventures in which such subsidiaries are participants in
an aggregate amount not exceeding 2% of an association's assets, plus an
additional 1% of assets if the amount over 2% is used for specified community or
inner-city development purposes. In addition, federal regulations permit
associations to make specified types of loans to such subsidiaries (other than
special purpose finance subsidiaries) in which the association owns more than
10% of the stock, in an aggregate amount not exceeding 50% of the association's
regulatory capital if the association's regulatory capital is in compliance with
applicable regulations.

PERSONNEL

      As of June 30, 2002, Sound Federal Savings employed 92 persons on a
full-time basis and 25 persons on a part-time basis. None of Sound Federal
Savings' employees is represented by a collective bargaining group and
management considers employee relations to be good.

                                       64
PROPERTIES

      The following table provides certain information with respect to Sound
Federal Savings' offices at June 30, 2002.
LEASED OR OWNED,                                               NET BOOK VALUE
                                     LEASE EXPIRATION           YEAR             DEPOSITS PER             OF
            LOCATION                       DATE          ACQUIRED OR LEASED        LOCATION          REAL PROPERTY
--------------------------------    ------------------  ---------------------  ----------------  --------------------
                                                                                (IN THOUSANDS)      (IN THOUSANDS)
Main Office                               Owned                 1954                $97,162               $ 589
300 Mamaroneck Avenue
Mamaroneck, New York 10543

Branch Office                             Owned                 1961                 80,623                 960
389 Halstead Avenue
Harrison, New York 10528

Branch Office                             Owned                 1972                 96,913               1,299
115 South Ridge Street
Rye Brook, New York 10573

Branch Office                             Leased                1998                 26,563                 146(1)
180 South Main Street                    12/31/03
New City, New York 10956

Branch Office                             Leased                1998                 47,277                 310(1)
East Putnam Avenue                       11/30/08
Cos Cob, Connecticut 06807

Branch Office                             Owned                 2000                 75,125                 478
1019 Park Street
Peekskill, New York 10566

Branch Office                             Leased                2000                 52,918                  --
1961 Commerce Street                     12/31/02
Yorktown Heights, New York 10598

Branch Office                             Leased                2000                 48,592                 780(1)
Cortlandt Town Center                    10/14/17
Cortlandt, New York 10547

Branch Office                             Leased                2001                 19,365                  12(1)
88 Fourth Street                          2/8/09
New Rochelle, New York 10801

Branch Office(2)                          Leased                2002                     90                 388(1)
3 Somers Commons                         12/31/21
Baldwin Place, New York 10589
------------------
(1)   Net book value represents the amortized cost of leasehold improvements.
(2)   Opened in July 2002.

LEGAL PROCEEDINGS

      We are involved periodically in various claims and lawsuits that arise in
connection with our financial services business. We believe that these routine
legal proceedings, in the aggregate, are not material to our financial condition
and results of operations.

                                       65
SUPERVISION AND REGULATION

GENERAL

      Sound Federal Savings is examined and supervised by the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation. This regulation and
supervision establishes a comprehensive framework of activities in which an
institution may engage and is intended primarily for the protection of the
Federal Deposit Insurance Corporation's deposit insurance funds and depositors.
Under this system of federal regulation, financial institutions are periodically
examined to ensure that they satisfy applicable standards with respect to their
capital adequacy, assets, management, earnings, liquidity and sensitivity to
market interest rates. Following completion of its examination, the federal
agency critiques the institution's operations and assigns its rating (known as
an institution's CAMELS). Under federal law, an institution may not disclose its
CAMELS rating to the public. Sound Federal Savings also is a member of and owns
stock in The Federal Home Loan Bank of New York, which is one of the twelve
regional banks in the Federal Home Loan Bank System. Sound Federal Savings also
is regulated to a lesser extent by the Board of Governors of the Federal Reserve
System, governing reserves to be maintained against deposits and other matters.
The Office of Thrift Supervision examines Sound Federal Savings and prepares
reports for the consideration of its board of directors on any operating
deficiencies. Sound Federal Savings' relationship with its depositors and
borrowers also is regulated to a great extent by both federal and state laws,
especially in matters concerning the ownership of deposit accounts and the form
and content of Sound Federal Savings' loan documents.

      Any change in these laws or regulations, whether by the Federal Deposit
Insurance Corporation, Office of Thrift Supervision or Congress, could have a
material adverse impact on Sound Federal Bancorp and Sound Federal Savings and
their operations.

FEDERAL BANKING REGULATION

      BUSINESS ACTIVITIES. A federal savings bank derives its lending and
investment powers from the Home Owners' Loan Act, as amended, and the
regulations of the Office of Thrift Supervision. Under these laws and
regulations, Sound Federal Savings may invest in mortgage loans secured by
residential and commercial real estate, commercial business and consumer loans,
certain types of debt securities and certain other assets. Sound Federal Savings
also may establish subsidiaries that may engage in activities not otherwise
permissible for Sound Federal Savings, including real estate investment and
securities and insurance brokerage.

      CAPITAL REQUIREMENTS. Office of Thrift Supervision regulations require
savings banks to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 4% leverage ratio (3% for banks receiving the highest rating on the
CAMELS rating system) and an 8% risk-based capital ratio. The prompt corrective
action standards discussed below, in effect, establish a minimum 2% tangible
capital standard.

      The risk-based capital standard for savings banks requires the maintenance
of Tier 1 (core) and total capital (which is defined as core capital and
supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the Office of Thrift Supervision capital
regulation based on the risks believed inherent in the type of asset. Core
capital is defined as common stockholders' equity (including retained earnings),
certain noncumulative perpetual preferred stock and related surplus and minority
interests in equity accounts of consolidated subsidiaries, less intangibles
other than certain mortgage servicing rights and credit card relationships. The
components of supplementary capital currently include cumulative preferred
stock, long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock, the allowance for loan and
lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45%
of net unrealized gains on available-for-sale equity securities with readily
determinable fair market values. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.

      At June 30, 2002, Sound Federal Savings' capital exceeded all applicable
requirements.

                                       66
LOANS-TO-ONE BORROWER. A federal savings bank generally may not make a
loan or extend credit to a single or related group of borrowers in excess of 15%
of unimpaired capital and surplus on an unsecured basis. An additional amount
may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is
secured by readily marketable collateral, but generally does not include real
estate. As of June 30, 2002, Sound Federal Savings was in compliance with the
loans-to-one borrower limitations.

      QUALIFIED THRIFT LENDER TEST. As a federal savings bank, Sound Federal
Savings is subject to a qualified thrift lender, or "QTL," test. Under the QTL
test, Sound Federal Savings must maintain at least 65% of its "portfolio assets"
in "qualified thrift investments" in at least nine months of the most recent 12
month period. "Portfolio assets" generally means total assets of a savings
institution, less the sum of specified liquid assets up to 20% of total assets,
goodwill and other intangible assets, and the value of property used in the
conduct of the savings bank's business.

      "Qualified thrift investments" includes various types of loans made for
residential and housing purposes, investments related to such purposes,
including certain mortgage-backed and related securities, and loans for
personal, family, household and certain other purposes up to a limit of 20% of
portfolio assets. "Qualified thrift investments" also include 100% of an
institution's credit card loans, education loans and small business loans. Sound
Federal Savings also may satisfy the QTL test by qualifying as a "domestic
building and loan association" as defined in the Internal Revenue Code of 1986.

      A savings bank that fails the QTL test must either convert to a bank
charter or operate under specified restrictions. At June 30, 2002, Sound Federal
Savings maintained approximately 98.5% of its portfolio assets in qualified
thrift investments, and therefore satisfied the QTL test.

      CAPITAL DISTRIBUTIONS. Office of Thrift Supervision regulations govern
capital distributions by a federal savings bank, which include cash dividends,
stock repurchases and other transactions charged to the capital account. A
savings bank must file an application for approval of a capital distribution if:

      o     the total capital distributions for the applicable calendar year
            exceed the sum of the savings bank's net income for that year to
            date plus the savings bank's retained net income for the preceding
            two years;

      o     the bank would not be at least adequately capitalized following the
            distribution;

      o     the distribution would violate any applicable statute, regulation,
            agreement or Office of Thrift Supervision-imposed condition; or

      o     the savings bank is not eligible for expedited treatment of its
            filings.

      Even if an application is not otherwise required, every savings bank that
is a subsidiary of a holding company must still file a notice with the Office of
Thrift Supervision at least 30 days before the board of directors declares a
dividend or approves a capital distribution.

      The Office of Thrift Supervision may disapprove a notice or application
if:

      o     the savings bank would be undercapitalized following the
            distribution;

      o     the proposed capital distribution raises safety and soundness
            concerns; or

      o     the capital distribution would violate a prohibition contained in
            any statute, regulation or agreement.

      LIQUIDITY. A federal savings bank is required to maintain a sufficient
amount of liquid assets to ensure its safe and sound operation.

                                       67
COMMUNITY REINVESTMENT ACT AND FAIR LENDING LAWS. All savings banks have a
responsibility under the Community Reinvestment Act and related regulations of
the Office of Thrift Supervision to help meet the credit needs of their
communities, including low- and moderate-income neighborhoods. In connection
with its examination of a federal savings bank, the Office of Thrift Supervision
is required to assess the savings bank's record of compliance with the Community
Reinvestment Act. In addition, the Equal Credit Opportunity Act and the Fair
Housing Act prohibit lenders from discriminating in their lending practices on
the basis of characteristics specified in those statutes. A bank's failure to
comply with the provisions of the Community Reinvestment Act could, at a
minimum, result in regulatory restrictions on its activities. The failure to
comply with the Equal Credit Opportunity Act and the Fair Housing Act could
result in enforcement actions by the Office of Thrift Supervision, as well as
other federal regulatory agencies and the Department of Justice. Sound Federal
Savings received a "satisfactory" Community Reinvestment Act rating in its most
recent federal examination.

      TRANSACTIONS WITH RELATED PARTIES. A federal savings bank's authority to
engage in transactions with its "affiliates" is limited by Office of Thrift
Supervision regulations and by Sections 23A and 23B of the Federal Reserve Act
(the "FRA"). The term "affiliates" for these purposes generally means any
company that controls or is under common control with an institution. Sound
Federal Bancorp and its non-savings institution subsidiaries are affiliates of
Sound Federal Savings. In general, transactions with affiliates must be on terms
that are as favorable to the savings bank as comparable transactions with
non-affiliates. In addition, certain types of these transactions are restricted
to an aggregate percentage of the savings bank's capital. Collateral in
specified amounts must usually be provided by affiliates in order to receive
loans from the savings bank. In addition, Office of Thrift Supervision
regulations prohibit a savings bank from lending to any of its affiliates that
are engaged in activities that are not permissible for bank holding companies
and from purchasing the securities of any affiliate, other than a subsidiary.

      Sound Federal Savings' authority to extend credit to its directors,
executive officers and 10% shareholders, as well as to entities controlled by
such persons, is currently governed by the requirements of Sections 22(g) and
22(h) of the FRA and Regulation O of the Federal Reserve Board. Among other
things, these provisions require that extensions of credit to insiders (i) be
made on terms that are substantially the same as, and follow credit underwriting
procedures that are not less stringent than, those prevailing for comparable
transactions with unaffiliated persons and that do not involve more than the
normal risk of repayment or present other unfavorable features, and (ii) not
exceed certain limitations on the amount of credit extended to such persons,
individually and in the aggregate, which limits are based, in part, on the
amount of Sound Federal Savings' capital. In addition, extensions of credit in
excess of certain limits must be approved by Sound Federal Savings' board of
directors.

      ENFORCEMENT. The Office of Thrift Supervision has primary enforcement
responsibility over federal savings institutions and has the authority to bring
enforcement action against all "institution-affiliated parties," including
stockholders, and attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors of the institution, receivership, conservatorship or the termination
of deposit insurance. Civil penalties cover a wide range of violations and
actions, and range up to $25,000 per day, unless a finding of reckless disregard
is made, in which case penalties may be as high as $1 million per day. The
Federal Deposit Insurance Corporation also has the authority to recommend to the
Director of the Office of Thrift Supervision that enforcement action be taken
with respect to a particular savings institution. If action is not taken by the
Director, the Federal Deposit Insurance Corporation has authority to take action
under specified circumstances.

      STANDARDS FOR SAFETY AND SOUNDNESS. Federal law requires each federal
banking agency to prescribe certain standards for all insured depository
institutions. These standards relate to, among other things, internal controls,
information systems and audit systems, loan documentation, credit underwriting,
interest rate risk exposure, asset growth, compensation, and other operational
and managerial standards as the agency deems appropriate. The federal banking
agencies adopted Interagency Guidelines Prescribing Standards for Safety and
Soundness to implement the safety and soundness standards required under federal
law. The guidelines set forth the safety and soundness standards that the
federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. The guidelines address
internal controls and information systems, internal audit systems, credit
underwriting, loan documentation, interest rate risk exposure, asset growth,
compensation, fees and benefits. If the appropriate federal banking agency
determines that an institution fails to

                                       68
meet any standard prescribed by the guidelines, the agency may require the
institution to submit to the agency an acceptable plan to achieve compliance
with the standard. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan.

      PROMPT CORRECTIVE ACTION REGULATIONS. Under the prompt corrective action
regulations, the Office of Thrift Supervision is required and authorized to take
supervisory actions against undercapitalized savings banks. For this purpose, a
savings bank is placed in one of the following five categories based on the
bank's capital:

      o     well-capitalized (at least 5% leverage capital, 6% tier 1 risk-based
            capital and 10% total risk-based capital);

      o     adequately capitalized (at least 4% leverage capital, 4% tier 1
            risk-based capital and 8% total risk-based capital);

      o     undercapitalized (less than 8% total risk-based capital, 4% tier 1
            risk-based capital or 3% leverage capital);

      o     significantly undercapitalized (less than 6% total risk-based
            capital, 3% tier 1 risk-based capital or 3% leverage capital); and

      o     critically undercapitalized (less than 2% tangible capital).

      Generally, the banking regulator is required to appoint a receiver or
conservator for a bank that is "critically undercapitalized." The regulation
also provides that a capital restoration plan must be filed with the Office of
Thrift Supervision within 45 days of the date a bank receives notice that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." In addition, numerous mandatory supervisory actions become
immediately applicable to the bank, including, but not limited to, restrictions
on growth, investment activities, capital distributions and affiliate
transactions. The Office of Thrift Supervision may also take any one of a number
of discretionary supervisory actions against undercapitalized banks, including
the issuance of a capital directive and the replacement of senior executive
officers and directors.

      At June 30, 2002, Sound Federal Savings met the criteria for being
considered "well-capitalized."

      INSURANCE OF DEPOSIT ACCOUNTS. Deposit accounts in Sound Federal Savings
are insured by the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation, generally up to a maximum of $100,000 per separately
insured depositor. Sound Federal Savings' deposits therefore are subject to
Federal Deposit Insurance Corporation deposit insurance assessments. The Federal
Deposit Insurance Corporation has adopted a risk-based system for determining
deposit insurance assessments. The Federal Deposit Insurance Corporation is
authorized to raise the assessment rates as necessary to maintain the required
ratio of reserves to insured deposits of 1.25%. In addition, all Federal Deposit
Insurance Corporation-insured institutions must pay assessments to the Federal
Deposit Insurance Corporation at an annual rate of approximately .0212% of
insured deposits to fund interest payments on bonds maturing in 2017 issued by a
federal agency to recapitalize the predecessor to the Savings Association
Insurance Fund.

      PROHIBITIONS AGAINST TYING ARRANGEMENTS. Federal savings banks are
prohibited, subject to some exceptions, from extending credit to or offering any
other service, or fixing or varying the consideration for such extension of
credit or service, on the condition that the customer obtain some additional
service from the institution or its affiliates or not obtain services of a
competitor of the institution.

      FEDERAL HOME LOAN BANK SYSTEM. Sound Federal Savings is a member of the
Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan
Banks. The Federal Home Loan Bank System provides a central credit facility
primarily for member institutions. As a member of The Federal Home Loan Bank of
New York, Sound Federal Savings is required to acquire and hold shares of
capital stock in the Federal Home Loan Bank in an amount at least equal to 1% of
the aggregate principal amount of its unpaid residential mortgage loans and
similar obligations at the beginning of each year, or 1/20 of its borrowings
from the Federal Home Loan Bank, whichever is greater. As of June 30, 2002,
Sound Federal Savings was in compliance with this requirement.

                                       69
FEDERAL RESERVE SYSTEM

      Federal Reserve Board regulations require savings banks to maintain
non-interest-earning reserves against their transaction accounts, such as
negotiable order of withdrawal and regular checking accounts. At June 30, 2002,
Sound Federal Savings was in compliance with these reserve requirements. The
balances maintained to meet the reserve requirements imposed by the Federal
Reserve Board may be used to satisfy liquidity requirements imposed by the
Office of Thrift Supervision.

THE USA PATRIOT ACT

      In response to the events of September 11th, the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001, or the USA PATRIOT Act, was signed into law on October
26, 2001. The USA PATRIOT Act gives the federal government new powers to address
terrorist threats through enhanced domestic security measures, expanded
surveillance powers, increased information sharing, and broadened anti-money
laundering requirements. By way of amendments to the Bank Secrecy Act, Title III
of the USA PATRIOT Act takes measures intended to encourage information sharing
among bank regulatory agencies and law enforcement bodies. Further, certain
provisions of Title III impose affirmative obligations on a broad range of
financial institutions, including banks, thrifts, brokers, dealers, credit
unions, money transfer agents and parties registered under the Commodity
Exchange Act.

      Among other requirements, Title III of the USA PATRIOT Act imposes the
following requirements with respect to financial institutions:

      o     Pursuant to Section 352, all financial institutions must establish
            anti-money laundering programs that include, at minimum: (i)
            internal policies, procedures, and controls; (ii) specific
            designation of an anti-money laundering compliance officer; (iii)
            ongoing employee training programs; and (iv) an independent audit
            function to test the anti-money laundering program.

      o     Section 326 of the Act authorizes the Secretary of the Department of
            Treasury, in conjunction with other bank regulators, to issue
            regulations by October 26, 2002 that provide for minimum standards
            with respect to customer identification at the time new accounts are
            opened.

      o     Section 312 of the Act requires financial institutions that
            establish, maintain, administer, or manage private banking accounts
            or correspondence accounts in the United States for non-United
            States persons or their representatives (including foreign
            individuals visiting the United States) to establish appropriate,
            specific, and, where necessary, enhanced due diligence policies,
            procedures, and controls designed to detect and report money
            laundering.

      o     Effective December 25, 2001, financial institutions are prohibited
            from establishing, maintaining, administering or managing
            correspondent accounts for foreign shell banks (foreign banks that
            do not have a physical presence in any country), and will be subject
            to certain record keeping obligations with respect to correspondent
            accounts of foreign banks.

      o     Bank regulators are directed to consider a holding company's
            effectiveness in combating money laundering when ruling on Federal
            Reserve Act and Bank Merger Act applications.

      The federal banking agencies have begun to propose and implement
regulations pursuant to the USA PATRIOT Act. These proposed and interim
regulations would require financial institutions to adopt the policies and
procedures contemplated by the USA PATRIOT Act.

HOLDING COMPANY REGULATION

      Upon completion of the conversion, Sound Federal Bancorp will be a unitary
savings and loan holding company, subject to regulation and supervision by the
Office of Thrift Supervision. The Office of Thrift

                                       70
Supervision has enforcement authority over Sound Federal Bancorp and its
non-savings institution subsidiaries. Among other things, this authority permits
the Office of Thrift Supervision to restrict or prohibit activities that are
determined to be a risk to Sound Federal Savings.

      Under prior law, a unitary savings and loan holding company generally had
no regulatory restrictions on the types of business activities in which it may
engage, provided that its subsidiary savings bank was a qualified thrift lender.
The Gramm-Leach-Bliley Act of 1999, however, restricts unitary savings and loan
holding companies not existing or applied for before May 4, 1999 to those
activities permissible for financial holding companies or for multiple savings
and loan holding companies. Sound Federal Bancorp will not be a grandfathered
unitary savings and loan holding company and, therefore, will be limited to the
activities permissible for financial holding companies or for multiple savings
and loan holding companies. A financial holding company may engage in activities
that are financial in nature, including underwriting equity securities and
insurance, incidental to financial activities or complementary to a financial
activity. A multiple savings and loan holding company is generally limited to
activities permissible for bank holding companies under Section 4(c)(8) of the
Bank Holding Company Act, subject to the prior approval of the Office of Thrift
Supervision, and certain additional activities authorized by Office of Thrift
Supervision regulations.

      Federal law prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring control of
another savings institution or holding company thereof, without prior written
approval of the Office of Thrift Supervision. It also prohibits the acquisition
or retention of, with specified exceptions, more than 5% of the equity
securities of a company engaged in activities that are not closely related to
banking or financial in nature or acquiring or retaining control of an
institution that is not federally insured. In evaluating applications by holding
companies to acquire savings institutions, the Office of Thrift Supervision must
consider the financial and managerial resources, future prospects of the savings
institution involved, the effect of the acquisition on the risk to the insurance
fund, the convenience and needs of the community and competitive factors.

SARBANES-OXLEY ACT OF 2002

      On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of
2002 (the "Sarbanes-Oxley Act"). The Sarbanes-Oxley Act represents a
comprehensive revision of laws affecting corporate governance, accounting
obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all
companies with equity or debt securities registered under the Securities
Exchange Act of 1934. In particular, the Sarbanes-Oxley Act establishes: (i) new
requirements for audit committees, including independence, expertise, and
responsibilities; (ii) additional responsibilities regarding financial
statements for the Chief Executive Officer and Chief Financial Officer of the
reporting company; (iii) new standards for auditors and regulation of audits;
(iv) increased disclosure and reporting obligations for the reporting company
and their directors and executive officers; and (v) new and increased civil and
criminal penalties for violation of the securities laws. Many of the provisions
became effective immediately while other provisions become effective over a
period of 30 to 270 days and are subject to rulemaking by the Securities and
Exchange Commission. Although we anticipate that we will incur additional
expense in complying with the provisions of the Sarbanes-Oxley Act and the
resulting regulations, management does not expect that such compliance will have
a material impact on our results of operations or financial condition.

FEDERAL SECURITIES LAWS

      Sound Federal Bancorp has filed with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933 for the
registration of the common stock to be issued pursuant to the conversion. Upon
completion of the conversion, Sound Federal Bancorp common stock will continue
to be registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934. Sound Federal Bancorp will continue to be
subject to the information, proxy solicitation, insider trading restrictions and
other requirements under the Securities Exchange Act of 1934.

      The registration under the Securities Act of 1933 of shares of common
stock to be issued in the conversion does not cover the resale of those shares.
Shares of common stock purchased by persons who are not affiliates of Sound
Federal Bancorp may be resold without registration. Shares purchased by an
affiliate of Sound Federal Bancorp will be subject to the resale restrictions of
Rule 144 under the Securities Act of 1933. If Sound Federal

                                       71
Bancorp meets the current public information requirements of Rule 144 under the
Securities Act of 1933, each affiliate of Sound Federal Bancorp that complies
with the other conditions of Rule 144, including those that require the
affiliate's sale to be aggregated with those of other persons, would be able to
sell in the public market, without registration, a number of shares not to
exceed, in any three-month period, the greater of 1% of the outstanding shares
of Sound Federal Bancorp, or the average weekly volume of trading in the shares
during the preceding four calendar weeks. In the future, Sound Federal Bancorp
may permit affiliates to have their shares registered for sale under the
Securities Act of 1933.

                                    TAXATION

FEDERAL TAXATION

      GENERAL. Sound Federal Bancorp and Sound Federal Savings are subject to
federal income taxation in the same general manner as other corporations, with
some exceptions discussed below. The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax matters and is
not a comprehensive description of the tax rules applicable to Sound Federal
Bancorp and Sound Federal Savings.

      METHOD OF ACCOUNTING. For federal income tax purposes, Sound Federal
Savings currently reports its income and expenses on the accrual method of
accounting and uses a tax year ending December 31 for filing its federal income
tax returns as part of the Sound Federal Bancorp consolidated group. The Small
Business Job Protection Act of 1996 eliminated the use of the reserve method of
accounting for bad debt reserves by savings institutions, effective for taxable
years beginning after December 31, 1995.

      BAD DEBT RESERVES. Prior to the Small Business Job Protection Act of 1996,
Sound Federal Savings was permitted to establish a reserve for bad debts and to
make annual additions to the reserve. These additions could, within specified
formula limits, be deducted in arriving at Sound Federal Savings' taxable
income. As a result of the Act, Sound Federal Savings must use the specific
charge off method in computing its bad debt deduction. In addition, the federal
legislation requires the recapture (over a six-year period) of the excess of tax
bad debt reserves at December 31, 1995 over those established as of December 31,
1987. The amount of such reserve subject to recapture as of June 30, 2002, was
approximately $464,000.

      TAXABLE DISTRIBUTIONS AND RECAPTURE. Prior to the Small Business
Protection Job Act of 1996, bad debt reserves created prior to January 1, 1988
were subject to recapture into taxable income should Sound Federal Savings fail
to meet certain thrift asset and definitional tests. New federal legislation
eliminated these thrift related recapture rules. However, under current law,
pre-1988 reserves remain subject to recapture should Sound Federal Savings make
certain nondividend distributions, redeem its shares, liquidate or cease to
maintain a bank charter. At June 30, 2002, Sound Federal Savings' total federal
pre-1988 reserve was approximately $9.0 million. This reserve reflects the
cumulative effects of federal tax deductions by Sound Federal Savings for which
no federal income tax provision has been made.

      MINIMUM TAX. The Code imposes an alternative minimum tax ("AMT") at a rate
of 20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable to the
extent such AMTI is in excess of an exemption amount. Certain payments of
alternative minimum tax may be used as credits against regular tax liabilities
in future years. Sound Federal Savings has not been subject to the alternative
minimum tax and has no such amounts available as credits for carryover.

      NET OPERATING LOSS CARRYOVERS. A financial institution may carry back net
operating losses to the preceding five taxable years (for losses incurred in
2001 and 2002) and forward to the succeeding 20 taxable years. At March 31,
2002, Sound Federal Savings had no net operating loss carryforwards for federal
income tax purposes.

                                       72
STATE TAXATION

      NEW YORK STATE TAXATION. Sound Federal Bancorp and Sound Federal Savings
report income on a consolidated calendar year basis to New York State. New York
State franchise tax on corporations is imposed in an amount equal to the greater
of (a) 8.0% (for 2002) and 7.5% (for 2003 and forward) of "entire net income"
allocable to New York State, (b) 3% of "alternative entire net income" allocable
to New York State, (c) 0.01% of the average value of assets allocable to New
York State, or (d) nominal minimum tax. Entire net income is based on Federal
taxable income, subject to certain modifications. Alternative entire net income
is equal to entire net income without certain modifications.

                       MANAGEMENT OF SOUND FEDERAL BANCORP

DIRECTORS

      The Board of Directors of Sound Federal Bancorp currently consists of
eight members. Approximately one-third of the directors are elected annually.
Directors are generally elected to serve for three-year periods.

      The table below sets forth certain information regarding the composition
of the Board of Directors of Sound Federal Bancorp as of November __, 2002
including the terms of office of Board members.
CURRENT TERM TO
         NAMES              AGE               POSITIONS HELD       DIRECTOR SINCE (1)       EXPIRE
         -----              ---               --------------       -----------------        ------
Bruno J. Gioffre            68            Chairman of the Board           1975               2005
Richard P. McStravick       54               President, Chief             1996               2005
                                          Executive Officer and
                                                 Director
Joseph Dinolfo              68                   Director                 1985               2004
Donald H. Heithaus          68                   Director                 1978               2003
Joseph A. Lanza             55                   Director                 1998               2003
Eldorus Maynard             67                   Director                 2000               2004
James Staudt                50                   Director                 1987               2005
Samuel T. Telerico          66                   Director                 2001               2004
--------------------------------
(1)   Reflects initial appointment to the Board of Directors of Sound Federal
      Bancorp or Sound Federal Savings and its predecessor.

      The principal occupation during the past five years of each director and
executive officer of Sound Federal Bancorp is set forth below. All directors and
executive officers have held their present positions for at least five years
unless otherwise stated.

      DIRECTORS

      BRUNO J. GIOFFRE is the Chairman of the Board of Directors and has been so
since December 1997. Mr. Gioffre was formerly general counsel to Sound Federal
Savings. Mr. Gioffre is of counsel to the law firm of Gioffre & Gioffre,
Professional Corporation and is a retired Senior Justice for the Town of Rye,
New York.

      RICHARD P. MCSTRAVICK is President and Chief Executive Officer of Sound
Federal Savings. Mr. McStravick has been employed by Sound Federal Savings in
various capacities since 1977. Mr. McStravick was appointed to the Board of
Directors in 1996.

      JOSEPH DINOLFO is the retired President of the Dinolfo Wilson Agency, Inc.
an insurance agency.

      DONALD H. HEITHAUS is the President of the Happiness Laundry Service, Inc.

      JOSEPH A. LANZA is the President of Lanza Electric, a private electrical
contractor.

      ELDORUS MAYNARD is the retired Chairman of the Board and Chief Executive
Officer of Peekskill Financial Corporation. Mr. Maynard was employed by
Peekskill Financial Corporation since 1958 and became a member of Sound Federal
Bancorp's Board of Directors in July 2000.

                                       73
JAMES STAUDT is a partner with the law firm of McCullough, Goldberger &
Staudt. Mr. Staudt is also general counsel to Sound Federal Savings.

      SAMUEL T. TELERICO is a principal with Teledan Enterprises International,
an international trade and consulting firm. Mr. Telerico was previously employed
by American Can Company from 1960 until 1990.

EXECUTIVE OFFICER WHO IS NOT A DIRECTOR

      ANTHONY J. FABIANO is Senior Vice President, Chief Financial Officer and
Corporate Secretary of Sound Federal Bancorp. He joined Sound Federal Savings in
July 1998. Prior to joining Sound Federal Savings, he was the Chief Financial
Officer at MSB Bancorp, Inc.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

      The business of Sound Federal Bancorp's Board of Directors is conducted
through meetings and activities of the Board and its committees. During the
fiscal year ended March 31, 2002, the Board of Directors of Sound Federal
Bancorp held 13 regular and special meetings. During the year ended March 31,
2002, no director attended fewer than 75 percent of the total meetings of the
Board of Directors of Sound Federal Bancorp or Sound Federal Savings and
committees on which such director served.

      The Compensation Committee meets periodically to review the performance of
officers and employees and determine compensation programs and adjustments. It
is comprised of Directors Gioffre, Staudt, Heithaus, and Dinolfo. The
Compensation Committee met once during the year ended March 31, 2002.

      The Board of Directors serves as the Nominating Committee. During the year
ended March 31, 2002, one meeting of the Nominating Committee was held.

      The Audit Committee consists of Directors Heithaus, Maynard and Telerico.
This committee meets on a quarterly basis and as otherwise required to review
audit programs and reports as well as other regulatory compliance issues. The
Audit Committee recommends to the Board of Directors the appointment of
independent auditors for the upcoming fiscal year. The Audit Committee met five
times during the year ended March 31, 2002.

BENEFITS

      DIRECTORS DEFERRED FEE PLAN. The Directors Deferred Fee Plan is a
non-qualified deferred compensation plan into which directors can defer up to
100% of their board fees earned during the calendar year. All amounts deferred
by a director are fully vested at all times. Amounts credited to a deferred fee
account are assumed to be invested, without charge, at a 6% interest rate. Upon
cessation of a director's service with Sound Federal Savings, Sound Federal
Savings will pay the director the amounts credited to the director's deferred
fee account. The amounts will be paid in substantially equal annual
installments, as selected by the director. The date of the first installment
payment also will be selected by the director. The Directors' Plan permits each
director to determine whether to invest all or a portion of such Director's
account in common stock of Sound Federal Bancorp. If a director elects to invest
all or a portion of his or her account in common stock, the amount so invested
will be credited with earnings and appreciation (or depreciation) equivalent to
that which would be earned on such investment and the amount not invested in
common stock will continue to earn interest at a 6% interest rate.

      If the director dies before all payments have been made, the remaining
payments will be made to the beneficiary designated by the director in the same
form that payments were made to the director. If a director dies before
receiving any payments, Sound Federal Savings shall pay the director's account
to the director's beneficiary, commencing within 30 days of the director's
death, over the period initially elected by the director. At the request of the
beneficiary, and with the approval of the Board, the director's benefits may be
paid to the beneficiary in a lump sum. The director may request a hardship
distribution of all or part of his or her benefits if the director suffers an
unforeseeable emergency, defined as a severe financial hardship to the director
resulting from a sudden and unexpected illness or accident of the director or
his or her dependent, loss of the director's property due to casualty,

                                       74
or other similar extraordinary and unforeseeable circumstances arising as a
result of events beyond the director's control.

      EXECUTIVE AGREEMENTS. Sound Federal Savings has employment agreements with
Messrs. McStravick and Fabiano. The agreements with Messrs. McStravick and
Fabiano have a term of three years and may be extended for an additional 12
months on each anniversary date so that the remaining term shall be 36 months.
If the agreement is not renewed, the agreement will expire 36 months following
the anniversary date. Under the agreements, the base salaries for Messrs.
McStravick and Fabiano are $178,000 and $148,000, respectively. In addition to
the base salary, each agreement provides for, among other things, participation
in retirement plans, stock option plans and other employee and fringe benefits
applicable to other employees. The agreements provide for termination by Sound
Federal Savings for cause at any time, in which event, the executive would have
no right to receive compensation or other benefits for any period after
termination. In the event Sound Federal Savings terminates the executive's
employment for reasons other than disability or for cause, or in the event of
the executive's termination of employment for good reason upon (i) failure by
Sound Federal Savings to comply with any material provision of the agreement,
which failure has not been cured within 10 days after a notice of noncompliance
is issued by the executive, (ii) following a change in control (as defined) at
any time during the term of the agreement, or (iii) any purported termination of
the executive's employment which is not pursuant to a valid notice of
termination, the executive would be entitled to severance pay in an amount equal
to three times the average annual compensation (computed on the basis of the
most recent five (5) taxable years) includable in gross income for federal
income tax purposes. Messrs. McStravick and Fabiano would receive an aggregate
of approximately $486,000 and $383,000, respectively, pursuant to their
employment agreements upon a change in control of Sound Federal Savings, based
upon current levels of compensation. Sound Federal Savings would also continue,
at Sound Federal Savings' expense, the executive's life, health, dental and
other applicable benefit plan coverage until the executive attains the age of 70
years, provided, however, that Sound Federal Savings' obligation terminates if
the executive receives equivalent medical or dental coverage from a new
employer. The executive is entitled to participate in Sound Federal Savings'
medical, dental and life insurance coverage and reimbursement plans to the
extent that such plans exist, until the executive's death. Under each agreement,
if the executive becomes disabled or incapacitated to the extent that the
executive is unable to perform his duties, he will be entitled to 100% of his
compensation for the first six months, and 60% thereafter for the remaining term
of the agreement. Any disability payment is reduced to the extent benefits are
received under disability insurance, workers' compensation or other similar
program.

      In November 2001, Sound Federal Bancorp entered into employment agreements
with Messrs. McStravick and Fabiano. Sound Federal Bancorp's employment
agreements with each executive contain substantially similar provisions to Sound
Federal Savings' employment agreements, except that Sound Federal Bancorp's
employment agreements provide each executive indemnification against any excise
taxes which may be owed by the executive for any payments made in connection
with a change in control which would constitute "excess parachute payments"
under Section 280G of the Internal Revenue Code. The indemnification payment
would be the amount necessary to ensure that the amount of such payments and the
value of such benefits received by the executive equal to the amount of such
payments and the value of such benefits as the executive would receive in the
absence of such excise tax, including any federal, state and local taxes on
Sound Federal Bancorp's payment to the executive attributable to such taxes. The
agreements with Sound Federal Bancorp do not provide for additional compensation
to either executive.

      DIRECTOR EMERITUS PLAN. The Director Emeritus Plan is a non-qualified
retirement plan. Under the Director Emeritus Plan, any director who attains the
age of 70 years after the completion of 15 years of service as a director
qualifies for director emeritus status. A director who has completed five years
of service as a director qualifies for director emeritus status if termination
of service is due to the merger, consolidation, takeover or dissolution of Sound
Federal Savings. Under the Director Emeritus Plan, a director emeritus is
entitled to the same compensation that the Director received when he or she
retired as a director, without the obligation of attendance at meetings of the
Board of Directors. Compensation is paid to the director emeritus from the date
of attainment of such status until age eighty-five, or for fifteen years or
death whichever comes first.

      DEFINED BENEFIT PENSION PLAN. Sound Federal Savings maintains two defined
benefit pension plans, one of which was assumed at the time Sound Federal
Bancorp completed the acquisition of Peekskill Financial Corporation. Employees
age 21 or older who have worked at Sound Federal Savings for a period of one
year and

                                       75
have been credited with 1,000 or more hours of service with Sound Federal
Savings during the year are eligible to accrue benefits under these retirement
plans. Sound Federal Savings contributes each year, if necessary, an amount to
the Retirement Plans to satisfy the actuarially determined minimum funding
requirements in accordance with the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). For the year ended March 31, 2002, Sound Federal
Savings made contributions to the retirement plans of approximately $401,000. At
March 31, 2002, the total market value of the assets in the retirement plans
trust funds was approximately $6.8 million.

      In the event of retirement on or after the normal retirement date (i.e.,
the first day of the calendar month coincident with or next following the later
of age 65 or the 5th anniversary of participation in the retirement plans, or,
for a participant prior to January 1, 1992, age 65), the plans are designed to
provide a single life annuity. For a married participant, the normal form of
benefit is an actuarially reduced joint and survivor annuity where, upon the
participant's death, the participant's spouse is entitled to receive a benefit
equal to 50% of that paid during the participant's lifetime. Alternatively, a
participant may elect (with proper spousal consent, if necessary) from various
other options, including a joint and 100% survivor annuity, joint and 66-2/3%
survivor annuity, joint and 50% survivor annuity, years certain option and
social security option. The normal retirement benefit provided is an amount
equal to the difference between 4% of final earnings (as defined in the plan)
and 0.65% of the final average compensation (average earnings during the last
three (3) calendar years of service) up to the Social Security taxable wage
base, multiplied by the participant's years of credited service (up to a maximum
of 15 years). Retirement benefits are also payable upon retirement due to early
and late retirement or death. A reduced benefit is payable upon early retirement
at age 55 and the completion of 5 years of vested service with Sound Federal
Savings. Fifty percent of the normal retirement benefit will be paid to a
surviving spouse if the participant dies while in active service and has
attained age 50 with 10 years of vested service. The preretirement death benefit
is reduced by 1.96% for each year the spouse is more than 10 years younger than
the participant. If the participant has not attained age 50 with 10 years of
service, but has completed 5 years of service, the spouse will be eligible for a
reduced benefit payable as a joint and 50% annuity. Upon termination of
employment other than as specified above, a participant who has five years of
vested service is eligible to receive his or her accrued benefit commencing,
generally, on the employee's normal retirement date, or, if elected, on or after
reaching age 55.

      The following table indicates the annual retirement benefit that would be
payable under the retirement plans upon retirement at age 65 in calendar year
2001, expressed in the form of a single life annuity for the final average
salary and benefit service classifications specified below.

                            YEARS OF SERVICE AND BENEFIT PAYABLE AT RETIREMENT
        FINAL AVERAGE      ----------------------------------------------------
        COMPENSATION           15           20           25             30
        ------------       ---------    ----------   ----------     ----------

         $  50,000         $ 26,372     $ 26,372     $ 26,372       $ 26,372
         $  75,000         $ 41,372     $ 41,372     $ 41,372       $ 41,372
         $ 100,000         $ 56,372     $ 56,372     $ 56,372       $ 56,372
         $ 125,000         $ 71,372     $ 71,372     $ 71,372       $ 71,372
         $ 150,000         $ 86,372     $ 86,372     $ 86,372       $ 86,372
         $ 170,000         $ 98,372     $ 98,372     $ 98,372       $ 98,372

      As of March 31, 2002, Mr. McStravick and Mr. Fabiano had 24 years and four
years, respectively, of credited service (I.E., benefit service) under the
retirement plans.

      401(K) PLAN. Sound Federal Savings maintains the Sound Federal Savings and
Loan Association 401(k) Savings Plan in RSI Retirement Trust which is a
qualified, tax-exempt profit sharing plan with a salary deferral feature under
Section 401(k) of the Internal Revenue Code. Employees who have attained age 21
and have completed one year of employment and have been credited with 1,000 or
more hours of service during the year are eligible to participate, provided,
however, that leased employees, employees paid on an hourly or contract basis,
employees covered by a collective bargaining agreement and owner employees (as
defined in the plan) are not eligible to participate. Eligible employees are
entitled to enter the 401(k) Plan on a monthly basis.

      Under the 401(k) Plan, participants are permitted to make salary reduction
contributions (in whole percentages) equal to the lesser of (i) from 1% to 10%
of compensation or (ii) $10,000 for 2001 (as indexed

                                       76
annually). For these purposes, "compensation" includes wages, salary, fees and
other amounts received for personal services prior to reduction for the
participant contribution to the 401(k) plan, commissions, compensation based on
profits, overtime, bonuses, wage continuation payments due to illness or
disability of a short-term nature, amounts paid or reimbursed for moving
expenses, and the value of any nonqualified stock option granted to the extent
includable in gross income for the year granted. Compensation does not include
contributions made by Sound Federal Savings to any other pension, deferred
compensation, welfare or other employee benefit plan, amounts realized from the
exercise of a nonqualified stock option or the sale of a qualified stock option,
and other amounts which received special tax benefits. Compensation does not
include compensation in excess of Internal Revenue Code Section 401(a)(17)
limits (i.e., $200,000 in 2002). Prior to January 1, 1999, Sound Federal Savings
matched 50% of the first 10% of salary that a participant contributes to the
401(k) Plan. Sound Federal Savings ceased matching contributions on February 1,
1999. All contributions and earnings are fully and immediately vested. A
participant may withdraw salary reduction contributions, rollover contributions
and matching contributions in the event the participant suffers a financial
hardship. A participant may make a withdrawal from his accounts for any reason
after age 59 1/2.

      The 401(k) Plan permits employees to direct the investment of his or her
own accounts into various investment options including an "Employer Stock Fund."
Participants are entitled to direct the trustee as to how to vote his or her
allocable shares of common stock in the Employer Stock Fund.

      Plan benefits will be paid to each participant in the form of a single
cash payment at normal retirement age unless earlier payment is selected. If a
participant dies prior to receipt of the entire value of his or her 401(k) Plan
accounts, payment will generally be made to the beneficiary in a single cash
payment as soon as possible following the participant's death. Payment will be
deferred if the participant had previously elected a later payment date. If the
beneficiary is not the participant's spouse, payment will be made within one
year of the date of death. If the spouse is the designated beneficiary, payment
will be made no later than the date the participant would have attained age 70
1/2. Normal retirement age under the 401(k) Plan is age 65. Early retirement age
is age 55.

      At March 31, 2002, the total market value of the assets in the 401(k) Plan
was approximately $1.9 million.

      STOCK OPTION PLAN. During the year ended March 31, 2000, Sound Federal
Bancorp adopted, and Sound Federal Bancorp's stockholders approved, the 1999
Stock Option Plan. Pursuant to the stock option plan, options to purchase 94,500
shares were granted to non-employee directors (including two directors emeriti)
at an exercise price of $9.125 per share, the fair market value of the
underlying shares on the date of the award. The term of the options is ten years
from the date of grant, and the shares subject to awards will be adjusted in the
event of any merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, combination or exchange of shares or other change in the
corporate structure of Sound Federal Bancorp. The awards included an equal
number of reload options, limited stock appreciation rights and dividend
equivalent rights. A limited right gives the option holder the right, upon a
change in control of Sound Federal Bancorp or Sound Federal Savings, to receive
the excess of the market value of the shares represented by the limited rights
on the date exercised over the exercise price. The limited rights are subject to
the same terms and conditions as the stock options. Payment upon exercise of
limited rights will be in cash, or in the event of a merger transaction, for
shares of the acquiring corporation or its parent, as applicable. The dividend
equivalent rights entitle the option holder to receive an amount of cash at the
time that certain extraordinary dividends are declared equal to the amount of
the extraordinary dividend multiplied by the number of options that the person
holds. For these purposes, an extraordinary dividend is defined as any dividend
where the rate of dividend exceeds Sound Federal Savings' weighted average cost
of funds on interest-bearing liabilities for the current and preceding three
quarters. The reload options entitle the option holder, who has delivered shares
that he or she owns as payment of the exercise price for option stock, to a new
option to acquire additional shares equal in amount to the shares he or she has
traded in. Reload options may also be granted to replace option shares retained
by the employer for payment of the option holder's withholding tax. The option
price at which additional shares of stock can be purchased by the option holder
through the exercise of a reload option is equal to the market value of the
previously owned stock at the time it was surrendered. The option period during
which the reload option may be exercised expires at the same time as that of the
original option that the holder has exercised.

                                       77
Set forth below is certain information concerning options outstanding to
the Named Executive Officers at March 31, 2002. No options were granted to the
Named Executive Officers during fiscal year 2002. No options were exercised by
the Named Executive Officers during fiscal year 2002.
====================================================================================================================
                                               FISCAL YEAR-END OPTION VALUES
====================================================================================================================
                                                                                            VALUE OF UNEXERCISED
                                                                  NUMBER OF UNEXERCISED     IN-THE-MONEY OPTIONS AT
                                                                   OPTIONS AT YEAR-END           YEAR-END (1)
                                                                ------------------------- --------------------------
                             SHARES ACQUIRED       VALUE             EXERCISABLE/              EXERCISABLE/
           NAME               UPON EXERCISE       REALIZED         UNEXERCISABLE (#)          UNEXERCISABLE ($)
---------------------------- ---------------- ----------------- ------------------------- --------------------------
Richard P. McStravick              --                $--             27,600/18,400            $171,810/$114,540
---------------------------- ---------------- ----------------- ------------------------- --------------------------

Anthony J.  Fabiano                --                $--             24,000/16,000            $149,400/$99,600
============================ ================ ================= ========================= ==========================
(1)   Based on a market value of $15.35 per share at March 31, 2002 and an
      exercise price of $9.125.

      RECOGNITION AND RETENTION PLAN. During the fiscal year ended March 31,
2000 Sound Federal Bancorp adopted, and Sound Federal Bancorp's stockholders
approved, the 1999 Recognition and Retention Plan. Pursuant to the recognition
plan, 5,268 shares of stock were awarded to each non-employee director, except
for Messrs. Maynard and Telerico who did not receive awards, and 21,000 and
14,000 shares were awarded to Mr. McStravick and Mr. Fabiano, respectively.

      EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. Sound Federal Savings established
an employee stock ownership plan for eligible employees, effective January 1,
1998. Employees age 21 or older who have worked at Sound Federal Savings for a
period of one year and have been credited with 1,000 or more hours of service
during the year are eligible to participate. The employee stock ownership plan
borrowed funds from Sound Federal Bancorp and used those funds to purchase
192,129 shares of Sound Federal Bancorp common stock. The loan is collateralized
by the common stock purchased by the employee stock ownership plan. Sound
Federal Savings will contribute to the employee stock ownership plan sufficient
funds to pay the principal and interest on the loan over ten years. The loan
bears interest at a floating rate equal to the prime interest rate published in
the Wall Street Journal. Shares purchased by the employee stock ownership plan
are held in a suspense account for allocation among participants as the loan is
repaid.

      Shares are released from the suspense account in an amount proportional to
the repayment of the employee stock ownership plan loan and are allocated among
employee stock ownership plan participants on the basis of compensation in the
year of allocation. Participants in the employee stock ownership plan received
credit for service prior to the effective date of the employee stock ownership
plan. A participant vests in 100% of his or her account balance after 5 years of
credited service. A participant who terminates employment for reasons other than
death, retirement, disability or following a change in control prior to five
years of credited service will forfeit the nonvested portion of his or her
benefits under the employee stock ownership plan. Benefits are payable in the
form of common stock and cash upon death, retirement, disability or separation
from service. Alternatively, a participant may request that the benefits be paid
entirely in the form of common stock. Sound Federal Bancorp recognized an
expense of $246,000 to the employee stock ownership plan in fiscal year 2002 and
allocated 19,213 shares of common stock to participants.

      In connection with the establishment of the employee stock ownership plan,
Sound Federal Savings established a committee of non-employee directors to
administer the employee stock ownership plan and appointed an independent
financial institution to serve as trustee of the employee stock ownership plan.
The employee stock ownership plan committee may instruct the trustee regarding
investment of funds contributed to the employee stock ownership plan. The
employee stock ownership plan trustee, subject to its fiduciary duty, must vote
all allocated shares held in the employee stock ownership plan in accordance
with the instructions of participating employees provided such action does not
violate ERISA standards. Under the employee stock ownership plan, nondirected
shares, and shares held in the suspense account, will be voted in a manner
calculated to most accurately reflect the instructions it has received from
participants regarding the allocated stock so long as such vote is in accordance
with the provisions of ERISA.

                                       78
COMPENSATION OF DIRECTORS

      Directors of Sound Federal Bancorp receive an annual retainer of $500,
except for the Chairman of the Board who receives $1,000. Directors of Sound
Federal Savings receive $1,500 for each meeting attended, except for the
Chairman of the Board who receives $3,000.

EXECUTIVE COMPENSATION

      The following table sets forth information as to annual and other
compensation for services in all capacities for executive officers who earned
more than $100,000 in salary and bonuses during the fiscal year ended March 31,
2002.
==============================================================================================================================

                                                      SUMMARY COMPENSATION TABLE
==============================================================================================================================

                                ANNUAL COMPENSATION                                         LONG-TERM
                                                                                       COMPENSATION AWARDS
------------------------- ---------- ------------ ---------- -------------- --------------- --------- --------

                                OTHER RESTRICTED
                                                                ANNUAL          STOCK       OPTIONS              ALL OTHER
        NAME AND          FISCAL       SALARY       BONUS    COMPENSATION      AWARD(S)      /SARS              COMPENSATION
   PRINCIPAL POSITION       YEAR         ($)         ($)        ($) (1)         ($)(3)       (#)(4)   PAYOUTS     ($) (2)
------------------------- ---------- ------------ ---------- -------------- --------------- --------- -------- ---------------
Richard P. McStravick       2002       171,875     12,000      18,500            --           --        --         3,800
President and Chief         2001       155,690      9,000      18,675            --           --        --         3,718
Executive Officer           2000       143,259      8,408      21,900          191,625       46,000     --         3,718

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

Anthony J. Fabiano          2002       124,500      9,000         --             --           --        --          --
Vice President and          2001       106,167      7,800         --             --           --        --          --
Chief Financial Officer     2000       96,250       5,741         --           127,750       40,000     --          --
========================= ========== ============ ========== ============== =============== ========= ======== ===============
(1)   Represents director's fees for service on Sound Federal Bancorp's and
      Sound Federal Savings' Board of Directors.
(2)   Consists of the use of Sound Federal Savings' automobile.
(3)   Amount reflects dollar value of award of 21,000 shares and 14,000 shares
      of restricted stock granted to Messrs. McStravick and Fabiano,
      respectively. The dollar value per share of such award on the date of
      grant was $9.125.
(4)   On October 20, 1999, pursuant to the Sound Federal Bancorp 1999 Stock
      Option Plan, Sound Federal Bancorp granted these options to purchase
      shares of common stock of Sound Federal Bancorp at an exercise price of
      $9.125, the market value per share on the date of the grant.

TRANSACTIONS WITH CERTAIN RELATED PERSONS

      Sound Federal Savings offers to directors, officers, and employees loans
which are made to such persons in the ordinary course of business on
substantially the same terms (other than interest rate), including collateral,
as those prevailing at the time for comparable transactions with other persons,
and which do not involve more than the normal risk of collectibility or present
other unfavorable features. All such loans were performing in accordance with
their terms as of the date of this proxy statement. Federal regulations permit
executive officers and directors to participate in loan programs that are
available to other employees, so long as the director or executive officer is
not given preferential treatment compared to other participating employees. The
interest rate on loans to directors and officers is the same as that offered to
Sound Federal Savings' other employees.

      Loans made to directors and named executives of Sound Federal Bancorp
amounted to $1.5 million at May 31, 2002, with the largest amount of
indebtedness during the past fiscal year amounting to $1.5 million.

      Bruno J. Gioffre, in addition to his duties as Chairman of the Board of
Sound Federal Bancorp, is counsel to the law firm of Gioffre & Gioffre,
Professional Corporation which represents Sound Federal Savings in mortgage loan
transactions. Prior to January 1, 1999, Mr. Gioffre also acted as general
counsel to Sound Federal Savings. For the year ended March 31, 2002, Sound
Federal Savings paid Gioffre & Gioffre, Professional Corporation fees of

                                       79
$179,000. The terms and conditions of these fees and services are substantially
the same as those for similar transactions with other parties.

      James Staudt, in addition to his duties as a Director of Sound Federal
Bancorp, is a partner in the law firm of McCullough, Goldberger & Staudt which
also represents Sound Federal Savings in mortgage loan transactions. Effective
January 1, 1999, Mr. Staudt is also general counsel to Sound Federal Bancorp.
For the year ended March 31, 2002, Sound Federal Savings paid McCullough,
Goldberger & Staudt fees of $62,000 and paid Mr. Staudt legal fees of $25,000
for his services as general counsel.

BENEFITS TO BE CONSIDERED FOLLOWING COMPLETION OF THE CONVERSION

      STOCK OPTION PLAN. We intend to submit a new stock option plan for
stockholder approval no earlier than six months after the completion of the
conversion. If approved by the stockholders, the new stock option plan would
reserve 10% of the shares sold in the offering for issuance when options granted
to recipients are exercised. Ten percent of the shares issued in the offering
would amount to 500,089 shares, 588,340 shares, 676,591 shares or 778,074 shares
at the minimum, midpoint, maximum and adjusted maximum of the offering range,
respectively. No options would be granted under the new stock option plan until
stockholder approval of the plan is received. In the event that shares
underlying options come from authorized but unissued shares, stockholders would
experience dilution of approximately 5.6% in their ownership interest in Sound
Federal Bancorp at the midpoint of the offering range.

      The exercise price of the options granted under the new stock option plan
will be equal to the fair market value of Sound Federal Bancorp common stock on
the date of grant of the stock options. If the stock option plan is adopted
within one year following the conversion, options may vest no faster than 20%
per year beginning 12 months after the date of grant. Options granted under the
stock option plan would be adjusted for capital changes such as stock splits and
stock dividends. Awards will be 100% vested upon a change in control of Sound
Federal Savings or Sound Federal Bancorp, or upon termination of employment due
to death or disability. If the stock option plan is adopted more than one year
after the conversion, awards would be 100% vested upon normal retirement. Under
Office of Thrift Supervision rules, if the stock option plan is adopted within
one year of the conversion, no individual officer may receive more than 25% of
the awards under the plan, no non-employee director may receive more than 5% of
the awards under the plan, and all non-employee directors as a group may receive
in the aggregate no more than 30% of the awards under the plan.

      The stock option plan would be administered by a committee of non-employee
members of the Sound Federal Bancorp's Board of Directors. Options granted under
the stock option plan to employees may be "incentive" stock options, which are
designed to result in a beneficial tax treatment to the employee but no tax
deduction to Sound Federal Bancorp. Non-qualified stock options may also be
granted to employees under the stock option plan, and will be granted to the
non-employee directors who receive stock options. In the event an option
recipient terminated his employment or service as an employee or director, the
options would terminate during certain specified periods.

      STOCK RECOGNITION AND RETENTION PLAN. We also intend to request
stockholder approval of a new stock recognition and retention plan, no earlier
than six months after the completion of the conversion. If approved by
stockholders, the new stock recognition and retention plan would, if implemented
within one year of conversion, reserve 4% of the shares sold in the offering
(assuming Sound Federal Savings has a tangible capital to assets ratio in excess
of 10%) or 200,036 shares, 235,336 shares, 270,636 shares or 311,229 shares at
the minimum, midpoint, maximum and adjusted maximum of the offering range,
respectively. We must recognize expense for shares awarded over their vesting
period at the fair market value of the shares on the date they are awarded. The
recipients will be awarded common stock under the stock recognition and
retention plan at no cost to them. No awards would be made under the stock
recognition and retention plan until the plan is approved by stockholders. If
the shares awarded under the stock recognition and retention plan come from
authorized but unissued shares totaling 4% of the shares sold in the offering,
stockholders would experience dilution of approximately 2.3% in their ownership
interest in Sound Federal Bancorp at the midpoint of the offering range.

                                       80
Awards under the stock recognition and retention plan would be
nontransferable and nonassignable. Under Office of Thrift Supervision
regulations, if the stock recognition and retention plan is adopted within one
year following the conversion, the shares which are subject to an award may vest
no faster than 20% per year beginning 12 months after the date of grant of the
award. Awards would be adjusted for capital changes such as stock dividends and
stock splits. Awards would be 100% vested upon a change in control of Sound
Federal Savings or Sound Federal Bancorp, or termination of employment or
service due to death or disability. If the stock recognition and retention plan
is adopted more than one year after the conversion, awards would be 100% vested
upon normal retirement. If employment or service were to terminate for other
reasons, the award recipient would forfeit any nonvested award. If employment or
service were to terminate for cause (as defined), shares not already delivered
would be forfeited. Under Office of Thrift Supervision rules, if the stock
recognition and retention plan is adopted within one year of the conversion, no
individual officer may receive more than 25% of the awards under the plan, no
non-employee director may receive more than 5% of the awards under the plan, and
all non-employee directors as a group may receive no more than 30% of the awards
under the plan in the aggregate.

      The recipient of an award will recognize income equal to the fair market
value of the stock earned, determined as of the date of vesting, unless the
recipient makes an election under Section 83(b) of the Internal Revenue Code to
be taxed earlier. The amount of income recognized by the recipient would be a
deductible expense for tax purposes for Sound Federal Bancorp. If the stock
recognition and retention plan is adopted within one year following the
conversion, dividends and other earnings will accrue and be payable to the award
recipient when the shares vest. If the stock recognition and retention plan is
adopted within one year following the conversion, shares not yet vested will be
voted by the trustee of the stock recognition and retention plan, taking into
account the best interests of the award recipients. If the stock recognition and
retention plan is adopted more than one year following the conversion, dividends
declared on unvested shares will be distributed to the recipient when paid and
the recipient will be entitled to vote the unvested shares.

                                       81
BENEFICIAL OWNERSHIP OF COMMON STOCK

      The following table provides the beneficial ownership of our common stock
held by our directors and executive officers, individually and as a group as of
November __, 2002. The business address of each director and executive officer
is 300 Mamaroneck Avenue, Mamaroneck, New York 10543.
NUMBER OF SHARES OF COMMON
                                        STOCK BENEFICIALLY OWNED    PERCENT OF ALL COMMON
NAME OF BENEFICIAL OWNER                         (1) (2)             STOCK OUTSTANDING (3)
------------------------------------   --------------------------   ---------------------

Bruno J. Gioffre
Richard P. McStravick
Joseph Dinolfo
Donald H. Heithaus
Joseph A. Lanza
Eldorus Maynard
James Staudt
Samuel T. Telerico
Anthony J. Fabiano

All directors and executive
officers as a group (9 persons)

Sound Federal, MHC and all directors
and executive officers as a group
----------------------------
(1)   In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
      person is deemed to be the beneficial owner for purposes of this table of
      any shares of common stock if he has sole or shared voting or investment
      power with respect to such security, or has a right to acquire beneficial
      ownership at any time within 60 days from the date as of which beneficial
      ownership is being determined. As used herein, "voting power" is the power
      to vote or direct the voting of shares and "investment power" is the power
      to dispose or direct the disposition of shares. Includes all shares held
      directly as well as by spouses and minor children, in trust and other
      indirect ownership, over which shares the named individuals effectively
      exercise sole or shared voting and investment power.
(2)   The shares of common stock in this column include _______ shares in total
      and by individual the following shares which may be acquired by the
      persons indicated pursuant to the exercise of stock options within 60 days
      of November __, 2002: ________________________________
(3)   Calculated by dividing the number of shares by the total shares of common
      stock outstanding at November __, 2002 (_________ shares) plus the number
      of shares which each individual may acquire pursuant to the exercise of
      stock options within 60 days of November __, 2002.
*     Less than 1%.

                SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS

      The table below sets forth, for each of Sound Federal Bancorp's directors
and executive officers and for all of the directors and executive officers as a
group, the following information:

      (1)   the number of exchange shares to be held upon consummation of the
            conversion, based upon their beneficial ownership of Sound Federal
            Bancorp common stock as of November __, 2002;

      (2)   the proposed purchases of subscription shares, assuming sufficient
            shares are available to satisfy their subscriptions; and

      (3)   the total amount of Sound Federal Bancorp common stock to be held
            upon consummation of the conversion.

                                       82
In each case, it is assumed that subscription shares are sold and the
exchange ratio is calculated at the midpoint of the offering range. See "The
Conversion--Limitations on Common Stock Purchases."
PROPOSED PURCHASES OF STOCK IN
                                                        THE OFFERING (1)           TOTAL COMMON STOCK TO BE HELD
                                                 ------------------------------- --------------------------------
                                 NUMBER OF                                                         PERCENTAGE OF
                              EXCHANGE SHARES      NUMBER OF                        NUMBER OF          TOTAL
 NAME OF BENEFICIAL OWNER      TO BE HELD (2)       SHARES           AMOUNT           SHARES        OUTSTANDING
---------------------------  -----------------   -------------   --------------- --------------  ----------------
Bruno J. Gioffre                                                   $
Richard P. McStravick
Joseph Dinolfo
Donald H. Heithaus
Joseph A. Lanza
Eldorus Maynard
James Staudt
Samuel T. Telerico
Anthony J. Fabiano
                                                  -------------    ------------
   Total                                                           $
                                                  =============    ============
---------------------------
*     Less than 1%.
(1)   Includes proposed subscriptions, if any, by associates.
(2)   Based on information presented in "Beneficial Ownership of Common Stock,"
      and includes options exercisable within 60 days of November ______, 2002.

                                 THE CONVERSION

      The Boards of Directors of Sound Federal Bancorp and Sound Federal, MHC
have approved the plan of conversion. The plan of conversion must also be
approved by the members of Sound Federal, MHC (depositors and certain borrowers
of Sound Federal Savings) and the stockholders of Sound Federal Bancorp. A
special meeting of members and a special meeting of stockholders have been
called for this purpose. The Office of Thrift Supervision also has conditionally
approved the plan; however, such approval does not constitute a recommendation
or endorsement of the plan of conversion by that agency.

GENERAL

      The respective Boards of Directors of Sound Federal, MHC and Sound Federal
Bancorp adopted the plan of conversion on June 13, 2002. Pursuant to the plan of
conversion, our organization will convert from the mutual holding company form
of organization to the fully public form. Sound Federal, MHC, the mutual holding
company parent of Sound Federal Bancorp, will be merged into Sound Federal
Savings, and Sound Federal, MHC will no longer exist. Pursuant to the plan,
Sound Federal Bancorp, which owns 100% of Sound Federal Savings, also will be
succeeded by a new Delaware corporation with the same name. As part of the
conversion, shares of common stock of Sound Federal Bancorp representing the
ownership interest of Sound Federal, MHC, will be offered for sale in the
offering. When the conversion is completed, all of the capital stock of Sound
Federal Savings will be owned by Sound Federal Bancorp. A diagram of our
corporate structure before and after the conversion is set forth in the Summary
of this prospectus.

      Under the plan of conversion, at the conclusion of the conversion and
offering, each share of Sound Federal Bancorp common stock owned by persons
other than Sound Federal, MHC will be converted automatically into the right to
receive new shares of Sound Federal Bancorp common stock determined pursuant to
the exchange ratio. The exchange ratio will ensure that immediately after the
conversion and exchange of existing shares of Sound Federal Bancorp for new
shares, the public stockholders of Sound Federal Bancorp common stock will own
the same aggregate percentage of new Sound Federal Bancorp common stock that
they owned immediately prior to the conversion, excluding any shares purchased
in the offering.

      We intend to retain 50% of the net proceeds of the offering and to
contribute the balance of the net proceeds to Sound Federal Savings. The
conversion will be effected only upon completion of the sale of at least the
minimum number of shares of our common stock to be offered pursuant to the plan
of conversion.

                                       83
The plan of conversion provides generally that we will offer shares of
common stock for sale in the subscription offering to eligible account holders,
our tax-qualified benefit plans, including the employee stock ownership plan,
supplemental eligible account holders and other members. Subject to the prior
rights of these holders of subscription rights, we will offer common stock for
sale in a community offering to members of the general public, with a preference
given in the following order:

      (1)   First, to public stockholders of Sound Federal Bancorp common stock
            as of October _________, 2002; and

      (2)   Second, to natural persons residing in the New York Counties of
            Westchester, Rockland and Putnam and the Connecticut County of
            Fairfield.

      We have the right to accept or reject, in whole or in part, any orders to
purchase shares of the common stock received in the community offering. The
community offering may begin at the same time as the subscription offering and
must be completed within 45 days after the completion of the subscription
offering unless otherwise extended by the Office of Thrift Supervision. See
"--Community Offering."

      We determined the number of shares of common stock to be offered in the
offering based upon an independent appraisal of the estimated pro forma market
value of Sound Federal Bancorp. All shares of common stock to be sold in the
offering will be sold at $10.00 per share. The independent valuation will be
updated and the final number of the shares to be issued in the offering will be
determined at the completion of the offering. See "--Stock Pricing and Number of
Shares to be Issued" for more information as to the determination of the
estimated pro forma market value of the common stock.

      The following is a brief summary of the conversion and is qualified in its
entirety by reference to the provisions of the plan of conversion. A copy of the
plan of conversion is available for inspection at each branch of Sound Federal
Savings and at the Northeast Regional and Washington, D.C. offices of the Office
of Thrift Supervision. The plan of conversion is also filed as an exhibit to the
application to convert from mutual to stock form of which this prospectus is a
part, copies of which may be obtained from the Office of Thrift Supervision. See
"Additional Information."

REASONS FOR THE CONVERSION

      The primary reasons for the conversion are to (i) obtain additional
capital to support internal growth by increasing our lending in the communities
we serve, (ii) continue our expansion within our market area and the contiguous
counties, (iii) enhance stockholder returns through higher earnings and capital
management strategies and (iv) facilitate acquisitions of other financial
institutions as opportunities arise.

      As a fully converted stock holding company, we will have greater
flexibility in structuring mergers and acquisitions, including the form of
consideration paid in a transaction. In our current mutual holding company
structure, our ability to offer our common stock as consideration for a merger
or acquisition has been limited. Potential sellers often want stock for at least
part of the purchase price. Our new stock holding company structure will enhance
our ability to compete with other bidders when acquisition opportunities arise
by enabling us to offer stock or cash consideration, or a combination thereof.
We do not currently have any specific acquisition or expansion plans.

APPROVALS REQUIRED

      The affirmative vote of a majority of the total eligible votes of the
members of Sound Federal, MHC at the special meeting of members is required to
approve the plan of conversion. By their approval of the plan of conversion, the
members of Sound Federal, MHC will also be deemed to approve the merger of Sound
Federal, MHC into Sound Federal Savings. The affirmative vote of the holders of
at least two-thirds of the outstanding shares of common stock of Sound Federal
Bancorp and a majority of the votes cast by the public stockholders of Sound
Federal Bancorp common stock also are required to approve the plan of
conversion. The plan of conversion also must be approved by the Office of Thrift
Supervision, which has given its conditional approval.

                                       84
SHARE EXCHANGE RATIO

      Office of Thrift Supervision regulations provide that in a conversion of a
mutual holding company to fully stock form, the public stockholders will be
entitled to exchange their shares for common stock of the converted holding
company, provided that the mutual holding company demonstrates to the
satisfaction of the Office of Thrift Supervision that the basis for the exchange
is fair and reasonable. The Board of Directors of Sound Federal Bancorp has
determined that each publicly held share of Sound Federal Bancorp common stock
will, on the effective date of the conversion, be converted automatically into
and become the right to receive a number of new shares of Sound Federal Bancorp
common stock. The number of new shares of common stock will be determined
pursuant to the exchange ratio which ensures that the public stockholders of
Sound Federal Bancorp common stock will own the same percentage of new common
stock in Sound Federal Bancorp after the conversion as they held in Sound
Federal Bancorp immediately prior to the conversion, exclusive of their purchase
of additional shares, and the receipt of cash in lieu of fractional shares. At
June 30, 2002, there were 4,778,292 shares of Sound Federal Bancorp common stock
outstanding (net of treasury stock), and 1,967,782 shares were publicly held.
The exchange ratio is not dependent on the market value of Sound Federal Bancorp
common stock. It is calculated based on the percentage of Sound Federal Bancorp
common stock held by the public, the independent appraisal of Sound Federal
Bancorp prepared by FinPro, Inc. and the number of shares sold in the offering.
The exchange ratio is expected to range from approximately 1.7782 exchange
shares for each publicly held share of Sound Federal Bancorp at the minimum of
the offering range to 2.7667 exchange shares for each publicly held share of
Sound Federal Bancorp at the adjusted maximum of the offering range.

      If you are now a stockholder of Sound Federal Bancorp, your existing
shares will be cancelled and exchanged for new shares of Sound Federal Bancorp.
The number of shares you receive will be based on the exchange ratio determined
as of the closing of the conversion. The actual number of shares you receive
will depend upon the number of shares we sell in the offering, which in turn
will depend upon the final appraised value of Sound Federal Bancorp. The
following table shows how the exchange ratio will adjust, based on the number of
shares sold in the offering. The table also shows how many shares an owner of
Sound Federal Bancorp common stock would receive in the exchange, adjusted for
the number of shares sold in the offering.
NEW SHARES TO BE
                                              EXCHANGED FOR EXISTING
                    NEW SHARES TO BE SOLD    SHARES OF SOUND FEDERAL                                    NEW SHARES TO
                       IN THIS OFFERING              BANCORP             TOTAL SHARES OF                 BE RECEIVED
                     --------------------     ----------------------     COMMON STOCK TO   EXCHANGE        FOR 100
                       AMOUNT     PERCENT      AMOUNT        PERCENT     BE OUTSTANDING      RATIO     EXISTING SHARES
                     ---------    -------     --------      ---------   -----------------  ---------   ----------------
Minimum...........   5,000,890     58.8%      3,499,110       41.2%          8,500,000       1.7782          177
Midpoint..........   5,883,400     58.8%      4,116,600       41.2%        10,000,000        2.0920          209
Maximum...........   6,765,910     58.8%      4,734,090       41.2%        11,500,000        2.4058          240
 15% above Maximum   7,780,737     58.8%      5,444,263       41.2%        13,225,000        2.7667          276
Options to purchase shares of Sound Federal Bancorp common stock also will
be converted into and become options to purchase Sound Federal Bancorp common
stock. The number of shares of common stock to be received upon exercise of
these options will be determined pursuant to the exchange ratio. The aggregate
exercise price, duration and vesting schedule of these options will not be
affected. At June 30, 2002, there were 199,738 outstanding options to purchase
Sound Federal Bancorp common stock, 123,043 of which were vested.

EFFECTS OF CONVERSION ON DEPOSITORS, BORROWERS AND MEMBERS

      CONTINUITY. While the conversion is being accomplished, the normal
business of Sound Federal Savings of accepting deposits and making loans will
continue without interruption. Sound Federal Savings will continue to be a
federally chartered savings bank and will continue to be regulated by the Office
of Thrift Supervision. After the conversion, Sound Federal Savings will continue
to offer existing services to depositors, borrowers and other customers. The
directors serving Sound Federal Bancorp at the time of the conversion will serve
as directors of Sound Federal Bancorp after the conversion.

      EFFECT ON DEPOSIT ACCOUNTS. Under the plan of conversion, each depositor
in Sound Federal Savings at the time of the conversion will automatically
continue as a depositor after the conversion, and each of the deposit

                                       85
accounts will remain the same with respect to deposit balance, interest rate and
other terms. Each such account will be insured by the Federal Deposit Insurance
Corporation to the same extent as before the conversion. Depositors will
continue to hold their existing certificates, passbooks and other evidences of
their accounts.

      EFFECT ON LOANS. No loan outstanding from Sound Federal Savings will be
affected by the conversion, and the amount, interest rate, maturity and security
for each loan will remain as it was contractually fixed prior to the conversion.

      EFFECT ON VOTING RIGHTS OF MEMBERS. At present, all depositors are members
of, and have voting rights in, Sound Federal, MHC as to all matters requiring
membership action. Upon completion of the conversion, depositors will cease to
be members of Sound Federal, MHC and will no longer have voting rights. Upon
completion of the conversion, all voting rights in Sound Federal Savings will be
vested in Sound Federal Bancorp as the sole stockholder of Sound Federal
Savings. The stockholders of Sound Federal Bancorp will possess exclusive voting
rights with respect to Sound Federal Bancorp common stock.

      TAX EFFECTS. Sound Federal Bancorp will receive an opinion of counsel or
tax advisor with regard to federal and state income taxation to the effect that
the conversion will not be taxable for federal or state income tax purposes to
Sound Federal, MHC, Sound Federal Bancorp, the public stockholders of Sound
Federal Bancorp, members of Sound Federal, MHC, eligible account holders,
supplemental eligible account holders, or Sound Federal Savings. See "--Tax
Aspects."

      EFFECT ON LIQUIDATION RIGHTS. Each depositor in Sound Federal Savings has
both a deposit account in Sound Federal Savings and a pro rata ownership
interest in the net worth of Sound Federal, MHC based upon the balance in his or
her account. This interest may only be realized in the event of a complete
liquidation of Sound Federal, MHC and Sound Federal Savings. However, this
ownership interest is tied to the depositor's account and has no tangible market
value separate from the deposit account. Any depositor who opens a deposit
account obtains a pro rata ownership interest in Sound Federal, MHC without any
additional payment beyond the amount of the deposit. A depositor who reduces or
closes his account receives a portion or all of the balance in the deposit
account but nothing for his ownership interest in the net worth of Sound
Federal, MHC, which is lost to the extent that the balance in the account is
reduced or closed.

      Consequently, depositors in a stock subsidiary of a mutual holding company
normally have no way of realizing the value of their ownership interest, which
has realizable value only in the unlikely event that Sound Federal, MHC and
Sound Federal Savings are liquidated. If this occurs, the depositors of record
at that time, as owners, would share pro rata in any residual surplus and
reserves of Sound Federal, MHC after other claims, including claims of
depositors to the amounts of their deposits, are paid.

      In the unlikely event that Sound Federal Savings were to liquidate after
the conversion, all claims of creditors, including those of depositors, also
would be paid first, followed by distribution of the "liquidation account" to
depositors as of March 31, 2001 and September 30, 2002 who continue to maintain
their deposit accounts as of the date of liquidation, with any assets remaining
thereafter distributed to Sound Federal Bancorp as the holder of Sound Federal
Savings' capital stock. Pursuant to the rules and regulations of the Office of
Thrift Supervision, a post-conversion merger, consolidation, sale of bulk assets
or similar combination or transaction with another insured savings institution
would not be considered a liquidation and, in such a transaction, the
liquidation account would be assumed by the surviving institution. See
"--Liquidation Rights."

STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED

      The plan of conversion and federal regulations require that the aggregate
purchase price of the common stock sold in the offering must be based on the
appraised pro forma market value of the common stock, as determined by an
independent valuation. Sound Federal Savings and Sound Federal Bancorp have
retained FinPro, Inc. to make this valuation. For its services in preparing the
initial valuation, FinPro, Inc. will receive a fee of $16,000. This amount does
not include a fee of $15,000 to be paid to FinPro, Inc. for assistance in the
preparation of a business plan. Sound Federal Savings and Sound Federal Bancorp
have agreed to indemnify FinPro, Inc. and its employees and affiliates against
specified losses, including any losses in connection with claims under the
federal

                                       86
securities laws, arising out of its services as appraiser, except where FinPro,
Inc.'s liability results from its negligence or bad faith.

      The appraisal considered the pro forma impact of the offering. Consistent
with the Office of Thrift Supervision appraisal guidelines, the appraisal
applied three primary methodologies: the pro forma price-to-book value approach
applied to both reported book value and tangible book value; the pro forma
price-to-earnings approach applied to reported and core earnings; and the pro
forma price-to-assets approach. The market value ratios applied in the three
methodologies were based upon the current market valuations of the peer group
companies, subject to valuation adjustments applied by FinPro, Inc. to account
for differences between Sound Federal Bancorp and the peer group. FinPro, Inc.
placed the greatest emphasis on the price-to-tangible book and price-to-earnings
approaches in estimating pro forma market value.

      The independent valuation was prepared by FinPro, Inc. in reliance upon
the information contained in this prospectus, including the consolidated
financial statements. FinPro, Inc. also considered the following factors, among
others:

      o     the present and projected operating results and financial condition
            of Sound Federal Bancorp;

      o     the economic and demographic conditions in Sound Federal Bancorp's
            existing market area;

      o     certain historical, financial and other information relating to
            Sound Federal Bancorp;

      o     a comparative evaluation of the operating and financial
            characteristics of Sound Federal Bancorp with those of other
            similarly situated publicly traded savings institutions located in
            New York and other regions of the United States;

      o     the aggregate size of the offering of the common stock;

      o     the impact of the conversion on Sound Federal Bancorp's
            stockholders' equity and earnings potential;

      o     the proposed dividend policy of Sound Federal Bancorp; and

      o     the trading market for securities of comparable institutions and
            general conditions in the market for such securities.

      Included in FinPro, Inc.'s report were certain assumptions as to the pro
forma earnings of Sound Federal Bancorp after the conversion that were utilized
in determining the appraised value. These assumptions included estimated
expenses, an assumed after-tax rate of return on the net conversion proceeds and
purchases in the open market of 4% of the common stock issued in the offering by
the recognition and retention plan at the $10.00 purchase price. See "Pro Forma
Data" for additional information concerning theses assumptions. The use of
different assumptions may yield different results.

      The independent valuation states that as of September 10, 2002, the
estimated pro forma market value, or valuation range, of Sound Federal Bancorp
ranged from a minimum of $85.0 million to a maximum of $115.0 million, with a
midpoint of $100.0 million. The Board of Directors decided to offer the shares
for a price of $10.00 per share. The aggregate offering price of the shares will
be equal to the valuation range multiplied by the percentage of Sound Federal
Bancorp common stock owned by Sound Federal, MHC. The number of shares offered
will be equal to the aggregate offering price of the shares divided by the price
per share. Based on the valuation range, the percentage of Sound Federal Bancorp
common stock owned by Sound Federal, MHC and the $10.00 price per share, the
minimum of the offering range will be 5,000,890 shares, the midpoint of the
offering range will be 5,883,400 shares and the maximum of the offering range
will be 6,765,910 shares.

                                       87
The Board of Directors reviewed the independent valuation and, in
particular, considered the following:

      o     Sound Federal Bancorp's financial condition and results of
            operations;

      o     comparison of financial performance ratios of Sound Federal Bancorp
            to those of other financial institutions of similar size;

      o     stock market conditions generally and in particular for financial
            institutions; and

      o     the historical trading price of the publicly held shares of Sound
            Federal Bancorp common stock.

      All of these factors are set forth in the independent valuation. The Board
also reviewed the methodology and the assumptions used by FinPro, Inc. in
preparing the independent valuation and the Board believes that such assumptions
are reasonable. The offering range may be amended with the approval of the
Office of Thrift Supervision, if required, as a result of subsequent
developments in the financial condition of Sound Federal Bancorp or Sound
Federal Savings or market conditions generally. In the event the independent
valuation is updated to amend the pro forma market value of Sound Federal
Bancorp to less than $85.0 million or more than $132.3 million, the appraisal
will be filed with the Securities and Exchange Commission by post-effective
amendment.

      THE INDEPENDENT VALUATION IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING OUR COMMON
STOCK. FINPRO, INC. DID NOT INDEPENDENTLY VERIFY OUR CONSOLIDATED FINANCIAL
STATEMENTS AND OTHER INFORMATION THAT WE PROVIDED TO THEM, NOR DID FINPRO, INC.
INDEPENDENTLY VALUE OUR ASSETS OR LIABILITIES. THE INDEPENDENT VALUATION
CONSIDERS SOUND FEDERAL SAVINGS AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED
AS AN INDICATION OF THE LIQUIDATION VALUE OF SOUND FEDERAL SAVINGS. MOREOVER,
BECAUSE THE VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A
NUMBER OF MATTERS, ALL OF WHICH MAY CHANGE FROM TIME TO TIME, NO ASSURANCE CAN
BE GIVEN THAT PERSONS PURCHASING OUR COMMON STOCK IN THE OFFERING WILL
THEREAFTER BE ABLE TO SELL THEIR SHARES AT PRICES AT OR ABOVE THE $10.00 PRICE.

      Following commencement of the subscription offering, the maximum of the
valuation range may be increased by up to 15% to up to $132.3 million, which
will result in a corresponding increase of up to 15% in the maximum of the
offering range to up to 7,780,737 shares, to reflect changes in the market and
financial conditions, without resoliciting subscribers. We will not decrease the
minimum of the valuation range and the minimum of the offering range without a
resolicitation of subscribers. The subscription price of $10.00 per share will
remain fixed. See "--Limitations on Common Stock Purchases" as to the method of
distribution and allocation of additional shares that may be issued in the event
of an increase in the offering range to fill unfilled orders in the offering.

      If the update to the independent valuation at the conclusion of the
offering results in an increase in the maximum of the valuation range to more
than $132.3 million and a corresponding increase in the offering range to more
than 7,780,737 shares, or a decrease in the minimum of the valuation range to
less than $85.0 million and a corresponding decrease in the offering range to
fewer than 5,000,890 shares, then, after consulting with the Office of Thrift
Supervision, we may terminate the plan of conversion, cancel withdrawal
authorizations and return by check all funds received promptly with interest at
Sound Federal Savings' passbook savings rate of interest. Alternatively, we may
hold a new offering, establish a new offering range, extend the offering period
and commence a resolicitation of subscribers or take other actions as permitted
by the Office of Thrift Supervision in order to complete the conversion. In the
event that a resolicitation is commenced, unless we receive an affirmative
response within a reasonable period of time, we will return all funds promptly
to investors as described above. Any resolicitation following the conclusion of
the subscription and community offerings would not exceed 45 days unless further
extended by the Office of Thrift Supervision for periods of up to 90 days.

      An increase in the number of shares to be issued in the offering would
decrease both a subscriber's ownership interest and Sound Federal Bancorp's pro
forma earnings and stockholders' equity on a per share basis while increasing
pro forma earnings and stockholders' equity on an aggregate basis. A decrease in
the number of shares to be issued in the offering would increase both a
subscriber's ownership interest and Sound Federal Bancorp's pro forma earnings
and stockholders' equity on a per share basis, while decreasing pro forma
earnings and

                                       88
stockholders' equity on an aggregate basis. For a presentation of the effects of
these changes, see "Pro Forma Data."

      Copies of the appraisal report of FinPro, Inc. and the detailed memorandum
of the appraiser setting forth the method and assumptions for the appraisal are
available for inspection at the main office of Sound Federal Savings and as
specified under "Additional Information."

EXCHANGE OF STOCK CERTIFICATES

      The conversion of existing outstanding shares of Sound Federal Bancorp
common stock into the right to receive new shares of Sound Federal Bancorp
common stock will occur automatically on the effective date of the conversion.
As soon as practicable after the effective date of the conversion, we or a bank
or trust company designated by us in the capacity of exchange agent, will send a
transmittal form to each public stockholder of Sound Federal Bancorp who holds
stock certificates. The transmittal forms are expected to be mailed within five
business days after the effective date of the conversion and will contain
instructions on how to exchange old shares of Sound Federal Bancorp common stock
for new shares of Sound Federal Bancorp common stock. We expect that stock
certificates for new shares of Sound Federal Bancorp common stock will be
distributed within five business days after we receive properly executed
transmittal forms and other required documents. Shares held by public
stockholders in street name will be exchanged automatically upon the effective
date; no transmittal forms will be mailed relating to these shares.

      New shares of Sound Federal Bancorp issued in exchange for existing shares
are considered acquired in an initial public offering. Accordingly, such new
shares offering cannot be owned on margin for 30 days after the offering. If a
shareholder currently owns our stock on margin, the shares would have to be
moved to a cash account prior to exchanging the old stock certificates for new
stock certificates.

      No fractional shares of Sound Federal Bancorp common stock will be issued
to any public stockholder of Sound Federal Bancorp when the conversion is
completed. For each fractional share that would otherwise be issued to
stockholders who hold certificates, we will pay by check an amount equal to the
product obtained by multiplying the fractional share interest to which the
holder would otherwise be entitled to by $10.00. Payment for fractional shares
will be made as soon as practicable after the receipt by the exchange agent of
surrendered Sound Federal Bancorp stock certificates. If your shares are held in
street name, you will automatically receive cash in lieu of fractional shares.

      YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES UNTIL YOU HAVE RECEIVED
TRANSMITTAL FORMS, WHICH WILL INCLUDE FORWARDING INSTRUCTIONS.

      Until your existing certificates representing Sound Federal Bancorp common
stock are surrendered for exchange after the conversion in compliance with the
terms of the transmittal form, you will not receive new shares of Sound Federal
Bancorp common stock and you will not be paid dividends on the new Sound Federal
Bancorp common stock. When you surrender your certificates, any unpaid dividends
will be paid without interest. For all other purposes, however, each certificate
which represents shares of Sound Federal Bancorp common stock outstanding at the
effective date of the conversion will be considered to evidence ownership of new
shares of Sound Federal Bancorp common stock into which those shares have been
converted by virtue of the conversion.

      All new shares of Sound Federal Bancorp common stock that we issue to you
in exchange for existing shares of Sound Federal Bancorp common stock will be
considered to have been issued in full satisfaction of all rights pertaining to
such shares, subject, however, to our obligation to pay any dividends or make
any other distributions with a record date prior to the effective date of the
conversion which may have been declared by us on or prior to the effective date
and which remain unpaid at the effective date.

      If a certificate for Sound Federal Bancorp common stock has been lost,
stolen or destroyed, the exchange agent will issue a new stock certificate upon
receipt of appropriate evidence as to the loss, theft or destruction,
appropriate evidence as to the ownership of the certificate by the claimant, and
appropriate and customary

                                       89
indemnification, which is normally effected by the purchase of a bond from a
surety company at the shareholder's expense.

SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS

      In accordance with the plan of conversion, rights to subscribe for the
purchase of common stock in the subscription offering have been granted under
the plan of conversion in the following descending order of priority. The
filling of all subscriptions that we receive will depend on the availability of
common stock after satisfaction of all subscriptions of all persons having prior
rights in the subscription offering and to the maximum, minimum and overall
purchase limitations set forth in the plan of conversion and as described below
under "--Limitations on Common Stock Purchases."

      PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Sound Federal Savings depositor
with aggregate deposit account balances, including demand deposit accounts, of
$50 or more (a "Qualifying Deposit") on March 31, 2001 ("Eligible Account
Holders") will receive, without payment therefor, nontransferable subscription
rights to purchase up to 50,000 shares of common stock, subject to the overall
purchase limitations. See "--Limitations on Common Stock Purchases." If there
are not sufficient shares available to satisfy all subscriptions, shares will
first be allocated so as to permit each subscribing Eligible Account Holder to
purchase a number of shares sufficient to make his total allocation equal to the
lesser of 100 shares or the number of shares for which he subscribed.
Thereafter, unallocated shares will be allocated to each subscribing Eligible
Account Holder whose subscription remains unfilled in the proportion that the
amount of his Qualifying Deposit bears to the total amount of Qualifying
Deposits of all subscribing Eligible Account Holders whose subscriptions remain
unfilled. If an amount so allocated exceeds the amount subscribed for by any one
or more Eligible Account Holders, the excess shall be reallocated among those
Eligible Account Holders whose subscriptions are not fully satisfied until all
available shares have been allocated.

      To ensure proper allocation of stock, each Eligible Account Holder must
list on his stock order form all deposit accounts in which he has an ownership
interest on March 31, 2001. Failure to list an account could result in fewer
shares being allocated than if all accounts had been disclosed. The subscription
rights of Eligible Account Holders who are also directors or officers of Sound
Federal Bancorp or their associates will be subordinated to the subscription
rights of other Eligible Account Holders to the extent attributable to increased
deposits in the twelve months preceding March 31, 2001.

      PRIORITY 2: TAX-QUALIFIED PLANS. Our tax-qualified employee stock benefit
plans will receive, without payment therefor, nontransferable subscription
rights to purchase in the aggregate up to 10% of the common stock sold in the
offering (although we anticipate our employee stock ownership plan will purchase
8% of the common stock sold in the offering).

      PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent that
there are sufficient shares remaining after satisfaction of subscriptions by
Eligible Account Holders and our tax-qualified employee stock benefit plans,
each Sound Federal Savings depositor with a Qualifying Deposit on September 30,
2002 who is not an Eligible Account Holder ("Supplemental Eligible Account
Holder") will receive, without payment therefor, nontransferable subscription
rights to purchase up to 50,000 shares of common stock, subject to the overall
purchase limitations. See "--Limitations on Common Stock Purchases." If there
are not sufficient shares available to satisfy all subscriptions, shares will be
allocated so as to permit each subscribing Supplemental Eligible Account Holder
to purchase a number of shares sufficient to make his total allocation equal to
the lesser of 100 shares or the number of shares for which he subscribed.
Thereafter, unallocated shares will be allocated to each subscribing
Supplemental Eligible Account Holder whose subscription remains unfilled in the
proportion that the amount of his Qualifying Deposit bears to the total amount
of Qualifying Deposits of all subscribing Supplemental Eligible Account Holders
whose subscriptions remain unfilled.

      To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his stock order form all deposit accounts in which he has an
ownership interest at September 30, 2002. Failure to list an account could
result in less shares being allocated than if all accounts had been disclosed.

                                       90
PRIORITY 4: OTHER MEMBERS. To the extent that there are shares remaining
after satisfaction of subscriptions by Eligible Account Holders, our
tax-qualified employee stock benefit plans, and Supplemental Eligible Account
Holders, each member of Sound Federal, MHC (depositor of Sound Federal Savings
or borrower of Sound Federal Savings as of October 8, 1998 whose borrowings
remain outstanding as of _________, 2002) on the voting record date of October
_________, 2002 who is not an Eligible Account Holder or Supplemental Eligible
Account Holder ("Other Members") will receive, without payment therefor,
nontransferable subscription rights to purchase up to 50,000 shares of common
stock, subject to the overall purchase limitations. See "--Limitations on Common
Stock Purchases." If there are not sufficient shares available to satisfy all
subscriptions, available shares will be allocated on a pro rata basis based on
the size of the order of each Other Member.

      EXPIRATION DATE FOR THE SUBSCRIPTION OFFERING.

      The Subscription Offering will expire at 12:00 noon, New York Time, on
December ____, 2002, unless extended by us for up to 45 days or such additional
periods with the approval of the Office of Thrift Supervision, if necessary. We
may decide to extend the subscription offering and/or the community offering for
any reason, whether or not subscriptions have been received for shares at the
minimum, midpoint or maximum of the offering range. Subscription rights which
have not been exercised prior to the expiration date will become void.

      We will not execute orders until at least the minimum number of shares of
common stock have been subscribed for or otherwise sold. If at least 5,000,890
shares have not been subscribed for or sold within 45 days after the expiration
date, unless the period is extended with the consent of the Office of Thrift
Supervision, all funds delivered to us pursuant to the offering will be returned
promptly to the subscribers with interest and all withdrawal authorizations will
be cancelled. If an extension beyond the 45-day period following the expiration
date is granted, we will notify subscribers of the extension of time and of the
rights of subscribers to modify or rescind their subscriptions. Extensions may
not go beyond December __, 2004 which is two years after the special meeting of
members of Sound Federal, MHC to approve the conversion.

COMMUNITY OFFERING

      To the extent that shares remain available for purchase after satisfaction
of all subscriptions of the Eligible Account Holders, our tax-qualified employee
stock benefit plans, Supplemental Eligible Account Holders and Other Members, we
may offer shares pursuant to the plan of conversion to members of the general
public in a community offering. Shares may be offered with the following
preferences:

      (1)   First, to public stockholders of Sound Federal Bancorp common stock
            as of October _________, 2002; and

      (2)   Second, to natural persons residing in the New York Counties of
            Westchester, Rockland and Putnam and the Connecticut County of
            Fairfield.

      Subscribers in the community offering may purchase up to 50,000 shares of
common stock, subject to the overall purchase limitations. See "--Limitations on
Common Stock Purchases." The minimum purchase is 25 shares. THE OPPORTUNITY TO
PURCHASE SHARES OF COMMON STOCK IN THE COMMUNITY OFFERING CATEGORY IS SUBJECT TO
OUR RIGHT, IN OUR SOLE DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS IN WHOLE
OR IN PART EITHER AT THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE
FOLLOWING THE EXPIRATION DATE.

      If we do not have sufficient shares available to fill the orders of public
stockholders of Sound Federal Bancorp as of October _________, 2002, we will
allocate the remaining available shares among those persons in a manner that
permits each of them, to the extent possible, to purchase the lesser of 100
shares or the number of shares subscribed for by each such person. Thereafter,
unallocated shares will be allocated among public stockholders whose orders
remain unsatisfied based on the size of the unfilled order of each public
stockholder of Sound Federal Bancorp relative to the size of the aggregate
unfilled orders of other public stockholders. If oversubscription occurs due to
the orders of natural persons residing in the New York counties of Westchester,
Rockland and Putnam and the Connecticut County of Fairfield, the allocation
procedures described above will apply to the stock orders of such persons. If
oversubscription occurs due to the orders of members of the general public, the
allocation procedures described above will apply to the stock orders of such
persons.

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The term "residing" or "resident" as used in this prospectus means any
person who occupies a dwelling within the New York counties of Westchester,
Rockland and Putnam and the Connecticut County of Fairfield, has a present
intent to remain within this community for a period of time, and manifests the
genuineness of that intent by establishing an ongoing physical presence within
the community, together with an indication that this presence within Sound
Federal Savings' community is something other than merely transitory in nature.
We may utilize deposit or loan records or other evidence provided to us to
decide whether a person is a resident. In all cases, however, the determination
shall be in our sole discretion.

      The community offering may begin with or during the subscription offering
and is expected to terminate at the same time as the subscription offering, and
must terminate no more than 45 days following the subscription offering. Sound
Federal Bancorp may decide to extend the community offering for any reason and
is not required to give purchasers notice of any such extension. If 5,000,890
shares have not been subscribed for or sold within 45 days after the expiration
date, unless this period is extended with the consent of the Office of Thrift
Supervision, all funds delivered to us will be returned promptly to the
purchasers with interest and all withdrawal authorizations will be cancelled. If
an extension beyond the 45-day period following the expiration date is granted,
we will notify purchasers of the extension of time and of the rights of
purchasers to modify or rescind their orders. These extensions may not go beyond
December __, 2004, which is two years after the special meeting of members of
Sound Federal, MHC to approve the conversion.

      We have the right to reject any order submitted in the offering by a
person who we believe is making false representations or who we otherwise
believe, either alone or acting in concert with others, is violating, evading,
circumventing, or intends to violate, evade or circumvent the terms and
conditions of the plan of conversion.

SYNDICATED COMMUNITY OFFERING

      If feasible, our Board of Directors may decide to offer for sale all
shares of common stock not subscribed for or purchased in the subscription and
community offerings in a syndicated community offering, subject to such terms,
conditions and procedures as we may determine, in a manner that will achieve the
widest distribution of the common stock. However, we retain the right to accept
or reject in whole or in part any orders in the syndicated community offering.
In the syndicated community offering, any person may purchase up to 50,000
shares of common stock, subject to the overall maximum purchase limitations.
Unless the syndicated community offering begins during the community offering,
the syndicated community offering will begin as soon as possible after the
completion of the subscription and community offerings.

      If for any reason we cannot effect a syndicated community offering of
shares not sold in the subscription and community offerings, or in the event
that there is an insignificant number of unsold shares remaining after the
subscription and community offerings or in the syndicated community offering, we
will try to make other arrangements for the sale of unsubscribed shares, if
possible. The Office of Thrift Supervision must approve any such arrangements.

LIMITATIONS ON COMMON STOCK PURCHASES

      The plan of conversion includes the following limitations on the number of
shares of common stock that may be purchased during the conversion:

      (1)   No person may purchase fewer than 25 shares of common stock or more
            than 50,000 shares;

      (2)   Our tax-qualified employee stock benefit plans, including our
            employee stock ownership plan, may purchase in the aggregate up to
            10% of the shares issued in the offering, including shares issued in
            the event of an increase in the offering range of up to 15%. We
            expect our employee stock ownership plan to subscribe for 8% of the
            shares sold in the offering;

                                       92
(3)   Except for the employee stock ownership plan, as described above, no
            person or entity, together with associates or persons acting in
            concert with such person or entity, may purchase more than 50,000
            shares in all categories of the offering combined;

      (4)   Current stockholders of Sound Federal Bancorp are subject to an
            ownership limitation. As previously described, current stockholders
            of Sound Federal Bancorp will receive new shares of Sound Federal
            Bancorp common stock in exchange for their existing shares of Sound
            Federal Bancorp common stock. The number of shares that a
            stockholder may purchase in the offering, together with associates
            or persons acting in concert with such stockholder, when combined
            with the shares that the stockholder and his associates will receive
            in exchange for existing Sound Federal Bancorp common stock, may not
            exceed 2% of the shares issued in the conversion, or 230,000 shares
            at the maximum of the offering range; and

      (5)   The maximum number of shares of common stock that may be purchased
            in all categories of the offering by officers and directors of Sound
            Federal Savings and their associates, in the aggregate, when
            combined with new shares of common stock issued in exchange for
            existing shares, may not exceed 25% of the shares issued in the
            conversion.

      Depending upon market or financial conditions, our Board of Directors,
with the approval of the Office of Thrift Supervision and without further
approval of members of Sound Federal, MHC, may decrease or increase the purchase
and ownership limitations. If a purchase limitation is increased, subscribers in
the subscription offering who ordered the maximum amount will be, and some other
large subscribers who through their subscriptions evidence a desire to purchase
the maximum allowable number of shares, in our sole discretion, may be given the
opportunity to increase their subscriptions up to the then applicable limit. The
effect of this type of resolicitation will be an increase in the number of
shares owned by subscribers who choose to increase their subscriptions. Our
Board of Directors may, in its sole discretion, increase the maximum purchase
limitations up to 9.99% of the shares issued in the conversion, provided that
orders for shares exceeding 5% of the shares being issued shall not exceed, in
the aggregate, 10% of the total issued.

      In the event of an increase in the total number of shares offered in the
offering, due to an increase in the offering range of up to 15%, shares will be
allocated in the following order of priority in accordance with the plan of
conversion:

      (1)   to fill the employee stock ownership plan's subscription for 8% of
            the total number of shares sold;

      (2)   in the event that there is an oversubscription at the Eligible
            Account Holder, Supplemental Eligible Account Holder or Other Member
            levels, to fill unfulfilled subscriptions of these subscribers
            according to their respective priorities; and

      (3)   to fill unfulfilled subscriptions in the community offering, with
            preference given first to Sound Federal Bancorp public stockholders
            as of October ___, 2002, and then to natural persons residing in the
            New York Counties of Westchester, Rockland and Putnam and the
            Connecticut County of Fairfield.

      The term "associate" of a person means:

      (1)   any corporation or organization, other than Sound Federal Bancorp,
            Sound Federal Savings or a majority-owned subsidiary of Sound
            Federal Savings, of which the person is an officer, partner or 10%
            stockholder;(1)

      (2)   any trust or other estate in which the person has a substantial
            beneficial interest or serves as a director or in a similar
            fiduciary capacity; provided, however, it does not include any
            employee stock benefit plan in which the person has a substantial
            beneficial interest or serves as director or in a similar fiduciary
            capacity; and

                                       93
(3)   any relative or spouse of the person, or any relative of the spouse,
            who either has the same home as the person or who is a director or
            officer of Sound Federal Bancorp or Sound Federal Savings.

      The term "acting in concert" means:

      (1)   knowing participation in a joint activity or interdependent
            conscious parallel action towards a common goal whether or not
            pursuant to an express agreement; or

      (2)   a combination or pooling of voting or other interests in the
            securities of an issuer for a common purpose pursuant to any
            contract, understanding, relationship, agreement or other
            arrangement, whether written or otherwise.

      A person or company which acts in concert with another person or company
("other party") shall also be deemed to be acting in concert with any person or
company who is also acting in concert with that other party, except that any
tax-qualified employee stock benefit plan will not be deemed to be acting in
concert with its trustee or a person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the plan will be aggregated.

      Our directors are not treated as associates of each other solely because
of their membership on our Board of Directors. We have the right to determine
whether prospective purchasers are associates or acting in concert. For a
further discussion of limitations on purchases of our stock at the time of
conversion and thereafter, see "Certain Restrictions on Purchase or Transfer of
Our Shares after Conversion" and "Restrictions on Acquisition of Sound Federal
Bancorp."

PLAN OF DISTRIBUTION; SELLING AGENT COMPENSATION

      Offering materials have been distributed by mail to those with
subscription rights at the last known address on our records as of the
eligibility dates of the offering. Subscription rights expire whether or not
eligible subscribers can be located.

      To assist in the marketing of the common stock, we have retained Keefe,
Bruyette & Woods, Inc., which is a broker/dealer registered with the National
Association of Securities Dealers, Inc. Keefe, Bruyette & Woods, Inc. will
assist us in the offering by:

      (1)   providing its employees to assist in staffing the Stock Information
            Center to assist our customers and internal stock purchasers and to
            assist in records management for orders of shares of common stock;

      (2)   targeting our sales efforts, including assisting in the preparation
            of marketing materials;

      (3)   soliciting orders for common stock; and

      (4)   assisting in soliciting proxies of our members and current
            stockholders.

      For these services, Keefe, Bruyette & Woods, Inc., will receive a
management fee of $50,000 and a marketing fee equal to 1.35% of the dollar
amount of common stock sold in the subscription and community offerings other
than shares purchased by officers, directors and employees or their immediate
families and any common stock purchased by our tax-qualified and non-qualified
employee benefit plans, for which no fee need be paid. The marketing fee will be
reduced by the $50,000 management fee, assuming the offering is completed
successfully. In the event that Keefe, Bruyette & Woods, Inc. sells common stock
through a group of broker-dealers in a syndicated community offering, it will be
paid a fee not to exceed 5.5% of the dollar amount of total shares sold in the
syndicated community offering. From this fee, Keefe, Bruyette & Woods, Inc. will
pass on to selected broker-dealers who assist in the syndicated community
offering an amount competitive with gross underwriting discounts charged at such
time for comparable amounts of stock sold at a comparable price per share in a
similar marketing environment. Keefe, Bruyette & Woods, Inc. will also be
reimbursed for allocable expenses in an amount not to exceed $15,000, and for
attorney's fees and expenses in an amount not to exceed $35,000.

                                       94
We have made an advance payment to Keefe, Bruyette & Woods, Inc. in the
amount of $12,500. We will indemnify Keefe, Bruyette & Woods, Inc. against
liabilities and expenses, including legal fees, incurred in connection with
certain claims or litigation arising out of or based upon untrue statements or
omissions contained in the offering materials for the common stock, including
liabilities under the Securities Act of 1933.

      Some of our directors and executive officers may participate in the
solicitation of offers to purchase common stock. These persons will be
reimbursed for their reasonable out-of-pocket expenses incurred in connection
with the solicitation. Other regular, full-time employees of Sound Federal
Savings may assist in the offering, but only in ministerial capacities, and may
provide clerical work in effecting a sales transaction. No offers or sales may
be made by tellers or at the teller counters. All sales activity will be
conducted in a segregated or separately identifiable area of Sound Federal
Savings' main offices apart from the area accessible to the general public.
Other questions of prospective purchasers will be directed to executive officers
or registered representatives of Keefe, Bruyette & Woods, Inc. Our other
employees have been instructed not to solicit offers to purchase common stock or
provide advice regarding the purchase of common stock. We will rely on Rule
3a4-1 under the Securities Exchange Act of 1934, and sales of common stock will
be conducted within the requirements of Rule 3a4-1, so as to permit officers,
directors and employees to participate in the sale of common stock. None of our
officers, directors or employees will be compensated in connection with their
participation in the offering.

PROCEDURE FOR PURCHASING SHARES

      EXPIRATION DATE. The offering will terminate at 12:00 noon, New York Time,
on December ____, 2002, unless we extend it, with the approval of the Office of
Thrift Supervision, if required. This extension may be approved by us, in our
sole discretion, without further approval or additional notice to purchasers in
the offering. Any extension of the offering beyond 45 days after the expiration
date of the offering would require the Office of Thrift Supervision's approval,
and potential purchasers would be given the right to increase, decrease or
rescind their orders for common stock. If we have not sold the minimum number of
shares offered in the offering by the expiration date or any extension thereof,
we may terminate the offering and promptly refund all orders for common stock.
If the number of shares offered is reduced below the minimum of the offering
range, or increased above the adjusted maximum of the offering range, purchasers
will be given an opportunity to increase, decrease or rescind their orders.

      To ensure that each purchaser receives a prospectus at least 48 hours
before the expiration date of the offering in accordance with Rule 15c2-8 of the
Securities Exchange Act of 1934, no prospectus will be mailed any later than
five days prior to this date or hand delivered any later than two days prior to
this date. Execution of an order form will confirm receipt of delivery in
accordance with Rule 15c2-8. Order forms will be distributed only with a
prospectus. Subscription funds will be maintained in a special escrow account at
Sound Federal Savings.

      We reserve the right in our sole discretion to terminate the offering at
any time and for any reason, in which case we will cancel any withdrawal orders
and return all funds submitted, plus interest at Sound Federal Savings' current
passbook savings rate from the date of receipt.

      USE OF ORDER FORMS. In order to purchase shares of the common stock in the
subscription offering and community offering, you must complete an order form
and remit payment. Incomplete order forms or order forms that are not signed are
not required to be accepted. We will not be required to accept orders submitted
on photocopied or facsimiled stock order forms. All order forms must be received
prior to 12:00 noon, New York Time on December ____, 2002. We are not required
to accept order forms that are not received by that time, are executed
defectively or are received without full payment or without appropriate
withdrawal instructions. We are not required to notify subscribers of incomplete
or improperly executed order forms, and we have the right to waive or permit the
correction of incomplete or improperly executed order forms. We do not
represent, however, that we will do so and we have no affirmative duty to notify
any prospective subscriber of any such defects. You may submit your order form
and payment by mail using the return envelope provided, by bringing your order
form to our stock information center, or by overnight delivery to the indicated
address on the back of the order form. Order forms may be delivered in person to
Sound Federal Savings branches. Once tendered, an order form cannot be modified
or revoked without our consent. We reserve the absolute right, in our sole
discretion, to reject orders received in the community offering, in whole or in
part, at the time of receipt or at any time prior to completion of the offering.
If you are

                                       95
ordering shares, you must represent that you are purchasing shares for your own
account and that you have no agreement or understanding with any person for the
sale or transfer of the shares. Our interpretation of the terms and conditions
of the plan of conversion and of the acceptability of the order forms will be
final.

      By signing the order form, you will be acknowledging that the common stock
is not a deposit or savings account that is federally insured or otherwise
guaranteed by Sound Federal Savings or the Federal Government, and that you
received a copy of this prospectus. However, signing the order form will not
result in you waiving your rights under the Securities Act of 1933 or the
Securities Exchange Act of 1934.

      PAYMENT FOR SHARES. Payment for all shares will be required to accompany
all completed order forms for the purchase to be valid. Payment for shares may
be made by:

      (1)   personal check, bank check or bank draft, made payable to Sound
            Federal Bancorp; or

      (2)   authorization of withdrawal from Sound Federal Savings deposit
            accounts (except checking accounts) designated on the stock order
            form.

      Appropriate means for designating withdrawals from deposit accounts at
Sound Federal Savings are provided in the order forms. The funds designated must
be available in the account(s) at the time the order form is received. A hold
will be placed on these funds, making them unavailable to the depositor. Funds
authorized for withdrawal will continue to earn interest within the account at
the contract rate until the offering is completed, at which time the designated
withdrawal will be made. Interest penalties for early withdrawal applicable to
certificate accounts will not apply to withdrawals authorized for the purchase
of shares of common stock; however, if a withdrawal results in a certificate
account with a balance less than the applicable minimum balance requirement, the
certificate will be cancelled at the time of withdrawal without penalty and the
remaining balance will earn interest at the current passbook rate subsequent to
the withdrawal. In the case of payments made by check or money order, these
funds must be available in the account(s) and will be immediately cashed and
placed in a segregated escrow account at Sound Federal Savings and interest will
be paid at the current passbook savings rate from the date payment is received
until the offering is completed or terminated. Once we receive your executed
order form, it may not be modified, amended or rescinded without our consent,
unless the offering is not completed by the expiration date, in which event
purchasers may be given the opportunity to increase, decrease or rescind their
orders for a specified period of time.

      If you are interested in using your individual retirement account funds to
purchase common stock, you must do so through a self-directed individual
retirement account. Sound Federal Savings, by law, cannot maintain self-directed
individual retirement accounts. Therefore, if you wish to use your funds that
are currently in a Sound Federal Savings individual retirement account, you may
not designate on the order form that you wish funds to be withdrawn from the
account for the purchase of common stock. The funds you wish to use for the
purchase of common stock will have to be transferred to a brokerage account.
There will be no early withdrawal or Internal Revenue Service interest penalties
for these transfers. Depositors interested in using funds in an individual
retirement account or any other retirement account to purchase common stock
should contact the stock information center as soon as possible, preferably at
least two weeks prior to the end of the offering period, because processing such
transactions takes additional time, and whether such funds can be used may
depend on limitations imposed by the institutions where such funds are currently
held. We cannot guarantee that you will be able to use such funds.

      Sound Federal Bancorp shall have the right, in its sole discretion, to
permit institutional investors to submit irrevocable orders together with the
legally binding commitment for payment and to thereafter pay for the shares of
common stock for which they subscribe in the community offering at any time
prior to 48 hours before the completion of the reorganization. This payment may
be made under wire transfer.

      If our employee stock ownership plan purchases shares in the offering, it
will not be required to pay for such shares until consummation of the offering,
provided there is a loan commitment from an unrelated financial institution or
Sound Federal Bancorp to lend to the employee stock ownership plan the necessary
amount to fund the purchase.

                                       96
Regulations prohibit Sound Federal Savings from lending funds or extending
credit to any persons to purchase common stock in the offering.

      DELIVERY OF STOCK CERTIFICATES. Certificates representing common stock
issued in the offering and Sound Federal Savings checks representing any
applicable refund and/or interest paid on subscriptions made by check, money
order or bank draft will be mailed to the persons entitled thereto at the
certificate registration address noted on the order form, as soon as practicable
following consummation of the offering and receipt of all necessary regulatory
approvals. Any certificates returned as undeliverable will be held by the
transfer agent until claimed by persons legally entitled thereto or otherwise
disposed of in accordance with applicable law. UNTIL CERTIFICATES FOR THE COMMON
STOCK ARE AVAILABLE AND DELIVERED TO PURCHASERS, PURCHASERS MAY NOT BE ABLE TO
SELL THE SHARES OF STOCK WHICH THEY ORDERED, EVEN THOUGH THE COMMON STOCK WILL
HAVE BEGUN TRADING.

      OTHER RESTRICTIONS. Notwithstanding any other provision of the plan of
conversion, no person is entitled to purchase any common stock to the extent the
purchase would be illegal under any federal or state law or regulation,
including state "blue sky" registrations, or would violate regulations or
policies of the National Association of Securities Dealers, Inc., particularly
those regarding free riding and withholding. We may ask for an acceptable legal
opinion from any purchaser as to the legality of his or her purchase and we may
refuse to honor any purchase order if an opinion is not timely furnished.

RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES

      OFFICE OF THRIFT SUPERVISION CONVERSION REGULATIONS PROHIBIT ANY PERSON
WITH SUBSCRIPTION RIGHTS, INCLUDING THE ELIGIBLE ACCOUNT HOLDERS, SUPPLEMENTAL
ELIGIBLE ACCOUNT HOLDERS AND OTHER MEMBERS, FROM TRANSFERRING OR ENTERING INTO
ANY AGREEMENT OR UNDERSTANDING TO TRANSFER THE LEGAL OR BENEFICIAL OWNERSHIP OF
THE SUBSCRIPTION RIGHTS ISSUED UNDER THE PLAN OF CONVERSION OR THE SHARES OF
COMMON STOCK TO BE ISSUED UPON THEIR EXERCISE. THESE RIGHTS MAY BE EXERCISED
ONLY BY THE PERSON TO WHOM THEY ARE GRANTED AND ONLY FOR HIS OR HER ACCOUNT.
EACH PERSON EXERCISING SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY THAT HE
OR SHE IS PURCHASING SHARES SOLELY FOR HIS OR HER OWN ACCOUNT AND THAT HE OR SHE
HAS NO AGREEMENT OR UNDERSTANDING REGARDING THE SALE OR TRANSFER OF SUCH SHARES.
THE REGULATIONS ALSO PROHIBIT ANY PERSON FROM OFFERING OR MAKING AN ANNOUNCEMENT
OF AN OFFER OR INTENT TO MAKE AN OFFER TO PURCHASE SUBSCRIPTION RIGHTS OR SHARES
OF COMMON STOCK TO BE ISSUED UPON THEIR EXERCISE PRIOR TO COMPLETION OF THE
OFFERING.

      WE WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT WE
BECOME AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS, AND WE WILL NOT HONOR
ORDERS THAT WE BELIEVE INVOLVE THE TRANSFER OF SUBSCRIPTION RIGHTS.

STOCK INFORMATION CENTER

      If you have any questions regarding the offering, please call the stock
information center at (___) ___-____, between 8:30 a.m. and 3:00 p.m. Monday
through Wednesday and Friday and between 8:30 a.m. and 6:00 p.m. on Thursday,
New York Time.

LIQUIDATION RIGHTS

      In the unlikely event of a complete liquidation of Sound Federal Bancorp
prior to the conversion, all claims of creditors of Sound Federal Bancorp,
including those of depositors to the extent of their deposit balances, would be
paid first. Thereafter, if there were any assets of Sound Federal Bancorp
remaining, these assets would be distributed to stockholders, including Sound
Federal, MHC. In the unlikely event that Sound Federal, MHC and Sound Federal
Bancorp liquidated prior to the conversion, all claims of creditors would be
paid first. Then, if there were any assets of Sound Federal, MHC remaining,
members of Sound Federal, MHC would receive those remaining assets, pro rata,
based upon the deposit balances in their deposit account in Sound Federal
Savings immediately prior to liquidation. In the unlikely event that Sound
Federal Savings were to liquidate after the conversion, all claims of creditors,
including those of depositors, would be paid first, followed by distribution of
the "liquidation account" to certain depositors, with any assets remaining
thereafter distributed to Sound Federal Bancorp as the holder of Sound Federal
Savings capital stock. Pursuant to the rules and regulations of the Office of
Thrift Supervision, a post-conversion merger, consolidation, sale of bulk assets
or similar combination or transaction

                                       97
with another insured savings institution would not be considered a liquidation
and, in these types of transactions, the liquidation account would be assumed by
the surviving institution.

      The plan of conversion provides for the establishment, upon the completion
of the conversion, of a special "liquidation account" for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders (as those
terms are defined in the plan of conversion) in an amount equal to the greater
of:

      (1)   Sound Federal, MHC's ownership interest in the retained earnings of
            Sound Federal Bancorp as of the date of its latest balance sheet
            contained in this prospectus; or

      (2)   the retained earnings of Sound Federal Savings at the time that
            Sound Federal Savings reorganized into Sound Federal, MHC in 1998.

      The purpose of the liquidation account is to provide Eligible Account
Holders and Supplemental Eligible Account Holders who maintain their deposit
accounts with Sound Federal Savings after the conversion with an interest in the
unlikely event of the complete liquidation of Sound Federal Savings after the
conversion. Each Eligible Account Holder and Supplemental Eligible Account
Holder that continues to maintain his or her deposit account at Sound Federal
Savings, would be entitled, on a complete liquidation of Sound Federal Savings
after the conversion, to an interest in the liquidation account prior to any
payment to the stockholders of Sound Federal Bancorp. Each Eligible Account
Holder and Supplemental Eligible Account Holder would have an initial interest
in the liquidation account for each deposit account, including savings accounts,
transaction accounts such as negotiable order of withdrawal accounts, money
market deposit accounts, and certificates of deposit, with a balance of $50 or
more held in Sound Federal Savings on March 31, 2001 or September 30, 2002. Each
Eligible Account Holder and Supplemental Eligible Account Holder would have a
pro rata interest in the total liquidation account for each such deposit
account, based on the proportion that the balance of each such deposit account
on March 31, 2001 or September 30, 2002 bears to the balance of all deposit
accounts in Sound Federal Savings on such dates.

      If, however, on any December 31 annual closing date commencing after the
effective date of the conversion, the amount in any such deposit account is less
than the amount in the deposit account on March 31, 2001 or September 30, 2002
or any other annual closing date, then the interest in the liquidation account
relating to such deposit account would be reduced from time to time by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is closed. In addition, no interest in the liquidation account
would ever be increased despite any subsequent increase in the related deposit
account. Payment pursuant to liquidation rights of Eligible Account Holders and
Supplemental Eligible Account Holders would be separate and apart from the
payment of any insured deposit accounts to such depositor. Any assets remaining
after the above liquidation rights of Eligible Account Holders and Supplemental
Eligible Account Holders are satisfied would be distributed to Sound Federal
Bancorp as the sole stockholder of Sound Federal Savings.

TAX ASPECTS

      Consummation of the conversion is expressly conditioned upon the prior
receipt of an opinion of counsel or tax advisor with respect to federal and
state income taxation that indicates that the conversion will not be a taxable
transaction to Sound Federal, MHC, Sound Federal Bancorp, Sound Federal Savings,
Eligible Account Holders, Supplemental Eligible Account Holders, and other
members of Sound Federal, MHC. Unlike private letter rulings, opinions of
counsel or tax advisors are not binding on the Internal Revenue Service or any
state taxing authority, and such authorities may disagree with such opinions. In
the event of such disagreement, there can be no assurance that Sound Federal
Bancorp or Sound Federal Savings would prevail in a judicial proceeding.

      Sound Federal, MHC and Sound Federal Bancorp have received an opinion of
counsel, Luse Gorman Pomerenk & Schick, P.C., regarding all of the material
federal income tax consequences of the conversion which includes the following:

      1.    The conversion of Sound Federal Bancorp to a federally chartered
            interim stock savings bank will qualify as a tax-free reorganization
            within the meaning of Section 368(a)(1)(F) of the Code and the

                                       98
merger of Sound Federal Bancorp with and into Sound Federal Savings
            qualifies as a tax-free reorganization within the meaning of Section
            368(a)(1)(A) of the Code.

      2.    None of Sound Federal Bancorp, Sound Federal Savings, nor the
            shareholders of Sound Federal Bancorp will recognize any gain or
            loss upon the transfer of assets and liabilities of Sound Federal
            Bancorp to Sound Federal Savings in exchange for shares of common
            stock of Sound Federal Savings which will be constructively
            distributed to Sound Federal Bancorp's shareholders.

      3.    The basis of the assets of Sound Federal Bancorp and the holding
            period of such assets to be received by Sound Federal Savings will
            be the same as the basis and holding period in such assets in the
            hands of Sound Federal Bancorp immediately before the exchange.

      4.    The conversion of Sound Federal, MHC, to a federally chartered
            interim stock savings bank will qualify as a tax-free reorganization
            within the meaning of Section 368(a)(1)(F) of the Code and the
            merger of Sound Federal, MHC with and into Sound Federal Savings
            qualifies as a tax-free reorganization within the meaning of Section
            368(a)(1)(A) of the Code.

      5.    The exchange of Eligible Account Holders' and Supplemental Account
            Holders' interests in Sound Federal, MHC for interests in a
            liquidation account established in Sound Federal Savings will
            satisfy the continuity of interest requirement of Section 1.368-1(b)
            of the Federal Income Tax Regulations.

      6.    None of Sound Federal, MHC, Sound Federal Savings nor eligible
            account holders, supplemental eligible account holders or other
            members will recognize any gain or loss on the transfer of the
            assets and liabilities of Sound Federal, MHC to Sound Federal
            Savings in exchange for an interest in a liquidation account
            established in Sound Federal Savings that is constructively
            distributed to eligible account holders and supplemental eligible
            account holders who remain depositors of Sound Federal Savings.

      7.    Current stockholders of Sound Federal Bancorp will not recognize any
            gain or loss upon their constructive exchange of Sound Federal
            Bancorp common stock for shares of Sound Federal Savings which will
            in turn be exchanged for new shares of Sound Federal Bancorp common
            stock.

      8.    Each stockholder's aggregate basis in new shares of Sound Federal
            Bancorp common stock (including fractional share interests) received
            in the conversion will be the same as the aggregate basis of Sound
            Federal Bancorp common stock surrendered in exchange therefor.

      9.    Each stockholder's holding period in his or her Sound Federal
            Bancorp common stock received in the exchange will include the
            period during which Sound Federal Bancorp common stock surrendered
            was held, provided that the Sound Federal Bancorp common stock
            surrendered is a capital asset in the hands of the stockholder on
            the date of the exchange.

      10.   Cash received by any current stockholder of Sound Federal Bancorp in
            lieu of a fractional share interest in new shares of Sound Federal
            Bancorp common stock will be treated as having been received as a
            distribution in full payment in exchange for a fractional share
            interest of new Sound Federal Bancorp common stock, which such
            stockholder would otherwise be entitled to receive. Accordingly, a
            shareholder will recognize gain or loss equal to the difference
            between the cash received and the basis of the fractional share. If
            the common stock is held by the shareholder as a capital asset, the
            gain or loss will be capital gain or loss.

      11.   It is more likely than not that the fair market value of the
            nontransferable subscription rights to purchase common stock is
            zero. Accordingly, no gain or loss will be recognized by eligible
            account holders, supplemental eligible account holders or other
            members upon distribution to them of nontransferable subscription
            rights to purchase shares of Sound Federal Bancorp common stock and

                                       99
such persons will not realize any taxable income as a result of the
            exercise by them of the nontransferable subscription rights.

      12.   It is more likely than not that the basis of the Sound Federal
            Bancorp common stock purchased in the offering will be its purchase
            price. The holding period of the Sound Federal Bancorp common stock
            purchased pursuant to the exercise of nontransferable subscription
            rights will commence on the date on which the right to acquire such
            stock was exercised.

      13.   No gain or loss will be recognized by Sound Federal Bancorp on the
            receipt of money in exchange for Sound Federal Bancorp common stock
            sold in the offering.

      The tax opinions as to 11 and 12 above are based on the position that
nontransferable subscription rights to be received by eligible account holders
and supplemental eligible account holders do not have any economic value at the
time of distribution or the time the subscription rights are exercised. In this
regard, Luse Gorman Pomerenk & Schick, P.C. noted that the subscription rights
will be granted at no cost to the recipients, will be legally non-transferable
and of short duration, and will provide the recipient with the right only to
purchase shares of common stock at the same price to be paid by members of the
general public in any community offering. The firm also noted that the Internal
Revenue Service has not in the past concluded that the subscription rights have
value. Based on the foregoing, Luse Gorman Pomerenk & Schick, P.C. believes that
it is more likely than not that the nontransferable subscription rights to
purchase common stock have no value. However, the issue of whether or not the
subscription rights have value is based on all the facts and circumstances. If
the nontransferable subscription rights granted to eligible subscribers are
subsequently found to have an ascertainable value greater than zero, income may
be recognized by various recipients of the nontransferable subscription rights
(in certain cases, whether or not the rights are exercised) and we could
recognize gain on the distribution of the nontransferable subscription rights.
Eligible account holders and supplemental eligible account holders are
encouraged to consult with their own tax advisors as to the tax consequences in
the event that subscription rights are deemed to have an ascertainable value.
Unlike private rulings, an opinion of Luse Gorman Pomerenk & Schick, P.C., is
not binding on the Internal Revenue Service and the Internal Revenue Service
could disagree with the conclusions reached therein.

      The federal tax opinion has been filed with the Securities and Exchange
Commission as an exhibit to Sound Federal Bancorp's registration statement. An
opinion regarding the New York state income tax consequences consistent with the
federal tax opinion has been issued by KPMG LLP, tax advisors to Sound Federal,
MHC and Sound Federal Bancorp.

CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF OUR SHARES AFTER CONVERSION

      All shares purchased in the offering by a director or an executive officer
of Sound Federal Savings generally may not be sold for a period of one year
following the conversion, except in the event of the death of the director or
executive officer. Each certificate for restricted shares will bear a legend
giving notice of this restriction on transfer, and instructions will be issued
to the effect that any transfer within this time period of any certificate or
record ownership of the shares other than as provided above is a violation of
the restriction. Any shares of common stock issued at a later date as a stock
dividend, stock split, or otherwise, with respect to the restricted stock will
be similarly restricted. The directors and executive officers of Sound Federal
Savings also will be restricted by the insider trading rules promulgated
pursuant to the Securities Exchange Act of 1934.

      Purchases of shares of our common stock by any of our directors, executive
officers and their associates, during the three-year period following the
conversion may be made only through a broker or dealer registered with the
Securities and Exchange Commission, except with the prior written approval of
the Office of Thrift Supervision. This restriction does not apply, however, to
negotiated transactions involving more than 1% of our outstanding common stock
or to purchases of our common stock by our stock option plan or any of our
tax-qualified employee stock benefit plans or nontax-qualified employee stock
benefit plans, including any recognition and retention plans or restricted stock
plans.

                                      100
Office of Thrift Supervision regulations prohibit Sound Federal Bancorp
from repurchasing its common stock during the first year following conversion
unless compelling business reasons exist for such repurchases. After one year,
the Office of Thrift Supervision does not impose any repurchase restrictions.

                       COMPARISON OF STOCKHOLDERS' RIGHTS

      GENERAL. As a result of the conversion, our existing Sound Federal Bancorp
stockholders will become stockholders of Sound Federal Bancorp, a Delaware
corporation. There are certain differences in stockholder rights arising from
distinctions between Sound Federal Bancorp's federal stock charter and bylaws
and Sound Federal Bancorp's Delaware certificate of incorporation and bylaws,
and from distinctions between laws applicable to Delaware and federally
chartered corporations.

      This discussion is not intended to be a complete statement of the
differences affecting the rights of stockholders, but rather summarizes the
material differences and similarities affecting the rights of stockholders. This
discussion is qualified in its entirety by reference to the certificate of
incorporation and bylaws of Sound Federal Bancorp and the Delaware General
Corporation Law. See "Additional Information" for procedures for obtaining a
copy of Sound Federal Bancorp's certificate of incorporation and bylaws.

      AUTHORIZED CAPITAL STOCK. Our authorized capital stock currently consists
of 20,000,000 shares of common stock, par value $0.10 per share, and 10,000,000
shares of preferred stock. After the conversion, our authorized capital stock as
a Delaware corporation will consist of 24,000,000 shares of common stock, $0.01
par value per share, and 1,000,000 shares of preferred stock, par value $0.01
per share. We authorized more capital stock than that which will be issued in
the conversion in order to provide our Board of Directors with flexibility to
effect, among other transactions, financings, acquisitions, stock dividends,
stock splits and stock option grants. However, these additional authorized
shares may also be used by our Board of Directors consistent with its fiduciary
duty to deter future attempts to gain control of Sound Federal Bancorp. Our
Board of Directors also has sole authority to determine the terms of any one or
more series of preferred stock, including voting rights, conversion rates and
liquidation preferences. As a result of the ability to fix voting rights for a
series of preferred stock, our Board has the power, to the extent consistent
with its fiduciary duty, to issue a series of preferred stock to persons
friendly to management in order to attempt to block a hostile tender offer,
merger or other transaction by which a third party seeks control, and thereby
assist management to retain its position. We currently have no plans for the
issuance of additional shares, other than the issuance of additional shares
through our stock benefit plans.

      ISSUANCE OF CAPITAL STOCK. Pursuant to applicable laws and regulations,
Sound Federal, MHC is required to own not less than a majority of the
outstanding Sound Federal Bancorp common stock. There will be no such
restriction applicable to Sound Federal Bancorp following consummation of the
conversion.

      Sound Federal Bancorp's Delaware certificate of incorporation does not
contain restrictions on the issuance of shares of capital stock to directors,
officers or controlling persons, whereas Sound Federal Bancorp's federal stock
charter restricts such issuances to general public offerings, or to directors
for qualifying shares, unless the share issuance or the plan under which they
would be issued has been approved by a majority of the total votes eligible to
be cast at a legal stockholders' meeting. Thus, stock related compensation
plans, such as stock option plans and recognition and retention plans, may be
adopted by Sound Federal Bancorp without stockholder approval and shares of
Sound Federal Bancorp capital stock may be issued directly to directors or
officers without stockholder approval. The bylaws of the National Association of
Securities Dealers, Inc., however, generally require corporations with
securities that are quoted on the Nasdaq National Market System to obtain
stockholder approval of most stock compensation plans for directors, officers
and key employees of the corporation. Moreover, although generally not required,
stockholder approval of stock-related compensation plans may be sought in
certain instances in order to qualify such plans for favorable federal income
tax and securities law treatment under current laws and regulations.

      VOTING RIGHTS. Neither Sound Federal Bancorp's federal stock charter or
bylaws nor Sound Federal Bancorp's Delaware certificate of incorporation or
bylaws provide for cumulative voting for the election of directors. For
additional information regarding voting rights, see "--Limitations on Voting
Rights of Greater-than-10% Stockholders" below.

                                      101
PAYMENT OF DIVIDENDS. The ability of Sound Federal Bancorp to pay
dividends on its capital stock is restricted by Office of Thrift Supervision
regulations and by federal income tax considerations related to savings banks
such as Sound Federal Savings. See "Supervision and Regulation--Federal Banking
Regulation--Capital Distributions." Although Sound Federal Bancorp is not
subject to these restrictions as a Delaware corporation, such restrictions will
indirectly affect Sound Federal Bancorp because dividends from Sound Federal
Savings will be a primary source of funds of Sound Federal Bancorp for the
payment of dividends to stockholders of Sound Federal Bancorp.

      Certain restrictions generally imposed on Delaware corporations may also
have an impact on Sound Federal Bancorp's ability to pay dividends. Delaware law
generally provides that Sound Federal Bancorp is limited to paying dividends in
an amount equal to the excess of its net assets (total assets minus total
liabilities) over its statutory capital or, if no such excess exists, equal to
its net profits for the current year and/or the immediately preceding fiscal
year.

      BOARD OF DIRECTORS. Sound Federal Bancorp's federal stock charter and
bylaws and Sound Federal Bancorp's Delaware certificate of incorporation and
bylaws each require the Board of Directors to be divided into three classes and
that the members of each class shall be elected for a term of three years and
until their successors are elected and qualified, with one class being elected
annually.

      Under Sound Federal Bancorp's federal bylaws, any vacancies on the Board
of Directors of Sound Federal Bancorp may be filled by the affirmative vote of a
majority of the remaining directors although less than a quorum of the Board of
Directors. Persons elected by the directors of Sound Federal Bancorp to fill
vacancies may only serve until the next annual meeting of stockholders. Under
Sound Federal Bancorp's Delaware certificate of incorporation, any vacancy
occurring in the Board of Directors of Sound Federal Bancorp, including any
vacancy created by reason of an increase in the number of directors, may be
filled by the remaining directors, and any director so chosen shall hold office
for the remainder of the term to which the director has been elected and until
his or her successor is elected and qualified.

      Under Sound Federal Bancorp's federal bylaws, any director may be removed
for cause by the holders of a majority of the outstanding voting shares. Sound
Federal Bancorp's Delaware certificate of incorporation provides that any
director may be removed for cause by the holders of at least 80% of the
outstanding voting shares of Sound Federal Bancorp.

      LIMITATIONS ON LIABILITY. The federal stock charter and bylaws of Sound
Federal Bancorp do not limit the personal liability of directors.

      Sound Federal Bancorp's Delaware certificate of incorporation provides
that the directors of Sound Federal Bancorp will not be personally liable for
monetary damages to Sound Federal Bancorp for certain actions as directors,
except for actions or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law by the director, the authorization of
illegal distributions or receipt of an improper personal benefit from their
positions as directors. This provision might, in certain instances, discourage
or deter shareholders or management from bringing a lawsuit against directors
for a breach of their duties even though such an action, if successful, might
have benefited Sound Federal Bancorp.

      INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. Sound
Federal Bancorp's federal stock charter and bylaws do not contain any provision
relating to indemnification of directors and officers of Sound Federal Bancorp
Under current Office of Thrift Supervision regulations, however, Sound Federal
Bancorp shall indemnify its directors, officers and employees for any costs
incurred in connection with any litigation involving such person's activities as
a director, officer or employee if such person obtains a final judgment on the
merits in his or her favor. In addition, indemnification is permitted in the
case of a settlement, a final judgment against such person or final judgment
other than on the merits, if a majority of disinterested directors determines
that such person was acting in good faith within the scope of his or her
employment as he or she could reasonably have perceived it under the
circumstances and for a purpose he or she could reasonably have believed under
the circumstances was in the best interests of Sound Federal Bancorp or its
stockholders. Sound Federal Bancorp also is permitted to pay ongoing expenses
incurred by a director, officer or employee if a majority of disinterested
directors concludes that

                                      102
such person may ultimately be entitled to indemnification. Before making any
indemnification payment, Sound Federal Bancorp is required to notify the Office
of Thrift Supervision of its intention and such payment cannot be made if the
Office of Thrift Supervision objects to such payment.

      The officers, directors, agents and employees of Sound Federal Bancorp are
indemnified with respect to certain actions pursuant to Sound Federal Bancorp's
Delaware certificate of incorporation, which complies with Delaware law
regarding indemnification. Delaware law allows Sound Federal Bancorp to
indemnify the aforementioned persons for expenses, liabilities, settlements,
judgments and fines in suits in which such person has been made a party by
reason of the fact that he or she is or was a director or officer of Sound
Federal Bancorp. No such indemnification may be given if the acts or omissions
of the person are adjudged to be in violation of law, if such person is liable
to the corporation for an unlawful distribution, or if such person personally
received a benefit to which he or she was not entitled. The right to
indemnification includes the right to be paid the expenses incurred in advance
of final disposition of a proceeding.

      SPECIAL MEETINGS OF STOCKHOLDERS. Sound Federal Bancorp's federal bylaws
provide that special meetings of Sound Federal Bancorp's stockholders may be
called by the Chairman, the President, a majority of the Board of Directors or
the holders of not less than one-tenth of the outstanding capital stock of Sound
Federal Bancorp entitled to vote at the meeting. Sound Federal Bancorp's
Delaware certificate of incorporation provides that special meetings of the
stockholders of Sound Federal Bancorp may be called only by a majority vote of
the total authorized directors.

      STOCKHOLDER NOMINATIONS AND PROPOSALS. Sound Federal Bancorp's federal
bylaws generally provide that stockholders may submit nominations for election
of directors at an annual meeting of stockholders and any new business to be
taken up at such a meeting by filing the proposal in writing with Sound Federal
Bancorp at least five days before the date of any such meeting.

      Sound Federal Bancorp's Delaware bylaws generally provide that any
stockholder desiring to make a nomination for the election of directors or a
proposal for new business at a meeting of stockholders must submit written
notice to Sound Federal Bancorp 90 days prior to the anniversary date of the
mailing of proxy materials by Sound Federal Bancorp in connection with the
immediately preceding annual meeting of stockholders. However, if the date of
the annual meeting is advanced more than 30 days prior to or delayed by more
than 30 days after the anniversary of the preceding year's annual meeting,
stockholders must submit such written notice no later than the tenth day
following the date on which notice of the meeting is mailed to stockholders or
such public disclosure was made. Failure to comply with these advance notice
requirements will preclude such nominations or new business from being
considered at the meeting. Management believes that it is in the best interests
of Sound Federal Bancorp and its stockholders to provide sufficient time to
enable management to disclose to stockholders information about a dissident
slate of nominations for directors. This advance notice requirement may also
give management time to solicit its own proxies in an attempt to defeat any
dissident slate of nominations, should management determine that doing so is in
the best interests of stockholders generally. Similarly, adequate advance notice
of stockholder proposals will give management time to study such proposals and
to determine whether to recommend to the stockholders that such proposals be
adopted. In certain instances, such provisions could make it more difficult to
oppose management's nominees or proposals, even if stockholders believe such
nominees or proposals are in their best interests.

      STOCKHOLDER ACTION WITHOUT A MEETING. The federal bylaws of Sound Federal
Bancorp provide that any action to be taken or which may be taken at any annual
or special meeting of stockholders may be taken if a consent in writing, setting
forth the actions so taken, is given by the holders of all outstanding shares
entitled to vote. Sound Federal Bancorp's Delaware certificate of incorporation
specifically denies the authority of stockholders to act without a meeting.

      STOCKHOLDER'S RIGHT TO EXAMINE BOOKS AND RECORDS. A federal regulation,
which is applicable to Sound Federal Bancorp, provides that stockholders may
inspect and copy specified books and records of a federally chartered savings
institution after proper written notice for a proper purpose. Delaware law
similarly provides that a stockholder may inspect books and records upon written
demand stating the purpose of the inspection, if such purpose is reasonably
related to such person's interest as a stockholder.

                                      103
LIMITATIONS ON VOTING RIGHTS OF GREATER-THAN-10% STOCKHOLDERS. Sound
Federal Bancorp's Delaware certificate of incorporation provides that no record
or beneficial owner, directly or indirectly, of more than 10% of the outstanding
shares of common stock will be permitted to vote any shares in excess of such
10% limit.

      MERGERS, CONSOLIDATIONS AND SALES OF ASSETS. A federal regulation requires
the approval of two-thirds of the Board of Directors of Sound Federal Bancorp
and the holders of two-thirds of the outstanding stock of Sound Federal Bancorp
entitled to vote thereon for mergers, consolidations and sales of all or
substantially all of Sound Federal Bancorp's assets. Such regulation permits
Sound Federal Bancorp to merge with another corporation without obtaining the
approval of its stockholders if:

      (1)   it does not involve an interim savings institution;

      (2)   Sound Federal Bancorp's federal stock charter is not changed;

      (3)   each share of Sound Federal Bancorp's stock outstanding immediately
            prior to the effective date of the transaction will be an identical
            outstanding share or a treasury share of Sound Federal Bancorp after
            such effective date; and

      (4)   either:

            (a)   no shares of voting stock of Sound Federal Bancorp and no
                  securities convertible into such stock are to be issued or
                  delivered under the plan of combination; or

            (b)   the authorized unissued shares or the treasury shares of
                  voting stock of Sound Federal Bancorp to be issued or
                  delivered under the plan of combination, plus those initially
                  issuable upon conversion of any securities to be issued or
                  delivered under such plan, do not exceed 15% of the total
                  shares of voting stock of Sound Federal Bancorp outstanding
                  immediately prior to the effective date of the transaction.

      Sound Federal Bancorp's Delaware certificate of incorporation requires the
approval of the holders of at least 80% of Sound Federal Bancorp's outstanding
shares of voting stock to approve certain "Business Combinations" involving an
"Interested Stockholder" except where (i) the proposed transaction has been
approved by two-thirds of the members of the Board of Directors who are
unaffiliated with the Interested Stockholder and who were directors prior to the
time when the Interested Stockholder became an Interested Stockholder, or (ii)
certain "fair price" provisions are complied with. The term "Interested
Stockholder" includes any individual, corporation, partnership or other entity,
other than Sound Federal Bancorp or its subsidiary, which owns beneficially or
controls, directly or indirectly, 10% or more of the outstanding shares of
voting stock of Sound Federal Bancorp or an affiliate of such person or entity.
This provision of the certificate of incorporation applies to any "Business
Combination," which is defined to include, among other things:

      (1)   any merger or consolidation of Sound Federal Bancorp with or into
            any Interested Stockholder;

      (2)   any sale, lease, exchange, mortgage, transfer, or other disposition
            of 25% or more of the assets of Sound Federal Bancorp and its
            subsidiaries to an Interested Stockholder;

      (3)   the issuance or transfer of any securities of Sound Federal Bancorp
            or a subsidiary of Sound Federal Bancorp to an Interested
            Stockholder having a value exceeding 25% of the combined fair market
            value of the outstanding securities of Sound Federal Bancorp;

      (4)   the adoption of any plan or proposal for the liquidation or
            dissolution of Sound Federal Bancorp proposed by or on behalf of an
            Interested Stockholder or any Affiliate of an Interested
            Stockholder; or

      (5)   any reclassification of securities, any recapitalization, or any
            merger with a subsidiary or other transaction that has the effect of
            increasing an Interested Stockholder's proportional share of any
            class of securities of Sound Federal Bancorp.

                                      104
Under Delaware law, absent this provision, business combinations,
including mergers, consolidations and sales of substantially all of the assets
of a corporation must, subject to certain exceptions, be approved by the vote of
the holders of a majority of the outstanding shares of common stock of Sound
Federal Bancorp and any other affected class of stock. One exception under
Delaware law to the majority approval requirement applies to stockholders owning
15% or more of the common stock of a corporation for a period of less than three
years. Such 15% stockholder, in order to obtain approval of a business
combination, must obtain the approval of two-thirds of the outstanding stock,
excluding the stock owned by such 15% stockholder, or satisfy other requirements
under Delaware law relating to board of director approval of his or her
acquisition of the shares of Sound Federal Bancorp The increased stockholder
vote required to approve a business combination may have the effect of
preventing mergers and other business combinations which a majority of
stockholders deem desirable and placing the power to prevent such a merger or
combination in the hands of a minority of stockholders.

      Sound Federal Bancorp's Delaware certificate of incorporation provides
that the Sound Federal Bancorp's Board of Directors may consider certain factors
in addition to the amount of consideration to be paid when evaluating certain
business combinations or a tender or exchange offer. These additional factors
include the social and economic effects of the transaction on its customers and
employees and the communities served by Sound Federal Bancorp.

      DISSENTERS' RIGHTS OF APPRAISAL. Office of Thrift Supervision regulations
generally provide that a stockholder of a federally chartered savings
institution that engages in a merger, consolidation or sale of all or
substantially all of its assets shall have the right to demand from such
institution payment of the fair or appraised value of his or her stock in the
institution, subject to specified procedural requirements. However, if the
federally chartered savings institution's stock is listed on a national
securities exchange or quoted on the Nasdaq Stock Market, stockholders are not
entitled to dissenters' rights in connection with a merger if the stockholders
are required to accept cash or shares of stock which will be listed on a
national securities exchange or quoted on the Nasdaq Stock Market, or any
combination thereof.

      Under Delaware law, except for cash merger transactions, shareholders of
Sound Federal Bancorp generally will not have dissenters' appraisal rights in
connection with a plan of merger or consolidation to which Sound Federal Bancorp
is a party because the common stock is expected to be listed on the Nasdaq
National Market.

      AMENDMENT OF GOVERNING INSTRUMENTS. No amendment of Sound Federal
Bancorp's federal stock charter may be made unless it is first proposed by the
Board of Directors of Sound Federal Bancorp, then preliminarily approved by the
Office of Thrift Supervision, and thereafter approved by the holders of a
majority of the total votes eligible to be cast at a legal meeting. Sound
Federal Bancorp's Delaware certificate of incorporation may be amended by the
vote of the holders of a majority of the outstanding shares of Sound Federal
Bancorp common stock, except that the provisions of the certificate of
incorporation governing the calling of meetings of stockholders and the
prohibition of action by written consent of stockholders, stockholder
nominations and proposals, limitations on voting rights of 10% stockholders, the
number and staggered terms of directors, vacancies on the Board of Directors and
removal of directors, approval of certain business combinations, indemnification
of officers and directors, and the manner of amending the certificate of
incorporation and bylaws, may not be repealed, altered, amended or rescinded
except by the vote of the holders of at least 80% of the outstanding shares of
Sound Federal Bancorp.

      The federal bylaws of Sound Federal Bancorp may be amended by a majority
vote of the full Board of Directors of Sound Federal Bancorp or by a majority
vote of the votes cast by the stockholders of Sound Federal Bancorp at any legal
meeting. Sound Federal Bancorp's Delaware bylaws may only be amended by a
majority vote of the Board of Directors of Sound Federal Bancorp or by the
holders of at least 80% of the outstanding stock of Sound Federal Bancorp.

      RESIDENCY REQUIREMENT FOR DIRECTORS. Sound Federal Bancorp's Delaware
bylaws provide that only persons who reside or work in a county in which Sound
Federal Savings maintains an office or in a county contiguous to a county in
which Sound Federal Savings maintains an office will be qualified to be
appointed or elected to the Board of Directors of Sound Federal Bancorp. Sound
Federal Bancorp's federal bylaws have no similar provision.

                                      105
PURPOSE AND ANTI-TAKEOVER EFFECTS OF SOUND FEDERAL BANCORP'S DELAWARE
CERTIFICATE OF INCORPORATION AND BYLAWS. Our Board of Directors believes that
the provisions described above are prudent and will reduce our vulnerability to
takeover attempts and certain other transactions that have not been negotiated
with and approved by our Board of Directors. These provisions will also assist
us in the orderly deployment of the conversion proceeds into productive assets
during the initial period after the conversion. Our Board of Directors believes
these provisions are in the best interests of Sound Federal Bancorp and its
stockholders. Our Board of Directors believes that it will be in the best
position to determine the true value of Sound Federal Bancorp and to negotiate
more effectively for what may be in the best interests of its stockholders.
Accordingly, our Board of Directors believes that it is in the best interests of
Sound Federal Bancorp and its stockholders to encourage potential acquirers to
negotiate directly with the Board of Directors of Sound Federal Bancorp and that
these provisions will encourage such negotiations and discourage hostile
takeover attempts. It is also the view of our Board of Directors that these
provisions should not discourage persons from proposing a merger or other
transaction at a price reflective of the true value of Sound Federal Bancorp and
that is in the best interests of all stockholders.

      Takeover attempts that have not been negotiated with and approved by our
Board of Directors present the risk of a takeover on terms that may be less
favorable than might otherwise be available. A transaction that is negotiated
and approved by our Board of Directors, on the other hand, can be carefully
planned and undertaken at an opportune time in order to obtain maximum value of
Sound Federal Bancorp for our stockholders, with due consideration given to
matters such as the management and business of the acquiring corporation and
maximum strategic development of Sound Federal Bancorp's assets.

      Although a tender offer or other takeover attempt may be made at a price
substantially above the current market price, such offers are sometimes made for
less than all of the outstanding shares of a target company. As a result,
stockholders may be presented with the alternative of partially liquidating
their investment at a time that may be disadvantageous, or retaining their
investment in an enterprise that is under different management and whose
objectives may not be similar to those of the remaining stockholders.

      Despite our belief as to the benefits to stockholders of these provisions
of Sound Federal Bancorp's Delaware certificate of incorporation and bylaws,
these provisions may also have the effect of discouraging a future takeover
attempt that would not be approved by our Board, but pursuant to which
stockholders may receive a substantial premium for their shares over then
current market prices. As a result, stockholders who might desire to participate
in such a transaction may not have any opportunity to do so. Such provisions
will also make it more difficult to remove our Board of Directors and
management. Our Board of Directors, however, has concluded that the potential
benefits outweigh the possible disadvantages.

      Following the conversion, pursuant to applicable law and, if required,
following the approval by stockholders, we may adopt additional anti-takeover
charter provisions or other devices regarding the acquisition of our equity
securities that would be permitted for a Delaware business corporation.

      The cumulative effect of the restriction on acquisition of Sound Federal
Bancorp contained in the Delaware certificate of incorporation and bylaws of
Sound Federal Bancorp and in Delaware law may be to discourage potential
takeover attempts and perpetuate incumbent management, even though certain
stockholders of Sound Federal Bancorp may deem a potential acquisition to be in
their best interests, or deem existing management not to be acting in their best
interests.

              RESTRICTIONS ON ACQUISITION OF SOUND FEDERAL BANCORP

      The following discussion is a summary of certain provisions of federal law
and regulations relating to stock ownership and transfers, the Board of
Directors and business combinations, all of which may be deemed to have
"anti-takeover" effects. The description of these provisions is necessarily
general and reference should be made to the actual law and regulations.

                                      106
CONVERSION REGULATIONS

      Office of Thrift Supervision regulations prohibit any person from making
an offer, announcing an intent to make an offer or participating in any other
arrangement to purchase stock or acquiring stock or subscription rights in a
converting institution or its holding company from another person prior to
completion of its conversion. Further, without the prior written approval of the
Office of Thrift Supervision, no person may make such an offer or announcement
of an offer to purchase shares or actually acquire shares in the converting
institution or its holding company for a period of three years from the date of
the completion of the conversion if, upon the completion of such offer,
announcement or acquisition, that person would become the beneficial owner of
more than 10% of the outstanding stock of the institution or its holding
company. The Office of Thrift Supervision has defined "person" to include any
individual, group acting in concert, corporation, partnership, association,
joint stock company, trust, unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution. However, offers made
exclusively to an bank or its holding company, or an underwriter or member of a
selling group acting on the converting institution's or its holding company's
behalf for resale to the general public are excepted. The regulation also
provides civil penalties for willful violation or assistance in any such
violation of the regulation by any person connected with the management of the
converting institution or its holding company or who controls more than 10% of
the outstanding shares or voting rights of a converted institution or its
holding company.

CHANGE OF CONTROL REGULATIONS

      Under the Change in Bank Control Act, no person may acquire control of an
insured federal savings bank or its parent holding company unless the Office of
Thrift Supervision has been given 60 days' prior written notice and has not
issued a notice disapproving the proposed acquisition. In addition, Office of
Thrift Supervision regulations provide that no company may acquire control of a
savings bank without the prior approval of the Office of Thrift Supervision. Any
company that acquires such control becomes a "savings and loan holding company"
subject to registration, examination and regulation by the Office of Thrift
Supervision.

      Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings bank's
directors, or a determination by the Office of Thrift Supervision that the
acquiror has the power to direct, or directly or indirectly to exercise a
controlling influence over, the management or policies of the institution.
Acquisition of more than 10% of any class of a savings bank's voting stock, if
the acquiror is also subject to any one of eight "control factors," constitutes
a rebuttable determination of control under the regulations. Such control
factors include the acquiror being one of the two largest stockholders. The
determination of control may be rebutted by submission to the Office of Thrift
Supervision, prior to the acquisition of stock or the occurrence of any other
circumstances giving rise to such determination, of a statement setting forth
facts and circumstances which would support a finding that no control
relationship will exist and containing certain undertakings. The regulations
provide that persons or companies which acquire beneficial ownership exceeding
10% or more of any class of a savings bank's stock who do not intend to
participate in or seek to exercise control over a savings bank's management or
policies may qualify for a safe harbor by filing with the Office of Thrift
Supervision a certification form that states, among other things, that the
holder is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the Office of Thrift Supervision, as applicable. There are also
rebuttable presumptions in the regulations concerning whether a group "acting in
concert" exists, including presumed action in concert among members of an
"immediate family."

      The Office of Thrift Supervision may prohibit an acquisition of control if
it finds, among other things, that:

      (1)   the acquisition would result in a monopoly or substantially lessen
            competition;

      (2)   the financial condition of the acquiring person might jeopardize the
            financial stability of the institution; or

                                      107
(3)   the competence, experience or integrity of the acquiring person
            indicates that it would not be in the interest of the depositors or
            the public to permit the acquisition of control by such person.

              DESCRIPTION OF CAPITAL STOCK OF SOUND FEDERAL BANCORP
                            FOLLOWING THE CONVERSION

GENERAL

      At the effective date, Sound Federal Bancorp will be authorized to issue
24,000,000 shares of common stock having a par value of $0.01 per share and
1,000,000 shares of preferred stock. Sound Federal Bancorp currently expects to
issue in the offering up to 6,765,910 shares of common stock, subject to
adjustment, and up to 4,734,090 shares, subject to adjustment, in exchange for
the publicly held shares of Sound Federal Bancorp. Sound Federal Bancorp will
not issue shares of preferred stock in the conversion. Each share of Sound
Federal Bancorp common stock will have the same relative rights as, and will be
identical in all respects with, each other share of common stock. Upon payment
of the subscription price for the common stock, in accordance with the plan of
conversion, all of the common stock will be duly authorized, fully paid and
nonassessable.

      The common stock of Sound Federal Bancorp will represent nonwithdrawable
capital, will not be an account of an insurable type, and will not be insured by
the Federal Deposit Insurance Corporation or any other government agency.

COMMON STOCK

      DIVIDENDS. Sound Federal Bancorp may pay dividends out of statutory
surplus or from net earnings if, as and when declared by its Board of Directors.
The payment of dividends by Sound Federal Bancorp is subject to limitations that
are imposed by law and applicable regulation. The holders of common stock of
Sound Federal Bancorp will be entitled to receive and share equally in dividends
as may be declared by the Board of Directors of Sound Federal Bancorp out of
funds legally available therefor. If Sound Federal Bancorp issues preferred
stock, the holders thereof may have a priority over the holders of the common
stock with respect to dividends.

      VOTING RIGHTS. When the conversion is completed, the holders of common
stock of Sound Federal Bancorp will have exclusive voting rights in Sound
Federal Bancorp. They will elect Sound Federal Bancorp's Board of Directors and
act on other matters as are required to be presented to them under Delaware law
or as are otherwise presented to them by the Board of Directors. Generally, each
holder of common stock will be entitled to one vote per share and will not have
any right to cumulate votes in the election of directors. If Sound Federal
Bancorp issues preferred stock, holders of the preferred stock may also possess
voting rights. Certain matters require an 80% stockholder vote.

      As a federal stock savings bank, corporate powers and control of Sound
Federal Savings are vested in its Board of Directors, who elect the officers of
Sound Federal Savings and who fill any vacancies on the Board of Directors.
Voting rights of Sound Federal Savings are vested exclusively in the owners of
the shares of capital stock of Sound Federal Savings, which will be Sound
Federal Bancorp, and voted at the direction of Sound Federal Bancorp's Board of
Directors. Consequently, the holders of the common stock of Sound Federal
Bancorp will not have direct control of Sound Federal Savings.

      LIQUIDATION. In the event of any liquidation, dissolution or winding up of
Sound Federal Savings, Sound Federal Bancorp, as the holder of 100% of Sound
Federal Savings' capital stock, would be entitled to receive, after payment or
provision for payment of all debts and liabilities of Sound Federal Savings,
including all deposit accounts and accrued interest thereon, and after
distribution of the balance in the special liquidation account to Eligible
Account Holders and Supplemental Eligible Account Holders, all assets of Sound
Federal Savings available for distribution. In the event of liquidation,
dissolution or winding up of Sound Federal Bancorp, the holders of its common
stock would be entitled to receive, after payment or provision for payment of
all its debts and liabilities, all of the assets of Sound Federal Bancorp
available for distribution. If preferred stock is issued, the holders thereof
may have a priority over the holders of the common stock in the event of
liquidation or dissolution.

                                      108
PREEMPTIVE RIGHTS. Holders of the common stock of Sound Federal Bancorp
will not be entitled to preemptive rights with respect to any shares that may be
issued. The common stock is not subject to redemption.

PREFERRED STOCK

      None of the shares of Sound Federal Bancorp's authorized preferred stock
will be issued in the conversion. Preferred stock may be issued with preferences
and designations as our Board of Directors may from time to time determine. Our
Board of Directors may, without stockholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.

                                 TRANSFER AGENT

      The transfer agent and registrar for Sound Federal Bancorp common stock is
Registrar and Transfer Company, Cranford, New Jersey.

                                     EXPERTS

      The consolidated financial statements of Sound Federal Bancorp and
subsidiary as of March 31, 2002 and 2001, and for each of the years in the
three-year period ended March 31, 2002, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. The audit report covering the March 31, 2002
consolidated financial statements refers to a change in accounting for goodwill.

      FinPro, Inc. has consented to the publication herein of the summary of its
report to Sound Federal Bancorp setting forth its opinion as to the estimated
pro forma market value of the common stock upon completion of the stock offering
and its letter with respect to subscription rights.

                                  LEGAL MATTERS

      The legality of the common stock has been opined upon for Sound Federal
Bancorp by Luse Gorman Pomerenk & Schick, P.C., Washington, D.C., special
counsel to Sound Federal Bancorp. Certain legal matters will be passed upon for
Keefe, Bruyette & Woods, Inc. by Thacher Proffitt & Wood, Washington, D.C.

                             ADDITIONAL INFORMATION

      Sound Federal Bancorp has filed with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933 with
respect to the common stock offered hereby. As permitted by the rules and
regulations of the Securities and Exchange Commission, this prospectus does not
contain all the information set forth in the registration statement. Such
information, including the appraisal report which is an exhibit to the
registration statement, can be examined without charge at the public reference
facilities of the Securities and Exchange Commission located at 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of such material can be
obtained from the SEC at prescribed rates. The Securities and Exchange
Commission telephone number is 1-800-SEC-0330. In addition, the SEC maintains a
web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC, including Sound Federal Bancorp. The statements contained in this
prospectus as to the contents of any contract or other document filed as an
exhibit to the Registration Statement are, of necessity, brief descriptions of
the material terms of, and should be read in conjunction with, such contract or
document.

      Sound Federal, MHC has filed an Application on Form AC with respect to the
conversion. This prospectus omits certain information contained in the
Application. The Application may be examined at the principal office of the
Office of Thrift Supervision, 1700 G Street, N.W., Washington, D.C. 20552, and
at the Northeast Regional Office of the Office of Thrift Supervision, 10
Exchange Place, 18th Floor, Jersey City, New Jersey 07302.

                                      109
IN CONNECTION WITH THE STOCK OFFERING, SOUND FEDERAL BANCORP WILL REGISTER
ITS COMMON STOCK WITH THE SEC UNDER SECTION 12 OF THE SECURITIES EXCHANGE ACT OF
1934 AND, UPON SUCH REGISTRATION, SOUND FEDERAL BANCORP AND THE HOLDERS OF ITS
STOCK WILL BECOME SUBJECT TO THE PROXY SOLICITATION RULES, REPORTING
REQUIREMENTS AND RESTRICTIONS ON STOCK PURCHASES AND SALES BY DIRECTORS,
OFFICERS AND GREATER THAN 10% STOCKHOLDERS, THE ANNUAL AND PERIODIC REPORTING
AND CERTAIN OTHER REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934. UNDER THE
STOCK ISSUANCE PLAN, SOUND FEDERAL BANCORP HAS UNDERTAKEN THAT IT WILL NOT
TERMINATE SUCH REGISTRATION FOR A PERIOD OF AT LEAST THREE YEARS FOLLOWING THE
STOCK OFFERING.

                                      110
SOUND FEDERAL BANCORP AND SUBSIDIARY

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
                                                                                                  ----
Independent Auditors' Report...................................................................   F-2

Consolidated Balance Sheets at March 31, 2002 and 2001 (audited) and at
    June 30, 2002 (unaudited)..................................................................   F-3

Consolidated Statements of Income for the Years Ended March 31, 2002, 2001 and
    2000 (audited) and for the three-month periods ended June 30,
    2002 and 2001 (unaudited)..................................................................   F-4

Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
    March 31, 2002, 2001 and 2000 (audited) and for the three-month
    period ended June 30, 2002 (unaudited).....................................................   F-5

Consolidated Statements of Cash Flows for the Years Ended March 31, 2002, 2001
    and 2000 (audited) and for the three-month periods ended June 30,
    2002 and 2001 (unaudited)..................................................................   F-6

Notes to Consolidated Financial Statements.....................................................   F-7
All schedules are omitted because the required information is not applicable or
is included in the consolidated financial statements and related notes.

                                      F-1
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Sound Federal Bancorp:

We have audited the accompanying consolidated balance sheets of Sound Federal
Bancorp and subsidiary (the "Company") as of March 31, 2002 and 2001, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the years in the three-year period ended March 31, 2002.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sound Federal
Bancorp and subsidiary as of March 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS, as of April 1, 2001 and as a result ceased amortizing
goodwill.

                                          /s/ KPMG LLP

New York, New York
April 30, 2002, except for Note 1,
    which is as of June 13, 2002

                                      F-2
SOUND FEDERAL BANCORP AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
AT MARCH 31,
                                                                              AT JUNE 30,       -------------------------
                                                                                 2002               2002           2001
                                                                                 ----               ----           ----
                                                                              (UNAUDITED)
ASSETS
 Cash and due from banks................................................     $    6,651         $    6,931     $    5,849
 Federal funds sold and other overnight deposits........................         35,370             19,847         35,000
                                                                               --------            -------      ---------
         Total cash and cash equivalents................................         42,021             26,778         40,849
                                                                               --------            -------      ---------
 Securities:
     Available for sale, at fair value (including $35,995, $35,779 and
        $15,722 pledged as collateral for borrowings under repurchase
        agreements at the respective dates) (Notes 4 and 9).............        143,842            150,231        157,526
     Held to maturity, at amortized cost (fair value of $28,317 at
        March 31, 2001) (Note 5)........................................             --                 --         28,215
                                                                               --------            -------      ---------
          Total securities..............................................        143,842            150,231        185,741
                                                                               --------            -------      ---------
 Loans, net (Note 6):
     Mortgage loans.....................................................        437,283            419,120        293,954
     Consumer loans.....................................................          2,432              1,469          1,900
     Allowance for loan losses..........................................         (2,296)           (2,221)         (2,047)
                                                                               ---------           -------      ----------
          Total loans, net..............................................        437,419            418,368        293,807
                                                                               --------            -------      ---------

 Other interest-earning assets..........................................             --                 --          2,491
 Accrued interest receivable............................................          3,465              3,241          3,448
 Federal Home Loan Bank stock...........................................          4,141              4,141          3,745
 Premises and equipment, net (Note 7)...................................          5,489              5,459          5,850
 Deferred income taxes (Note 10)........................................            573                942            373
 Goodwill (Note 2)......................................................         13,970             13,970         13,970
 Other assets...........................................................            545                855          2,660
                                                                               --------            -------      ---------

           Total assets.................................................     $  651,465         $  623,985     $  552,934
                                                                               ========            =======      =========

LIABILITIES AND STOCKHOLDERS' EQUITY
  Liabilities:
      Deposits (Note 8).................................................     $  544,626         $  519,905     $  473,546
      Borrowings (Note 9)...............................................         34,967             34,922         14,698
      Mortgage escrow funds.............................................          4,402              5,021          4,486
      Accrued expenses and other liabilities............................          3,650              3,122          3,275
                                                                               --------            -------      ---------
          Total liabilities.............................................        587,645            562,970        496,005
                                                                               --------            -------      ---------
  Commitments and contingencies (Note 12)
  Stockholders' equity (Notes 1 and 13):
     Preferred stock ($0.10 par value; 10,000,000 shares
        authorized; none issued and outstanding)..................                   --                 --             --
     Common  stock  ($0.10  par  value;  20,000,000  shares  authorized;
        5,223,218,                                                                  522                522            521
        5,220,218 and 5,212,218 shares issued at the respective dates)..
     Additional paid-in capital.........................................         22,596             22,525         22,399
     Treasury  stock, at cost (444,926 shares at June 30, 2002 and March
        31, 2002,   and 399,926 shares at March 31, 2001)...............         (4,350)           (4,350)        (3,867)
     Common stock held by Employee  Stock  Ownership Plan ("ESOP") (Note         (1,057)           (1,105)        (1,297)
     11)................................................................
     Common stock awards under the Recognition and Retention
        Plan ("RRP") (Note 11) .........................................           (208)             (244)          (392)
     Retained earnings..................................................         44,589             42,566         37,313
     Accumulated other comprehensive income, net of taxes (Note 14).....          1,728              1,101          2,252
                                                                               --------            -------      ---------
          Total stockholders' equity....................................         63,820             61,015         56,929
                                                                               --------            -------      ---------
          Total liabilities and stockholders' equity....................     $  651,465         $  623,985     $  552,934
                                                                               ========            =======      =========
See accompanying notes to consolidated financial statements.

                                      F-3
SOUND FEDERAL BANCORP AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED JUNE 30,                YEARS ENDED MARCH 31,
                                                ------------------------------  ---------------------------------------------
                                                      2002           2001            2002             2001           2000
                                                      ----           ----            ----             ----           ----
                                                        (UNAUDITED)
INTEREST AND DIVIDEND INCOME
   Loans....................................      $      7,614   $     5,813    $     25,560     $     19,837    $     12,427
   Mortgage-backed and other securities.....             2,040         3,147          10,838           11,337           5,796
    Federal funds sold and other overnight
      deposits..............................               105           307             777            1,577           1,472
   Other earning assets.....................                65            98             270              825             841
                                                   -----------    -----------    -----------      -----------     -----------
   Total interest and dividend income.......             9,824         9,365          37,445           33,576          20,536
                                                   -----------    -----------    -----------      -----------     -----------

   INTEREST EXPENSE
   Deposits (Note 8)........................             3,103         5,054          17,403           18,008           9,821
   Borrowings...............................               416           269           1,065              927               8
   Other interest-bearing liabilities.......                20            16              71               73              39
                                                   -----------    -----------    -----------      -----------     -----------
   Total interest expense...................             3,539         5,339          18,539           19,008           9,868
                                                   -----------    ----------     -----------      -----------     -----------

   Net interest income......................             6,285         4,026          18,906           14,568          10,668
   Provision for loan losses (Note 6).......                75            25             175              208             100
                                                   -----------    ----------     -----------      -----------     -----------
   Net interest income after provision for
      loan losses...........................             6,210         4,001          18,731           14,360          10,568
                                                   -----------    ----------     -----------      -----------     -----------

   NON-INTEREST INCOME
   Service charges and fees.................               170           139             662              354             192
   Gains on sales of real estate owned......                --            57              69               28             102
                                                   -----------    ----------     -----------      -----------     -----------
   Total non-interest income................               170           196             731              382             294
                                                   -----------    ----------     -----------      -----------     -----------

   NON-INTEREST EXPENSE
    Compensation and benefits (Note 11).....             1,428         1,225           5,137            4,653           3,419
    Occupancy and equipment.................               444           321           1,572            1,643             935
    Data processing service fees............               229           192             866              636             425
    Advertising and promotion...............               148           156             553              599             498
    Goodwill amortization (Note 2)..........                --            --              --              765              --
    Other...................................               594           440           2,188            1,737           1,750
                                                   -----------    ----------     ------------     -----------     -----------
    Total non-interest expense..............             2,843         2,334          10,316           10,033           7,027
                                                   -----------    ----------     -----------      -----------     -----------

   Income before income tax expense.........             3,537         1,863           9,146            4,709           3,835
   Income tax expense (Note 10).............             1,376           688           3,376            2,050           1,443
                                                   -----------    ----------     -----------      -----------     -----------
   Net income...............................      $      2,161   $     1,175    $      5,770     $      2,659    $      2,392
                                                   ===========    ==========     ===========      ===========     ===========

   Earnings per common share (Note 15):
       Basic...............................       $       0.46   $      0.25    $       1.24     $      0.56     $       0.48
       Diluted..............................              0.46          0.25            1.23            0.56             0.48
                                                   ===========    ==========     ===========      ==========      ===========
See accompanying notes to consolidated financial statements.

                                      F-4
SOUND FEDERAL BANCORP AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
COMMON     ADDITIONAL       TREASURY        COMMON STOCK      COMMON STOCK
                                                   STOCK    PAID-IN CAPITAL      STOCK         HELD BY ESOP    AWARDS UNDER RRP
                                                   -----    ---------------      -----         ------------    ----------------
Balance at March 31, 1999...................    $     521    $   22,430      $       --      $   (1,681)        $       --
 Net income..................................           --            --              --              --                 --
 Other comprehensive loss (Note 14)..........           --            --              --              --                 --

     Total comprehensive income..............
 Dividends declared ($0.28 per share)........           --            --              --              --                 --
 Purchases of treasury stock (207,000  shares)          --            --          (2,069)             --                 --
 Purchases and awards of RRP shares (105,369            --            --              --              --               (961)
    shares) .................................
 Vesting of RRP shares.......................           --            (1)             --              --                240
 ESOP shares allocated or committed to be
    released for                                        --           (14)             --             192                 --
                                                    ------      ---------       --------        --------           --------
    allocation...............................
 Balance at March 31, 2000...................          521        22,415          (2,069)         (1,489)              (721)

 Net income..................................           --            --              --              --                 --
 Other comprehensive income (Note 14)........           --            --              --              --                 --

    Total comprehensive income...............
 Dividends paid ($0.28 per share)............           --            --              --              --                 --
 Purchases of treasury stock (192,926 shares)           --            --          (1,798)             --                 --
 Vesting of RRP shares.......................           --            --              --              --                329
 ESOP shares allocated or committed to be
    released for                                        --           (16)             --             192                 --
                                                    ------      ---------       --------        --------           --------
    allocation...............................
 Balance at March 31, 2001...................          521        22,399          (3,867)         (1,297)              (392)

 Net income..................................           --            --              --              --                 --
 Other comprehensive loss (Note 14)..........           --            --              --              --                 --

    Total comprehensive income...............
 Dividends paid ($0.28 per share)............           --            --              --              --                 --
 Purchases of treasury stock (45,000 shares)            --            --            (483)             --                 --
 Issuance of stock pursuant to stock option plan         1            72              --              --                 --
 Vesting of RRP shares.......................           --            --              --              --                148
 ESOP shares allocated or committed to be
    released for                                        --            54              --             192                 --
                                                    ------      --------        --------        --------           --------
    allocation...............................
 Balance at March 31, 2002...................          522        22,525          (4,350)         (1,105)              (244)

 Net income (unaudited)......................           --            --              --              --                 --
 Other comprehensive income (unaudited) (Note           --            --              --              --                 --

    14)......................................
    Total comprehensive income (unaudited)...
 Dividends paid ($0.07 per share) (unaudited)           --            --              --              --                 --
 Issuance of stock pursuant to stock option             --            27              --              --                 --
    plan (unaudited).........................
 Vesting of RRP shares (unaudited)...........           --            --              --              --                 36
 ESOP shares allocated or committed to be
    released for                                        --            44              --              48                 --
                                                    ------      --------        --------        --------           --------
    allocation (unaudited)...................
 Balance at June 30, 2002 (unaudited)........    $     522    $   22,596      $   (4,350)     $   (1,057)        $     (208)    $
                                                    ======      ========        ========        ========           ========
ACCUMULATED OTHER       TOTAL
                                                  RETAINED      COMPREHENSIVE     STOCKHOLDERS'
                                                  EARNINGS      INCOME (LOSS)        EQUITY
                                                  --------      -------------        ------
Balance at March 31, 1999...................    $    33,846     $      (132)       $   54,984
Net income..................................          2,392              --             2,392
Other comprehensive loss (Note 14)..........             --          (1,070)           (1,070)
                                                                                     --------
    Total comprehensive income..............                                            1,322
Dividends declared ($0.28 per share)........         (1,004)             --            (1,004)
Purchases of treasury stock (207,000  shares)            --              --            (2,069)
Purchases and awards of RRP shares (105,369              --              --              (961)
   shares) .................................
Vesting of RRP shares.......................             --              --               239
ESOP shares allocated or committed to be
   released for                                          --              --               178
                                                   --------        --------          --------
   allocation...............................
Balance at March 31, 2000...................         35,234          (1,202)           52,689

Net income..................................          2,659              --             2,659
Other comprehensive income (Note 14)........             --           3,454             3,454
                                                                                     --------
   Total comprehensive income...............                                            6,113
Dividends paid ($0.28 per share)............           (580)             --              (580)
Purchases of treasury stock (192,926 shares)             --              --            (1,798)
Vesting of RRP shares.......................             --              --               329
ESOP shares allocated or committed to be
   released for                                          --              --               176
                                                   --------        --------          --------
   allocation...............................
Balance at March 31, 2001...................         37,313           2,252            56,929

Net income..................................          5,770              --             5,770
Other comprehensive loss (Note 14)..........             --          (1,151)           (1,151)
                                                                                     ---------
   Total comprehensive income...............                                            4,619
Dividends paid ($0.28 per share)............           (517)             --              (517)
Purchases of treasury stock (45,000 shares)              --              --              (483)
Issuance of stock pursuant to stock option plan          --              --                73
Vesting of RRP shares.......................             --              --               148
ESOP shares allocated or committed to be
   released for                                          --              --               246
                                                   --------        --------         ---------
   allocation...............................
Balance at March 31, 2002...................         42,566           1,101            61,015

Net income (unaudited)......................          2,161              --             2,161
Other comprehensive income (unaudited) (Note             --             627               627
                                                                                     --------
   14)......................................
   Total comprehensive income (unaudited)...                                            2,788
Dividends paid ($0.07 per share) (unaudited)           (138)             --              (138)
Issuance of stock pursuant to stock option               --              --                27
   plan (unaudited).........................
Vesting of RRP shares (unaudited)...........             --              --                36
ESOP shares allocated or committed to be
   released for                                          --              --                92
                                                   --------        --------          --------
   allocation (unaudited)...................
Balance at June 30, 2002 (unaudited)........    $    44,589     $     1,728        $   63,820
                                                   ========        ========          ========
See accompanying notes to consolidated financial statements.

                                      F-5
SOUND FEDERAL BANCORP AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
THREE MONTHS ENDED
                                                         JUNE 30,                   YEARS ENDED MARCH 31,
                                                   ----------------------   --------------------------------------
                                                     2002         2001          2002          2001            2000
                                                     ----         ----          ----          ----            ----
                                                        (UNAUDITED)
OPERATING ACTIVITIES
Net income.................................       $    2,161  $   1,175     $   5,770     $   2,659      $   2,392
Adjustments to reconcile net income to net cash
   provided by operating activities:
      Provision for loan losses............               75         25           175           208            100
      Goodwill amortization................               --         --            --           765             --
      Depreciation, amortization and accretion           193       (210)          706           592            276
      ESOP and RRP expense.................              128         92           394           505            417
      Income taxes.........................              131      1,111         2,883         1,134           (112)
      Other adjustments, net...............              342       (641)          708           913           (333)
                                                    --------    --------      -------       -------        --------
        Net cash provided by operating
        activities.........................            3,030      1,552        10,636         6,776          2,740
                                                    --------    -------       --------      -------        -------

INVESTING ACTIVITIES
Purchases of securities available for sale.          (13,272)   (19,658)      (57,737)      (28,854)       (35,218)
Proceeds from payments, maturities and calls of
   securities:
   Available for sale......................           20,826     25,433        90,224        38,147          5,290
   Held to maturity........................               --         --            --         7,312          9,770
Proceeds from sales of securities available for           --         --            --        21,888          5,221
   sale
Disbursements for loan originations, net of
   principal repayments....................          (19,238)   (27,143)      (125,367)     (47,994)       (37,575)
Net decrease in certificates of deposit....               --        991         2,491         7,584            611
Purchases of Federal Home Loan Bank stock..               --         --          (396)           --           (311)
Cash paid in purchase acquisition, net of cash            --         --            --       (33,937)            --
   acquired................................
Purchases of premises and equipment........             (208)       (37)         (294)         (669)        (2,646)
Proceeds from sales of real estate owned...              114        254           405           286            459
                                                    --------    -------       -------       -------        -------
        Net cash used in investing activities        (11,778)   (20,160)      (90,674)      (36,237)       (54,399)
                                                    --------    -------       -------       -------        -------
FINANCING ACTIVITIES
Net increase (decrease) in deposits........           24,721     (2,379)       46,359        45,413         38,493
Proceeds from borrowings ..................               --         --        20,000            --             --
Repayment of borrowings....................               --         --            --        (5,000)            --
Net (decrease) increase in mortgage escrow funds        (619)      (938)          535          (292)           285
Purchases of treasury stock................               --       (483)         (483)       (1,798)        (2,069)
Purchases of RRP shares....................               --         --            --            --           (961)
Issuance of stock pursuant to stock option plan           27         --            73            --             --
Payment of cash dividends on common stock..             (138)      (140)         (517)         (580)        (1,004)
                                                    --------    -------       -------       -------        -------
        Net cash provided by (used in)
        financing activities...............           23,991     (3,940)       65,967        37,743         34,744
                                                    --------    -------       -------       -------        -------

Net increase (decrease) in cash and cash              15,243    (22,548)      (14,071)        8,282        (16,915)
   equivalents.............................
Cash and cash equivalents at beginning of period      26,778     40,849        40,849        32,567         49,482
                                                    --------    -------       -------       -------        -------
Cash and cash equivalents at end of period.       $   42,021  $  18,301     $  26,778     $  40,849      $  32,567
                                                    ========    =======       =======       =======        =======

SUPPLEMENTAL INFORMATION
Interest paid..............................       $    3,348  $   5,341     $  18,443     $  19,189      $   9,746
Income taxes paid..........................            1,250     (1,109)        1,980         1,552          1,510
Loans transferred to real estate owned.....               --        118           253           290            124
                                                    ========    =======       =======       =======        =======
Acquisition accounted for by the purchase
   method:
   Fair value of assets acquired, including
      goodwill of $14,735....................       $       --  $      --     $      --     $ 212,850      $      --
       Fair value of liabilities assumed...               --         --            --       (174,081)           --
                                                    --------   --------       -------       --------       -------
      Cash paid in acquisition.............       $       --  $      --     $      --     $  38,769      $      --
                                                    ========    =======       =======       =======        =======
See accompanying notes to consolidated financial statements.

                                      F-6
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

(1)   REORGANIZATION AND CONVERSION

      INITIAL PUBLIC OFFERING

      On October 8, 1998, Sound Federal Bancorp issued shares of its common
      stock in connection with a Plan of Reorganization ("the "Reorganization")
      and related Subscription and Community Offering (the "Offering"). In the
      Reorganization, Sound Federal Savings and Loan Association (the "Bank")
      converted from a federally-chartered mutual savings association to a
      federally-chartered stock savings association (the "Conversion"). The Bank
      became the wholly-owned subsidiary of Sound Federal Bancorp, which became
      the majority-owned subsidiary of Sound Federal, MHC (the "Mutual Holding
      Company"). Collectively, Sound Federal Bancorp and the Bank are referred
      to herein as "the Company".

      Sound Federal Bancorp issued a total of 5,212,218 shares of its common
      stock in the Reorganization and Offering, consisting of 2,810,510 shares
      (or 53.92%) issued to the Mutual Holding Company and 2,401,708 shares (or
      46.08%) issued to other stockholders. The shares issued to other
      stockholders consisted of 192,129 shares purchased by the Company's
      Employee Stock Ownership Plan (the "ESOP") using $1.9 million in proceeds
      from a loan made by Sound Federal Bancorp; 102,200 shares contributed by
      the Company to establish the Sound Federal Savings and Loan Association
      Charitable Foundation (the "Charitable Foundation"); and 2,107,379 shares
      sold for cash of $21.1 million ($10.00 per share) in the Offering. After
      deducting offering costs of $1.1 million, the net cash proceeds from the
      Offering were $20.0 million.

      SECOND STEP CONVERSION

      On June 13, 2002, the respective Boards of Directors of Sound Federal
      Bancorp and the Mutual Holding Company adopted a plan to convert from the
      mutual holding company form of organization to a fully public holding
      company structure. The Mutual Holding Company will merge into the Bank,
      and will no longer exist. Sound Federal Bancorp will be succeeded by a new
      Delaware corporation with the same name. Shares of common stock of Sound
      Federal Bancorp representing the ownership interest of the Mutual Holding
      Company will be offered for sale in a subscription offering and a
      community offering, the net proceeds of which will result in additional
      capital for Sound Federal Bancorp. Shares of common stock of Sound Federal
      Bancorp owned by public shareholders (shareholders other than the Mutual
      Holding Company) will be converted into the right to receive new shares of
      Sound Federal Bancorp common stock determined pursuant to an exchange
      ratio. The exchange ratio will ensure that immediately after the
      conversion and exchange of existing shares of Sound Federal Bancorp for
      new shares, the public shareholders will own the same aggregate percentage
      of new Sound Federal Bancorp common stock that they owned immediately
      prior to the conversion, excluding any shares purchased in the offering.
      The reorganization will be accounted for at historical cost, with no
      resulting change in the historical carrying amounts of assets and
      liabilities. Costs related to the offering will be netted against the
      gross proceeds from the sale of common stock; if the reorganization and
      offering are not completed, the costs would be charged to expense. No such
      costs had been incurred as of June 30, 2002.

(2)   ACQUISITION OF PEEKSKILL FINANCIAL CORPORATION

      On July 18, 2000, the Company consummated its acquisition of Peekskill
      Financial Corporation ("Peekskill"). Peekskill and its wholly-owned
      subsidiary, First Federal Savings Bank, merged with and into the Bank,
      with the Bank as the surviving entity (the "Acquisition"). Peekskill's
      stockholders received $22 per share in cash. The transaction was valued at
      approximately $41.7 million including the "in-the-money" portion of
      outstanding stock options. At the time of the Acquisition, Peekskill had
      total assets of $201.5 million and total deposits of $152.4 million
      (historical carrying amounts before purchase accounting adjustments).

                                      F-7
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      The Acquisition was accounted for using the purchase method of accounting
      and, accordingly, the assets acquired and liabilities assumed were
      recorded by the Company at their fair values at the consummation date.
      Related operating results are included in the Company's consolidated
      financial statements for periods after the consummation date. The excess
      of the Company's total acquisition cost over the fair value of the net
      assets acquired, or "goodwill", totaled $14.7 million and was recognized
      as an intangible asset at the consummation date. The related goodwill
      amortization expense was $765,000 for the year ended March 31, 2001, based
      on a fifteen-year amortization period, prior to adoption of the accounting
      standard described below.

      The Company adopted Statement of Financial Accounting Standards ("SFAS")
      No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, as of April 1, 2001. As a
      result, the Company ceased amortizing the goodwill recorded in the
      Acquisition, and net income and earnings per share for the year ended
      March 31, 2002 and the three months ended June 30, 2002 do not include
      goodwill amortization expense. Net income and earnings per share for the
      year ended March 31, 2001, adjusted to reflect the effects of ceasing the
      amortization of goodwill, are as follows (in thousands, except per share
      data):

           Net income, as reported..................        $   2,659
           Amortization of goodwill.................              765
                                                             --------
           Net income, as adjusted..................        $   3,424
                                                             =========

           Earnings per common share, as adjusted:
                Basic...............................        $    0.72
                Diluted.............................             0.72
                                                             ========

      Pro forma unaudited results of operations for the years ended March 31,
      2001 and 2000, assuming the Acquisition took place at the beginning of
      fiscal year 2000, are as follows (in thousands, except per share data):
YEARS ENDED MARCH 31,
                                                                           --------------------------
                                                                             2001              2000
                                                                             ----              ----
                                                                                 (IN THOUSANDS)
Net interest income...............................................   $  15,418        $  14,006
      Provision for loan losses.........................................         273              160
      Non-interest income...............................................         456              569
      Non-interest expense (including goodwill amortization)............      11,302           11,770
                                                                            --------         --------
           Income before taxes..........................................       4,299            2,645
      Income tax expense................................................       1,870            1,150
                                                                            --------         --------
           Net income...................................................   $   2,429        $   1,495
                                                                            ========         ========
      Earnings per common share:
           Basic........................................................   $    0.51        $    0.30
           Diluted......................................................        0.51             0.30
                                                                            ========         ========
The pro forma results of operations reflect the combination of historical
      amounts for the Company and Peekskill for the years ended March 31, 2001
      and 2000, adjusted only for the effect of purchase accounting adjustments.
      The pro forma information does not reflect any cost savings or revenue
      enhancements that resulted from the combination of the operations of the
      Company and Peekskill other than those included in the fiscal year 2001
      results of operations from the date of the merger (July 18, 2000). As a
      result, the pro forma information is not necessarily indicative of the
      results of operations that would have been achieved had the Acquisition in
      fact occurred on the date indicated, nor does it purport to be indicative
      of the results of operations that may be achieved in the future by the
      combined company.

                                      F-8
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

(3)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      The Bank is a community-oriented savings institution whose business
      primarily consists of accepting deposits from customers within its market
      area and investing those funds in mortgage loans secured by one-to-four
      family residences and in mortgage-backed and other securities. To a
      significantly lesser extent, funds are invested in commercial mortgage,
      construction and consumer loans. The Bank's primary market area is
      Westchester County, New York where it operates eight full-service banking
      offices. Another full-service office is located in Cos Cob, Connecticut
      and an in-store branch is operated in Rockland County, New York.

      Deposits are insured up to applicable limits of the Federal Deposit
      Insurance Corporation. As a federally-chartered savings association, the
      Bank's primary regulator is the Office of Thrift Supervision ("OTS").
      Sound Federal Bancorp and the Mutual Holding Company are also subject to
      supervision and regulation by the OTS.

      BASIS OF PRESENTATION

      The consolidated financial statements include the accounts of Sound
      Federal Bancorp, the Bank, Sound REIT, First Federal REIT and Mamaroneck
      Advisors, Inc. Sound REIT (formed in April 1999) and First Federal REIT
      (formed by Peekskill prior to the Acquisition) are real estate investment
      trusts that hold a portion of the Company's mortgage-related assets.
      Mamaroneck Advisors, Inc. is a wholly-owned subsidiary of the Bank that
      was formed in February 2001. The Bank offers investment products and
      services to its customers through Mamaroneck Advisors, Inc. All
      significant intercompany accounts and transactions have been eliminated in
      consolidation.

      The consolidated financial statements have been prepared in conformity
      with accounting principles generally accepted in the United States of
      America. In preparing the consolidated financial statements, management is
      required to make estimates and assumptions that affect the reported
      amounts of assets, liabilities, income and expense. Actual results could
      differ significantly from these estimates. A material estimate that is
      particularly susceptible to near-term change is the allowance for loan
      losses, which is discussed below.

      The consolidated balance sheet at June 30, 2002, the consolidated
      statements of income and cash flows for the three-month periods ended June
      30, 2002 and 2001, and the consolidated statement of changes in
      stockholders' equity for the three-month period ended June 30, 2002 are
      unaudited but, in the opinion of management, reflect all adjustments
      (consisting only of normal recurring accruals) necessary for a fair
      presentation of financial condition, results of operations and cash flows.

      Certain reclassifications have been made to prior year amounts to conform
      to the current year presentation. For purposes of reporting cash flows,
      cash equivalents consist of federal funds sold and other overnight
      deposits.

      SECURITIES

      The Company classifies its securities as held to maturity, available for
      sale, or trading. Securities classified as held to maturity are limited to
      debt securities for which the entity has the positive intent and ability
      to hold to maturity. Trading securities are debt and equity securities
      that are bought principally for the purpose of selling them in the near
      term. All other debt and equity securities are classified as available for
      sale.

      Management determines the appropriate classification of securities at the
      purchase date. Securities classified as held to maturity are carried at
      amortized cost. Securities available for sale are carried at fair value,
      with unrealized

                                      F-9
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      gains and losses excluded from earnings and reported on a net-of-tax basis
      as a separate component of stockholders' equity (accumulated other
      comprehensive income or loss). The Company has no trading securities.

      Premiums and discounts on debt securities are amortized to interest income
      on a level-yield basis over the terms of the securities. Realized gains
      and losses on sales of securities are determined based on the amortized
      cost of the specific securities sold. Unrealized losses on securities are
      charged to earnings when the decline in fair value of a security is judged
      to be other than temporary.

      ALLOWANCE FOR LOAN LOSSES

      The allowance for loan losses is increased by provisions for loan losses
      charged to income and by recoveries of prior charge-offs, and is decreased
      by charge-offs. Losses are charged to the allowance when all or a portion
      of a loan is deemed to be uncollectible. Recoveries of loans previously
      charged-off are credited to the allowance for loan losses when realized.
      Management's periodic determination of the allowance is based on
      continuing reviews of the portfolio, using a consistently-applied
      methodology. The allowance for loan losses consists of losses inherent in
      the loan portfolio that are both probable and estimable at the date of the
      financial statements. In determining the allowance for loan losses,
      management considers factors such as the Company's past loan loss
      experience, known and inherent risks in the portfolio, adverse situations
      affecting a borrower's ability to repay, the estimated value of underlying
      collateral, and current economic conditions.

      Determining the allowance for loan losses involves significant management
      judgments utilizing the best information available. Those judgments are
      subject to further review by various sources, including the Company's
      regulators. Changes in the allowance may be necessary in the future based
      on changes in economic and real estate market conditions, new information
      obtained regarding known problem loans, the identification of additional
      problem loans and other factors, certain of which are outside of
      management's control.

      A loan is considered to be impaired when, based on current information and
      events, it is probable that the Company will be unable to collect all
      principal and interest contractually due. The Company reviews loans to
      identify impairment for loans that are individually evaluated for
      collectibility in accordance with the Company's normal loan review
      procedures (principally loans in the multi-family, commercial mortgage and
      construction loan portfolios). The standard does not generally apply to
      smaller-balance homogeneous loans that are collectively evaluated for
      impairment, such as residential mortgage and consumer loans. The
      measurement of an impaired loan is based on (i) the present value of
      expected future cash flows discounted at the loan's effective interest
      rate, (ii) the loan's observable market price or (iii) the fair value of
      the collateral if the loan is collateral dependent. If the measure of an
      impaired loan is less than its recorded investment, an impairment loss is
      recognized as part of the allowance for loan losses.

      INTEREST AND FEES ON LOANS

      Interest is accrued monthly based on outstanding principal balances unless
      management considers the collection of interest to be doubtful (generally,
      when loans are contractually past due ninety days or more). When loans are
      placed on nonaccrual status, unpaid interest is reversed by charging
      interest income and crediting an allowance for uncollected interest.
      Interest payments received on nonaccrual loans (including impaired loans)
      are recognized as income unless future collections are doubtful. Loans are
      returned to accrual status when collectibility is no longer considered
      doubtful (generally, when all payments have been brought current).

                                      F-10
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      Loan origination fees and certain direct loan origination costs are
      deferred and the net fee or cost is amortized to interest income, using
      the level-yield method, over the contractual term of the related loan.
      Unamortized fees and costs applicable to prepaid loans are recognized in
      interest income at the time of prepayment.

      FEDERAL HOME LOAN BANK STOCK

      As a member of the Federal Home Loan Bank ("FHLB") of New York, the Bank
      is required to hold a certain amount of FHLB stock. This stock is
      considered to be a non-marketable equity security and, accordingly, is
      carried at cost.

      REAL ESTATE OWNED

      Real estate properties acquired through foreclosure are recorded initially
      at fair value less estimated sales costs, with the resulting writedown
      charged to the allowance for loan losses. Thereafter, an allowance for
      losses on real estate owned is established by a charge to expense to
      reflect any subsequent declines in fair value. Fair value estimates are
      based on recent appraisals and other available information. Costs incurred
      to develop or improve properties are capitalized, while holding costs are
      charged to expense.

      PREMISES AND EQUIPMENT

      Premises and equipment are comprised of land (carried at cost) and
      buildings, leasehold improvements, furniture and equipment (carried at
      cost less accumulated depreciation and amortization). Depreciation expense
      is recognized on a straight-line basis over the estimated useful lives of
      the related assets. Amortization of leasehold improvements is recognized
      on a straight-line basis over the terms of the respective leases or the
      estimated useful lives of the assets, whichever is shorter. Costs incurred
      to improve or extend the life of existing assets are capitalized. Repairs
      and maintenance costs are charged to expense.

      SECURITIES REPURCHASE AGREEMENTS

      The Company is a party to securities repurchase agreements with the FHLB.
      These agreements provide for the transfer of securities to the FHLB under
      an agreement to repurchase the identical securities at a fixed price in
      the future. These agreements are accounted for as secured financings. The
      proceeds from the transaction are recorded as borrowings and the
      underlying securities are included in the Company's securities portfolio.

      INCOME TAXES

      Income taxes are accounted for under the asset and liability method.
      Deferred taxes are recognized for the estimated future tax effects
      attributable to "temporary differences" between the financial statement
      carrying amounts of existing assets and liabilities and their respective
      tax bases. Deferred tax assets and liabilities are measured using enacted
      tax rates expected to apply to taxable income in future years. The effect
      on deferred tax assets and liabilities of an enacted change in tax laws or
      rates is recognized in income tax expense in the period that includes the
      enactment date of the change.

      Deferred tax liabilities are recognized for all temporary differences that
      will result in future taxable income. Deferred tax assets are recognized
      for all temporary differences that will result in future tax deductions,
      subject to reduction of the assets by a valuation allowance in certain
      circumstances. This valuation allowance is recognized if, based on an
      analysis of available evidence, management determines that it is more
      likely than not that a portion or all of the deferred tax assets will not
      be realized. The valuation allowance is subject to adjustment based on

                                      F-11
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      changes in circumstances that affect management's judgment about the
      realizability of the deferred tax assets. Adjustments to increase or
      decrease the valuation allowance are charged or credited, respectively, to
      income tax expense.

      STOCK-BASED COMPENSATION PLANS

      Compensation expense is recognized for the Company's employee stock
      ownership plan ("ESOP") equal to the fair value of shares committed to be
      released for allocation to participant accounts. Any difference between
      the fair value at that time and the ESOP's original acquisition cost is
      charged or credited to stockholders' equity (additional paid-in capital).
      The cost of unallocated ESOP shares (shares not yet committed to be
      released) is deducted from stockholders' equity.

      The Company accounts for its stock option plan in accordance with
      Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK
      ISSUED TO EMPLOYEES. Accordingly, compensation expense is recognized only
      if the exercise price of the option is less than the fair value of the
      underlying stock at the grant date. SFAS No. 123, ACCOUNTING FOR
      STOCK-BASED COMPENSATION, encourages entities to recognize the fair value
      of all stock-based awards (measured on the grant date) as compensation
      expense over the vesting period. Alternatively, SFAS No. 123 allows
      entities to apply the provisions of APB Opinion No. 25 and provide pro
      forma disclosures of net income and earnings per share as if the
      fair-value-based method defined in SFAS No. 123 had been applied. The
      Company has elected to apply the provisions of APB Opinion No. 25 and
      provide these pro forma disclosures.

      The Company's recognition and retention plan ("RRP") is also accounted for
      in accordance with APB Opinion No. 25. The fair value of the shares
      awarded, measured at the grant date, is recognized as unearned
      compensation (a deduction from stockholders' equity) and amortized to
      compensation expense as the shares become vested.

      EARNINGS PER SHARE

      Basic earnings per share ("EPS") is computed by dividing net income
      applicable to common stock by the weighted average number of common shares
      outstanding for the period. RRP shares are not included in outstanding
      shares until they become vested. Diluted EPS is computed in a manner
      similar to basic EPS, except that the weighted average number of common
      shares outstanding is increased to include an incremental number of
      common-equivalent shares that would have been outstanding if all
      potentially dilutive common shares (such as stock options and unvested RRP
      shares) were issued or became vested during the reporting period. For
      purposes of computing both basic and diluted EPS, outstanding shares
      include all shares issued to the Mutual Holding Company and contributed to
      the Charitable Foundation, but exclude unallocated ESOP shares that have
      not been committed to be released to participants.

      SEGMENT INFORMATION

      SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
      INFORMATION, requires public companies to report certain financial
      information about significant revenue-producing segments of the business
      for which such information is available and utilized by the chief
      operating decision maker. Specific information to be reported for
      individual operating segments includes a measure of profit and loss,
      certain revenue and expense items, and total assets. As a
      community-oriented financial institution, substantially all of the
      Company's operations involve the delivery of loan and deposit products to
      customers. Management makes operating decisions and assesses performance
      based on an ongoing review of these community banking operations, which
      constitute the Company's only operating segment for financial reporting
      purposes.

                                      F-12
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      GOODWILL

      SFAS No. 142 requires that goodwill and intangible assets with indefinite
      useful lives no longer be amortized, but instead be tested for impairment
      at least annually using a fair-value-based approach. The Company adopted
      SFAS No.142 as of April 1, 2001. As a result, the Company ceased
      amortizing the goodwill that was recorded in the Acquisition and that had
      been amortized using the straight-line method based on a fifteen-year
      amortization period. Goodwill recorded in the July 2000 Acquisition was
      $14.7 million and the remaining balance was $14.0 million upon adoption of
      SFAS No. 142 as of April 1, 2001. The Company did not recognize any
      impairment of goodwill during the year ended March 31, 2002 or the three
      months ended June 30, 2002.

                                      F-13
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

(4)   SECURITIES AVAILABLE FOR SALE

      The following are summaries of securities available for sale:
GROSS UNREALIZED
                                                          AMORTIZED      -------------------------        FAIR
                                                             COST           GAINS        LOSSES           VALUE
                                                             ----           -----        ------           -----
                                                                              (IN THOUSANDS)
JUNE 30, 2002
        -------------
        Pass-through securities guaranteed by:
            Ginnie Mae.............................      $   47,300      $    1,020    $      (34)     $   48,286
            Fannie Mae.............................          22,091             511           (35)         22,567
            Freddie Mac............................          17,916             602            (4)         18,514
        Collateralized mortgage obligations........          11,355             893            --          12,248
                                                           --------        --------      --------        --------
              Total mortgage-backed securities.....          98,662           3,026           (73)        101,615
        U.S. Government and agency securities......          23,349             183          (286)         23,246
        Municipal securities.......................             846             111            --             957
        Mutual fund shares.........................          18,000              24            --          18,024
                                                           --------        --------      --------        --------

              Total securities.....................      $  140,857      $    3,344    $     (359)     $  143,842
                                                           ========        ========      =========       ========

        MARCH 31, 2002
        --------------
        Pass-through securities guaranteed by:
            Ginnie Mae.............................      $   47,113      $      751    $      (70)     $   47,794
            Fannie Mae.............................          20,672             410           (66)         21,016
            Freddie Mac............................          20,613             493           (41)         21,065
        Collateralized mortgage obligations........          13,238           1,021            --          14,259
                                                           --------        --------      --------        --------
              Total mortgage-backed securities.....         101,636           2,675          (177)        104,134
        U.S. Government and agency securities......          29,788              29          (588)         29,229
        Municipal securities.......................             845              77            --             922
        Mutual fund shares.........................          16,000              10           (64)         15,946
                                                           --------        --------      ---------       --------

              Total securities.....................      $  148,269      $    2,791  $       (829)     $  150,231
                                                           ========        ========      ========        ========

        MARCH 31, 2001
        --------------
        Pass-through securities guaranteed by:
            Ginnie Mae.............................      $   38,678      $      783    $      (16)     $   39,445
            Fannie Mae.............................          17,675             513            --          18,188
            Freddie Mac............................          25,883             854           (13)         26,724
        Collateralized mortgage obligations........          29,834           1,740            --          31,574
                                                           --------        --------      --------        --------
              Total mortgage-backed securities.....         112,070           3,890           (29)        115,931
        U.S. Government and agency securities......          33,644             188          (233)         33,599
        Mutual fund shares.........................           8,000               2            (6)          7,996
                                                           --------        --------      ---------       --------

              Total securities.....................      $  153,714      $    4,080    $     (268)     $  157,526
                                                           ========        ========      =========       ========
F-14
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      Debt securities available for sale at June 30, 2002 consisted of
      adjustable rate securities and fixed rate securities with amortized costs
      of $78.6 million and $44.3 million, and weighted average yields of 5.67%
      and 5.79%, respectively. Debt securities available for sale at March 31,
      2002 consisted of adjustable rate securities and fixed rate securities
      with amortized costs of $78.3 million and $54.0 million, and weighted
      average yields of 5.80% and 6.26%, respectively. Debt securities available
      for sale at March 31, 2001 consisted of adjustable rate securities and
      fixed rate securities with amortized costs of $61.2 million and $84.5
      million, and weighted average yields of 7.00% and 6.85%, respectively.

      There were no sales of securities available for sale during the three
      months ended June 30, 2002 and 2001 and the year ended March 31, 2002.

      The Company sold $21.9 million of securities available for sale during
      fiscal 2001. These securities were part of Peekskill's portfolio and were
      recorded by the Company at their fair value in accordance with the
      purchase method of accounting. The securities were sold by the Company
      immediately after the Acquisition and, as a result of the fair value
      adjustment, there was no gain or loss on the sale.

      The Company sold certain mutual fund shares during fiscal 2000 with no
      resulting gain or loss. Proceeds from the sale amounted to $5.2 million.

      The following is a summary of the amortized cost and fair value of debt
      securities available for sale, with amounts shown by remaining term to
      contractual maturity for categories other than mortgage-backed securities.
      Actual maturities may differ from these amounts because certain issuers
      have the right to call or redeem their obligations prior to contractual
      maturity.
JUNE 30, 2002                   MARCH 31, 2002
                                                        -------------------------    -----------------------------
                                                          AMORTIZED      FAIR            AMORTIZED        FAIR
                                                            COST         VALUE             COST           VALUE
                                                            ----         -----             ----           -----
                                                                              (IN THOUSANDS)
Mortgage-backed securities....................    $    98,662  $   101,615     $    101,636     $    104,134
      U.S. Government and agency securities due:
         Within one year............................          5,999        6,083           13,998           13,908
         Over one to five years.....................          5,000        5,082            2,999            2,993
         Over five to ten years.....................          3,745        3,758            4,880            4,818
         Over ten years.............................          8,605        8,323            7,911            7,510
      Municipal securities due over ten years.......            846          957              845              922
                                                          ---------     --------        ---------        ---------

         Total debt securities......................    $   122,857  $   125,818     $    132,269     $    134,285
                                                          =========     ========        =========        =========
F-15
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

(5)   SECURITIES HELD TO MATURITY

      The Company adopted SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
      AND HEDGING ACTIVITIES, on April 1, 2001. As permitted by SFAS No. 133,
      all securities that were classified as held to maturity were reclassified
      as available for sale. The following is a summary of securities held to
      maturity at March 31, 2001, prior to the reclassification:
GROSS UNREALIZED
                                                          AMORTIZED      -------------------------        FAIR
                                                             COST           GAINS        LOSSES           VALUE
                                                             ----           -----        ------           -----
                                                                              (IN THOUSANDS)
Pass-through securities guaranteed by:
         Ginnie Mae..............................     $      22,042     $        151  $         (59)  $      22,134
         Fannie Mae..............................             3,114               25            (12)          3,127
         Freddie Mac.............................                21               --             --              21
                                                          ---------         --------      ---------       ---------
           Total mortgage-backed securities......            25,177              176            (71)         25,282
      U.S. Government and agency securities......             3,038                3             (6)          3,035
                                                          ---------         --------      ----------      ---------

           Total securities......................     $      28,215     $        179    $       (77)  $      28,317
                                                          =========       ==========      ==========     ==========
At March 31, 2001, securities held to maturity consisted of adjustable
      rate securities of $26.8 million and fixed rate securities of $1.4
      million, with weighted average yields of 7.25% and 7.18%, respectively.

      There were no sales of securities held to maturity during the three months
      ended June 30, 2002 or during the years ended March 31, 2002, 2001 and
      2000.

(6)   LOANS

      Loans are summarized as follows:
MARCH 31,
                                                                  JUNE 30,      ------------------------------
                                                                    2002              2002             2001
                                                                    ----              ----             ----
                                                                                 (IN THOUSANDS)
Mortgage loans:
            Residential properties:
               One-to-four family........................     $    351,509     $     334,683    $      221,617
               Home equity lines of credit...............           45,867            47,889            47,315
               Multi-family..............................            6,900             8,347             3,959
            Commercial properties........................           29,764            23,701            16,771
            Construction loans...........................            1,944             3,733             3,659
            Deferred loan origination costs, net.........            1,299               767               633
                                                                 ---------        ----------        ----------
                                                                   437,283           419,120           293,954
                                                                 ---------        ----------        ----------
         Consumer loans:
            Automobile loans.............................              427               785             1,154
            Secured personal loans.......................            1,891               660               719
            Other loans..................................              114                24                27
                                                                 ---------        ----------        ----------
                                                                     2,432             1,469             1,900
                                                                 ---------        ----------        ----------

               Total loans...............................          439,715           420,589           295,854

         Allowance for loan losses.......................           (2,296)           (2,221)           (2,047)
                                                                 ----------       -----------       -----------

               Total loans, net..........................     $    437,419     $     418,368    $      293,807
                                                                 =========        ==========        ==========
F-16
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      Gross principal balances at June 30, 2002 consisted of fixed rate loans of
      $367.3 million and adjustable rate loans of $71.1 million, with weighted
      average yields of 7.28% and 6.30%, respectively. Gross principal balances
      at March 31, 2002 consisted of fixed rate loans of $356.8 million and
      adjustable rate loans of $63.0 million, with weighted average yields of
      7.36% and 6.33%, respectively. Fixed rate and adjustable rate loans at
      March 31, 2001 totaled $290.4 million and $6.8 million, with weighted
      average yields of 7.72% and 7.55%, respectively.

      The Company primarily originates mortgage loans secured by existing
      single-family residential properties. The Company also originates
      multi-family and commercial mortgage loans, construction loans and
      consumer loans. Substantially all of the mortgage loan portfolio is
      secured by real estate properties located in Westchester County, New York
      and, to a lesser extent, Fairfield County, Connecticut. The ability of the
      Company's borrowers to make principal and interest payments is dependent
      upon, among other things, the level of overall economic activity and the
      real estate market conditions prevailing within the Company's concentrated
      lending area.

      Activity in the allowance for loan losses is summarized as follows:
THREE MONTHS
                                                         ENDED JUNE 30,                 YEARS ENDED MARCH 31,
                                                       -------------------     ---------------------------------------
                                                        2002         2001         2002          2001            2000
                                                        ----         ----         ----          ----            ----
                                                                             (IN THOUSANDS)
Balance at beginning of period............    $   2,221    $   2,047     $  2,047      $   1,188     $   1,094
      Provision for loan losses.................           75           25          175            208           100
      Allowance transferred in Acquisition......           --           --           --            784            --
      Charge-offs...............................           --           --          (15)          (162)           (6)
      Recoveries................................           --           --           14             29            --
                                                      -------       ------       ------        -------       -------

      Balance at end of period..................    $   2,296    $   2,072     $  2,221      $   2,047     $   1,188
                                                      =======       ======       ======        =======       =======
The principal balances of nonaccrual loans past due ninety days or more
      are as follows:
MARCH 31,
                                                                    JUNE 30,     -------------------------------------
                                                                      2002         2002          2001            2000
                                                                      ----         ----          ----            ----
                                                                                      (IN THOUSANDS)
One-to-four family mortgage loans....................   $     952     $    690      $     855     $     869
          Home equity lines of credit..........................          --           65             78           100
                                                                     ------       ------        -------       -------

          Total nonaccrual loans...............................   $     952     $    755      $     933     $     969
                                                                     ======       ======        =======       =======
Gross interest income that would have been recorded if the foregoing
      nonaccrual loans had remained current in accordance with their contractual
      terms totaled $20,000 for the three months ended June 30, 2002, and
      $67,000, $84,000 and $87,000 for the years ended March 31, 2002, 2001 and
      2000, respectively, compared to interest income actually recognized of
      $5,000, $20,000, $49,000 and $29,000, respectively.

      The Company had impaired loans of $96,000 at June 30, 2002, and $105,000
      at both March 31, 2002 and 2001, that were within the scope of SFAS No.
      114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN. The Company
      determines the need for an allowance for loan impairment under SFAS No.
      114 on a loan-by-loan basis, although no such allowances were required at
      the foregoing dates. The average recorded investment in impaired loans was
      $101,000 and $105,000 for the three months ended June 30, 2002 and 2001,
      and $105,000 and $178,000 for the

                                      F-17
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      years ended March 31, 2002 and 2001, respectively. There were no impaired
      loans during the year ended March 31, 2000. No interest was collected or
      recognized as income on impaired loans while such loans were considered
      impaired.

      Other assets at March 31, 2002 and 2001 include real estate owned
      properties with net carrying values of $114,000 and $197,000, respectively
      (none at June 30, 2002). Provisions for losses and other activity in the
      allowance for losses on real estate owned were insignificant during the
      three months ended June 30, 2002 and 2001, and the years ended March 31,
      2002, 2001 and 2000.

(7)   PREMISES AND EQUIPMENT

      Premises and equipment are summarized as follows:
MARCH 31,
                                                                             JUNE 30, ------------------------
                                                                              2002        2002         2001
                                                                              ----        ----         ----
                                                                                       (IN THOUSANDS)
Land .....................................................    $       592  $       592  $       592
           Buildings and improvements................................          4,304        4,304        4,241
           Leasehold improvements....................................          1,524        1,519        1,502
           Furniture and equipment...................................          2,422        2,220        2,006
                                                                           ---------    ---------    ---------
                                                                               8,842        8,635        8,341

           Less accumulated depreciation and amortization............         (3,353)      (3,176)      (2,491)
                                                                           ----------   ---------    ---------

               Premises and equipment, net...........................    $     5,489  $     5,459  $     5,850
                                                                           =========    =========    =========
(8)   DEPOSITS

      Deposit balances and weighted average stated interest rates are summarized
      as follows:
MARCH 31,
                                                          JUNE 30,        ----------------------------------------------
                                                           2002                  2002                    2001
                                                   ---------------------  ---------------------   ----------------------
                                                    RATE       AMOUNT      RATE       AMOUNT       RATE        AMOUNT
                                                    ----       ------      ----       ------       ----        ------
                                                                         (DOLLARS IN THOUSANDS)
Savings and club accounts..............     1.00%   $   123,397    1.00%   $   118,578     2.00%    $   108,371
        Money market accounts..................     1.34         41,560    1.43         36,012     2.60          28,333
        NOW accounts...........................     0.75         48,514    0.76         47,578     1.27          38,710
        Commercial checking....................       --          6,382      --          5,436      --            2,390
                                                               --------               --------                ---------
               Total...........................     0.98        219,853    0.99        207,604     1.91         177,804
                                                               --------               --------                ---------

        Certificates of deposit by remaining
          term to contractual maturity:
             Within one year...................     3.03        270,443    3.24        268,116     6.01         272,570
             After one but within three years..     3.52         42,424    3.66         37,622     5.41          20,619
             After three years.................     4.67         11,906    4.62          6,563     4.85           2,553
                                                               --------               --------                ---------
               Total...........................     3.15        324,773    3.32        312,301     5.96         295,742
                                                               --------               --------                ---------

               Total deposits..................     2.27%   $   544,626    2.39%   $   519,905     4.44%    $   473,546
                                                               ========               ========                =========
F-18
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      Certificates of deposit with denominations of $100,000 or more totaled
      $63.5 million, $59.5 million and $56.2 million at June 30, 2002, March 31,
      2002 and March 31, 2001, respectively.

      Interest expense on deposits is summarized as follows:
THREE MONTHS
                                                         ENDED JUNE 30,                 YEARS ENDED MARCH 31,
                                                       -------------------     ---------------------------------------
                                                        2002         2001         2002          2001            2000
                                                        ----         ----         ----          ----            ----
                                                                             (IN THOUSANDS)
Passbook and club accounts................    $     311    $     511     $  1,609      $   2,420     $   1,245
      Money market, NOW and Super NOW
         accounts...............................          234          279        1,034          1,101           880
      Certificates of deposit...................        2,558        4,264       14,760         14,487         7,696
                                                      -------       ------      -------       --------       -------

         Total..................................    $   3,103    $   5,054     $ 17,403      $  18,008     $   9,821
                                                       ======       ======       ======        =======       =======
(9)   BORROWINGS

      Borrowings under securities repurchase agreements with the FHLB are
      summarized as follows:
MARCH 31,
                                              COUPON      JUNE 30,      ------------------------
                  MATURITY DATE                RATE        2002            2002           2001
                  -------------                ----        ----            ----           ----
                             (DOLLARS IN THOUSANDS)
January 2008 (1)              5.42%   $    9,883      $    9,838     $   9,685
                  December 2008 (2)             4.72         5,000           5,000         4,927
                  March 2003                    2.54         7,000           7,000            --
                  March 2004                    3.57         7,000           7,000            --
                  March 2005                    4.22         6,000           6,000            --
                                                          --------        --------       -------

                  Total borrowings                      $   34,883      $   34,838     $  14,612
                                                          ========        ========       =======

                  Weighted average interest rate              4.17%           4.17%         5.18%
                  Accrued interest payable              $      158      $      166     $     124
                                                         =========        ========       =======
(1)   Callable quarterly beginning January 2003.
                  (2)   Callable quarterly since November 2001.

      The securities transferred to the FHLB in repurchase agreements at June
      30, 2002 include U.S. Government and agency securities and mortgage-backed
      securities with fair values of $17.1 million and $18.9 million,
      respectively. The securities transferred to the FHLB in repurchase
      agreements include U.S. Government and agency securities and
      mortgage-backed securities of $23.8 million and $12.0 million,
      respectively, at March 31, 2002 ($6.0 million and $9.7 million,
      respectively, at March 31, 2001). Accrued interest receivable on these
      securities totaled $245,000, $500,000 and $191,000 at June 30, 2002, March
      31, 2002 and March 31, 2001, respectively.

                                      F-19
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      In addition to securities repurchase agreements, the Bank may have
      outstanding borrowings from the FHLB of up to 25% of total assets, or
      approximately $102.3 million and $99.6 million at June 30, 2002 and March
      31, 2002, respectively, in a combination of term advances and overnight
      funds. Borrowings are secured by the Bank's investment in FHLB stock and
      by a blanket security agreement. This agreement requires the Bank to
      maintain as collateral certain qualifying assets (such as one-to-four
      family residential mortgage loans) with a fair value, as defined, at least
      equal to 110% of any outstanding advances.

      An outstanding FHLB advance of $84,000, $84,000 and $86,000 is also
      included in borrowings in the consolidated balance sheets at June 30,
      2002, March 31, 2002 and March 31, 2001, respectively. This advance bears
      interest at a fixed rate of 8.29% and matures in December 2002.

(10)  INCOME TAXES

      Income tax expense consists of the following components:
THREE MONTHS
                                                           ENDED JUNE 30,                 YEARS ENDED MARCH 31,
                                                        -------------------     ---------------------------------------
                                                         2002         2001         2002          2001            2000
                                                         ----         ----         ----          ----            ----
                                                                              (IN THOUSANDS)
Federal:
          Current................................    $   1,151    $     559     $  2,722      $     705     $   1,392
          Deferred...............................          (18)          48          252            969          (132)
                                                       -------       ------       ------        -------       -------
                                                         1,133          607        2,974          1,674         1,260
                                                       -------       ------       ------        -------       -------
       State:
          Current................................          252           69          374             58           163
          Deferred...............................           (9)          12           28            318            20
                                                       -------       ------       ------        -------       -------
                                                           243           81          402            376           183
                                                       -------       ------       ------        -------       -------
       Total:
          Current................................        1,403          628        3,096            763         1,555
          Deferred...............................          (27)          60          280          1,287          (112)
                                                       -------       ------       ------        -------       -------

                                                     $   1,376    $     688     $  3,376      $   2,050     $   1,443
                                                       =======       ======       ======        =======       =======
F-20
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      The following is a reconciliation of expected income taxes (computed at
      the applicable Federal statutory tax rate of 34%) to the Company's actual
      income tax expense:
THREE MONTHS
                                                          ENDED JUNE 30,                 YEARS ENDED MARCH 31,
                                                        -------------------     ---------------------------------------
                                                         2002         2001         2002          2001            2000
                                                         ----         ----         ----          ----            ----
                                                                          (DOLLARS IN THOUSANDS)
Taxes at Federal statutory rate...........    $   1,203    $     633     $  3,110      $   1,601     $   1,304
       State tax expense, net of Federal tax
          benefit................................          160           53          265             248          121
       Goodwill amortization.....................           --           --           --             260           --
       Other reconciling items, net..............           13            2            1            (59)           18
                                                       -------       ------       ------        -------       -------

       Actual income tax expense.................    $   1,376    $     688     $  3,376      $   2,050     $   1,443
                                                       =======       ======       ======        =======       =======

       Effective income tax rate.................        38.9%        36.9%        36.9%          43.5%         37.6%
                                                         =====        =====        =====          =====         =====
The tax effects of temporary differences that give rise to the Company's
      deferred tax assets and liabilities are as follows:
MARCH 31,
                                                                              JUNE 30,  ----------------------
                                                                               2002         2002         2001
                                                                               ----         ----         ----
                                                                                       (IN THOUSANDS)
Deferred tax assets:
               Allowance for loan losses.............................        $   886    $     819     $    788
               Deferred compensation.................................            337          343          243
               Director emeritus plan................................            169          149          101
               Fair value adjustments on loans and securities recorded
                  in the Acquisition ................................            590          590        1,226
               Accrued pension cost..................................            316          411          294
               Other deductible temporary differences................             25           --          163
                                                                             -------      -------       ------
                    Total deferred tax assets........................          2,323        2,312        2,815
                                                                             -------      -------       ------

           Deferred tax liabilities:
               Net unrealized gain on securities available for sale..          1,153          757        1,560
               Tax bad debt reserves in excess of base-year reserves.            205          221          251
               Deferred loan costs...................................            205          194          313
               Fair value adjustments on buildings and borrowings
                  recorded in the Acquisition........................            165          180          287
               Other taxable temporary differences...................             22           18           31
                                                                             -------      -------       ------
                    Total deferred tax liabilities...................          1,750        1,370        2,442
                                                                             -------      -------       ------

           Net deferred tax asset....................................      $     573    $     942     $    373
                                                                             =======      =======       ======
F-21
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      In assessing the realizability of the Company's total deferred tax assets,
      management considers whether it is more likely than not that some portion
      or all of those assets will not be realized. Based upon management's
      consideration of historical and anticipated future pre-tax income, as well
      as the reversal period for the items giving rise to the deferred tax
      assets and liabilities, a valuation allowance for deferred tax assets was
      not considered necessary at June 30, 2002, March 31, 2002 and March 31,
      2001.

      As a thrift institution, the Bank is subject to special provisions in the
      Federal and New York State tax laws regarding its allowable tax bad debt
      deductions and related tax bad debt reserves. These deductions
      historically were determined using methods based on loss experience or a
      percentage of taxable income. Tax bad debt reserves represent the excess
      of allowable deductions over actual bad debt losses, and include a defined
      base-year amount. SFAS No. 109 requires recognition of deferred tax
      liabilities with respect to reserves in excess of the base-year amount, as
      well as any portion of the base-year amount that is expected to become
      taxable (or "recaptured") in the foreseeable future.

      The Bank's base-year tax bad debt reserves totaled $9.0 million for
      Federal tax purposes and $8.7 million for State tax purposes at both June
      30, 2002 and March 31, 2002. In accordance with SFAS No. 109, deferred tax
      liabilities have not been recognized with respect to these reserves, since
      the Company does not expect that these amounts will become taxable in the
      foreseeable future. Under the tax laws, events that would result in
      taxation of these reserves include (i) redemptions of the Bank's stock or
      certain excess distributions by the Bank to Sound Federal Bancorp, and
      (ii) failure of the Bank to maintain a specified qualifying assets ratio
      or meet other thrift definition tests for New York State tax purposes. The
      unrecognized deferred tax liabilities with respect to the Bank's base-year
      reserves totaled approximately $3.8 million at both June 30, 2002 and
      March 31, 2002.

(11)  EMPLOYEE BENEFIT AND STOCK-BASED COMPENSATION PLANS

      PENSION PLANS

      The Company maintains non-contributory defined benefit pension plans that
      cover substantially all full-time employees who meet certain age and
      service requirements. Benefits are based on the employee's years of
      accredited service and average compensation for the three consecutive
      years that produce the highest average. The Company's funding policy is to
      contribute the amounts required by applicable regulations, although
      additional amounts may be contributed from time to time.

                                      F-22
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      The following is a summary of the changes in the plans' projected benefit
      obligations and the fair value of the plans' assets, together with a
      reconciliation of the funded status to the accrued pension costs
      recognized in the consolidated balance sheets at March 31:
2002          2001
                                                                                    ----          ----
                                                                                      (IN THOUSANDS)
Change in benefit obligations:
          Beginning of year..................................................    $     8,523  $     4,864
          Benefit obligation assumed in Acquisition..........................             --        2,803
          Service cost.......................................................            190          118
          Interest cost......................................................            641          554
          Actuarial loss.....................................................            444          433
          Settlements........................................................           (918)          --
          Benefits paid......................................................           (438)        (249)
                                                                                   ---------    ---------

          End of year........................................................          8,442        8,523
                                                                                   ---------    ---------

      Change in fair value of plan assets:
          Beginning of year..................................................          7,266        4,420
          Assets received in Acquisition.....................................             --        2,286
          Actual return on plan assets.......................................            510          437
          Employer contributions.............................................            401          372
          Settlements........................................................           (918)          --
          Benefits paid......................................................           (438)        (249)
                                                                                   ---------    ---------
          End of year........................................................          6,821        7,266
                                                                                   ---------    ---------

      Funded status at end of year...........................................         (1,621)      (1,257)
      Unrecognized net actuarial loss........................................          1,144          708
      Unrecognized net transition obligation.................................              5           12
                                                                                   ---------    ---------

      Accrued pension cost...................................................    $       472  $       537
                                                                                   =========    =========

      Change in additional minimum liability:
          Charge to accumulated other comprehensive income...................    $       170  $        --
          Intangible asset...................................................              5           --
                                                                                   ---------    ---------
          Additional minimum liability.......................................    $       175  $        --
                                                                                   =========    =========
A discount rate of 7.00% and a rate of increase in future compensation
      levels of 4.25% were used in determining the actuarial present value of
      the projected benefit obligations at March 31, 2002 (7.25% and 4.75%,
      respectively, at March 31, 2001). The expected long-term rate of return on
      plan assets was 9.00% for 2002, 2001 and 2000.

                                      F-23
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      The components of the net periodic pension expense were as follows for the
years ended March 31:
2002          2001            2000
                                                                                   ----          ----            ----
                                                                                             (IN THOUSANDS)
Service cost........................................................     $    190      $     118     $      69
       Interest cost.......................................................          641            554           343
       Expected return on plan assets......................................         (651)          (547)         (394)
       Recognized net actuarial loss.......................................           53              2            27
       Settlement charge...................................................           16             --            --
       Amortization of prior service cost and net
          transition obligation............................................            7             21            53
                                                                                  ------        -------       -------

          Net periodic pension expense.....................................     $    256      $     148     $      98
                                                                                  ======        =======       =======
Net periodic pension expense was $76,000 and $40,000 for the three months
      ended June 30, 2002 and 2001, respectively.

      DIRECTOR EMERITUS PLAN

      The Company maintains a non-qualified, unfunded Director Emeritus Plan.
      The plan provides for payments to directors who reach emeritus status, in
      annual amounts equal to the compensation earned as a director at the time
      of retirement. Payments are made to the Director Emeritus for a period not
      to exceed fifteen years or age 85 or until the death of the Director
      Emeritus, whichever comes first. Directors qualify for emeritus status
      upon attaining age 70 with at least 15 years of board service (5 years if
      directorship ceases as a result of a merger, consolidation or similar
      transaction). The plan's projected benefit obligation and unrecognized
      prior service cost were $741,000 and $475,000, respectively, at March 31,
      2002 ($704,000 and $554,000, respectively, at March 31, 2001). Total
      expense for this plan was $37,000 and $33,000 for the three months ended
      June 30, 2002 and 2001, respectively, and $133,000, $96,000 and $94,000
      for the years ended March 31, 2002, 2001 and 2000, respectively.

      SAVINGS PLAN

      The Company maintains an employee savings plan under Section 401(k) of the
      Internal Revenue Code. Eligible employees are able to make contributions
      to the plan of up to 10% of their compensation. Prior to February 1, 1999,
      the Company made matching contributions equal to 50% of the participant's
      contributions to the plan. The Company ceased its matching contributions
      effective February 1, 1999. Participants vest immediately in both their
      own contributions and Company contributions.

      EMPLOYEE STOCK OWNERSHIP PLAN

      In connection with the Reorganization and Offering, the Company
      established an ESOP for eligible employees who meet certain age and
      service requirements. The ESOP borrowed approximately $1.9 million from
      Sound Federal Bancorp and used the funds to purchase 192,129 shares of
      common stock sold in the Offering. The Bank makes periodic contributions
      to the ESOP sufficient to satisfy the debt service requirements of the
      loan which has a ten-year term and bears interest at the prime rate. The
      ESOP uses these contributions and any dividends received by the ESOP on
      unallocated shares to make principal and interest payments on the loan.

                                      F-24
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      Shares purchased by the ESOP are held in a suspense account by the plan
      trustee until allocated to participant accounts. Shares released from the
      suspense account are allocated to participants on the basis of their
      relative compensation in the year of allocation. Participants become
      vested in the allocated shares over a period not to exceed five years. Any
      forfeited shares are allocated to other participants in the same
      proportion as contributions.

      ESOP expense was $92,000 and $51,000 for the three months ended June 30,
      2002 and 2001, respectively, and $246,000, $176,000 and $178,000 for the
      years ended March 31, 2002, 2001 and 2000, respectively. The cost of the
      ESOP shares that have not yet been allocated or committed to be released
      to participants is deducted from stockholders' equity (105,674 shares and
      110,473 shares at June 30, 2002 and March 31, 2002, respectively). The
      fair value of these shares was approximately $2.5 million at June 30, 2002
      and $1.7 million at March 31, 2002.

      STOCK OPTION PLAN

      On October 14, 1999, stockholders approved the Sound Federal Bancorp 1999
      Stock Option Plan (the "Stock Option Plan"). A total of 210,738 shares of
      authorized but unissued common stock were reserved for issuance under the
      Stock Option Plan. Options have a ten-year term and may be either
      non-qualified stock options or incentive stock options. Each option
      entitles the holder to purchase one share of common stock at an exercise
      price equal to the fair market value of the stock on the grant date.

      Effective October 20, 1999, initial option grants were made under the
      Stock Option Plan for 210,738 shares at an exercise price of $9.125 per
      share. During the year ended March 31, 2002, 8,000 options were exercised.
      A total of 202,738 options were outstanding at March 31, 2002, including
      126,043 that were exercisable at that date. During the three months ended
      June 30, 2002, 3,000 options were exercised, resulting in a total of
      199,738 outstanding options at June 30, 2002, including 123,043 that were
      exercisable at that date.

      In accordance with the provisions of APB Opinion No. 25 related to fixed
      stock options, compensation expense is not recognized with respect to
      these options since the exercise price equals the fair value of the common
      stock at the grant date. Under the alternative fair-value-based method
      defined in SFAS No. 123, the grant-date fair value of fixed stock options
      is recognized as expense over the vesting period. The estimated per-share
      fair value of options granted in October 1999 was $2.25, estimated using
      the Black-Scholes option-pricing model with assumptions as follows:
      dividend yield of 3.1%; expected volatility rate of 20.0%; risk-free
      interest rate of 6.4%; and expected option life of 7 years. Had the
      Company applied the fair-value-based method to the options granted, it
      would have reported net income, basic earnings per share and diluted
      earnings per share of $2.1 million, $0.44 and $0.44, respectively, for the
      three months ended June 30, 2002; $1.1 million, $0.23 and $0.23,
      respectively, for the three months ended June 30, 2001; $5.7 million,
      $1.22 and $1.21, respectively, for the year ended March 31, 2002; $2.6
      million, $0.54 and $0.54, respectively, for the year ended March 31, 2001;
      and $2.3 million, $0.46 and $0.46, respectively, for the year ended March
      31, 2000.

      RECOGNITION AND RETENTION PLAN

      On October 14, 1999, stockholders also approved the Sound Federal Bancorp
      1999 Recognition and Retention Plan (the "RRP"). The purpose of the RRP is
      to provide officers and non-employee directors of the Company with a
      proprietary interest in the Company in a manner designed to encourage
      their retention. A total of 105,369 shares were awarded under the RRP in
      October 1999 and funded with shares purchased by the Company in the open
      market. The grant-date fair value of these shares was charged to
      stockholders' equity. The awards vest at a rate of 20% on each of five
      annual vesting dates, the first of which was January 1, 2000. RRP expense
      for both the three months ended June 30, 2002 and 2001 amounted to
      $36,000. RRP expense for the year ended March 31, 2002 amounted to
      $148,000. RRP expense for the year ended March 31, 2001 was $329,000 and
      included $148,000 for

                                      F-25
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      awards that vested as a result of the retirement of certain participants.
      RRP expense for the year ended March 31, 2000 was $240,000 and included
      $193,000 for the 20% of the 1999 awards that vested on January 1, 2000.

(12)  COMMITMENTS AND CONTINGENCIES

      OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

      The Company's off-balance sheet financial instruments at June 30, 2002,
      March 31, 2002 and March 31, 2001 were limited to loan origination
      commitments of $25.5 million, $28.7 million and $16.8 million,
      respectively, and unused lines of credit (principally fixed rate home
      equity lines) extended to customers of $40.1 million, $36.8 million and
      $31.1 million, respectively. Substantially all of these commitments and
      lines of credit have been provided to customers within the Company's
      primary lending area described in Note 6. Loan origination commitments at
      June 30, 2002 consisted of adjustable rate and fixed rate commitments of
      $9.2 million and $16.3 million, respectively, with weighted average yields
      of 6.21% and 7.00%, respectively. Loan origination commitments at March
      31, 2002 consisted of adjustable rate and fixed rate commitments of $4.8
      million and $23.9 million, respectively, with weighted average yields of
      6.78% and 6.68%, respectively. Substantially all of the commitments at
      March 31, 2001 carried fixed interest rates ranging from 6.75% to 10.50%.

      Loan origination commitments and lines of credit are contractual
      agreements to lend to customers within specified time periods at interest
      rates and on other terms specified in the agreements. These financial
      instruments involve elements of credit risk and interest rate risk in
      addition to the amounts for funded loans recognized in the consolidated
      balance sheets. The contractual amounts of commitments and lines of credit
      represent the Company's maximum potential exposure to credit loss
      (assuming that the agreements are fully funded and any collateral proves
      to be worthless), but do not necessarily represent future cash
      requirements since certain agreements may expire without being fully
      funded. Loan commitments generally have fixed expiration dates (ranging up
      to three months) or other termination clauses and may require the payment
      of a fee by the customer. Commitments and lines of credit are subject to
      the same credit approval process applied in the Company's general lending
      activities, including a case-by-case evaluation of the customer's
      creditworthiness and related collateral requirements.

      LEASE COMMITMENTS

      The Company is obligated under non-cancelable operating leases for six
      branch offices. Rent expense under these leases was $96,000 and $73,000
      for the three months ended June 30, 2002 and 2001, respectively, and
      $304,000, $258,000 and $176,000 for the years ended March 31, 2002, 2001
      and 2000, respectively. At March 31, 2002, the future minimum rental
      payments under these lease agreements for the fiscal years ending March 31
      are $385,000 in 2003, $395,000 in 2004, $382,000 in 2005, $388,000 in
      2006, $395,000 in 2007, and a total of $2.6 million for 2008 and
      thereafter. There were no significant changes in future minimum lease
      rentals during the three months ended June 30, 2002.

      LEGAL PROCEEDINGS

      In the normal course of business, the Company is involved in various
      outstanding legal proceedings. In the opinion of management, after
      consultation with legal counsel, the outcome of such legal proceedings
      should not have a material effect on the Company's financial condition,
      results of operations or liquidity.

                                      F-26
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

(13)  REGULATORY MATTERS

      REGULATORY CAPITAL REQUIREMENTS

      OTS regulations require savings institutions to maintain a minimum ratio
      of tangible capital to total adjusted assets of 1.5%, a minimum ratio of
      Tier I (core) capital to total adjusted assets of 4.0%, and a minimum
      ratio of Total (core and supplementary) capital to risk-weighted assets of
      8.0%.

      Under its prompt corrective action regulations, the OTS is required to
      take certain supervisory actions with respect to an undercapitalized
      institution. Such actions could have a direct material effect on the
      institution's financial statements. The regulations establish a framework
      for the classification of depository institutions into five categories:
      well capitalized, adequately capitalized, undercapitalized, significantly
      undercapitalized, and critically undercapitalized. Generally, an
      institution is considered well capitalized if it has a Tier I (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%.

      The foregoing capital ratios are based in part on specific quantitative
      measures of assets, liabilities and certain off-balance sheet items as
      calculated under regulatory accounting practices. Capital amounts and
      classifications are also subject to qualitative judgments by the OTS about
      capital components, risk weightings and other factors. These capital
      requirements apply only to the Bank, and do not consider additional
      capital retained by Sound Federal Bancorp.

      Management believes that, as of June 30, 2002, March 31, 2002 and March
      31, 2001, the Bank met all capital adequacy requirements to which it was
      subject. Further, the most recent OTS notification categorized the Bank as
      a well-capitalized institution under the prompt corrective action
      regulations. There have been no conditions or events since that
      notification that management believes have changed the Bank's capital
      classification.

                                      F-27
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      The following is a summary of the Bank's actual capital amounts and
      ratios, compared to the OTS requirements for minimum capital adequacy and
      for classification as a well-capitalized institution. In accordance with
      the applicable regulatory requirements, the Bank's actual tangible and
      Tier 1 capital amounts exclude goodwill and the after-tax net unrealized
      gain on securities available for sale, while the Total risk-based capital
      amounts include the allowance for loan losses.
OTS REQUIREMENTS
                                                            -----------------------------------------------------
                                                               MINIMUM CAPITAL            CLASSIFICATION AS
                                       BANK ACTUAL                  ADEQUACY                WELL CAPITALIZED
                                -------------------------   -------------------------   -------------------------
                                   AMOUNT        RATIO         AMOUNT        RATIO         AMOUNT        RATIO
                                   ------        -----         ------        -----         ------        -----
                                                               (DOLLARS IN THOUSANDS)
JUNE 30, 2002
       -------------
        Tangible capital.....   $  42,113         6.6%      $  9,528          1.5%
        Tier I (core) capital.     42,113         6.6         25,405          4.0         $  31,757       5.0%
        Risk-based capital:
           Tier I............      42,113        13.1                                        19,341       6.0
           Total.............      44,410        13.8         25,788          8.0            32,236      10.0

       MARCH 31, 2002
       --------------
        Tangible capital.....   $  39,865         6.5%      $  9,139          1.5%
        Tier I (core) capital.     39,865         6.5         24,371          4.0         $  30,464      5.0%
        Risk-based capital:
           Tier I............      39,865        12.7                                        18,776      6.0
           Total.............      42,087        13.5         25,035          8.0            31,294     10.0

       MARCH 31, 2001
       --------------
        Tangible capital.....   $  34,247         6.4%      $  8,029          1.5%
        Tier I (core) capital      34,247         6.4         21,410          4.0         $  26,763      5.0%
        Risk-based capital:
           Tier I............      34,247        14.8                                        13,847      6.0
           Total.............      36,294        15.7         18,463          8.0            23,079     10.0
DIVIDEND LIMITATIONS

      Under current OTS regulations, savings associations such as the Bank
      generally may declare annual cash dividends up to an amount equal to net
      income for the current year plus retained net income for the two preceding
      years. Dividends in excess of this amount require OTS approval. Unlike the
      Bank, Sound Federal Bancorp is not subject to OTS regulatory limitations
      on the payment of dividends to its shareholders. Beginning in April 1999,
      Sound Federal Bancorp has declared a quarterly cash dividend of $0.07 per
      common share. Since October 1999, the Mutual Holding Company has waived
      receipt of this dividend with respect to all of its shares. The cumulative
      amount of dividends waived through June 30, 2002 was $2.2 million.

      STOCK REPURCHASE PROGRAMS

      In July 1999, the Company announced a stock repurchase program to acquire
      up to 344,926 shares of its common stock, which represents approximately
      15% of the common stock held by persons other than the Mutual Holding
      Company. This repurchase program was completed in February 2001. In March
      2001, the Company announced a program to repurchase up to 206,000 shares
      of its common stock. As of June 30, 2002, the Company had acquired 444,926
      shares of its common stock as treasury shares, at a total cost of
      approximately $4.4 million or an average of $9.78 per share.

                                      F-28
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      LIQUIDATION RIGHTS

      All depositors who had liquidation rights with respect to the Bank as of
      the effective date of the Reorganization continue to have such rights
      solely with respect to the Mutual Holding Company, as long as they
      continue to hold deposit accounts with the Bank. In addition, all persons
      who become depositors of the Bank subsequent to the Reorganization will
      have such liquidation rights with respect to the Mutual Holding Company.

(14)  COMPREHENSIVE INCOME

      Comprehensive income represents the sum of net income and items of "other
      comprehensive income or loss" that are reported directly in stockholders'
      equity, such as the change during the period in the after-tax net
      unrealized gain or loss on securities available for sale. The Company has
      reported its total comprehensive income in the consolidated statements of
      changes in stockholders' equity.

      The Company's other comprehensive income (loss) is summarized as follows:
THREE MONTHS
                                                          ENDED JUNE 30,                 YEARS ENDED MARCH 31,
                                                        -------------------     --------------------------------------
                                                         2002         2001         2002          2001            2000
                                                         ----         ----         ----          ----            ----
                                                                              (IN THOUSANDS)
Net unrealized holding gain (loss) arising
          during the period on securities available
          for sale...............................    $   1,023    $    (250)    $ (1,850)     $   5,823     $  (1,788)
       Additional minimum pension liability......           --           --         (170)            --            --
       Related deferred income tax effect........         (396)         101          869         (2,369)          718
                                                       --------      ------       ------        -------       -------

       Other comprehensive income (loss).........    $     627    $    (149)    $ (1,151)     $   3,454     $  (1,070)
                                                       =======       =======      ======        =======       =======
The Company's accumulated other comprehensive income, which is included in
      stockholders' equity, is summarized as follows:
MARCH 31,
                                                                             JUNE 30, -----------------------
                                                                              2002        2002         2001
                                                                              ----        ----         ----
                                                                                       (IN THOUSANDS)
Net unrealized holding gain on securities available for sale  $     2,985  $     1,962  $     3,812
           Additional minimum pension liability......................           (170)        (170)          --
           Related deferred income taxes.............................         (1,087)        (691)      (1,560)
                                                                           ----------   ---------    ---------

           Accumulated other comprehensive income ...................    $     1,728  $     1,101  $     2,252
                                                                           =========    =========    =========
F-29
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

(15)  EARNINGS PER SHARE

      The following is a summary of the Company's EPS calculations. For purposes
      of computing basic EPS, net income applicable to common stock equaled net
      income for all periods.
THREE MONTHS
                                                    ENDED JUNE 30,                YEARS ENDED MARCH 31,
                                               ------------------------ --------------------------------------
                                                   2002         2001        2002         2001           2000
                                                   ----         ----        ----         ----           ----
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income.............................   $    2,161   $    1,175  $    5,770  $    2,659    $    2,392
                                                  ========     ========    ========    ========      ========
      Weighted average common shares
          outstanding for computation of
          basic EPS (1)......................        4,649        4,633       4,639       4,783         4,949
      Common-equivalent shares due to the
          dilutive effect of stock options
          and RRP awards (2).................           94           29          56          --             2
                                                  --------     --------    --------    --------      --------
      Weighted average common shares for
          computation of diluted EPS.........        4,743        4,662       4,695       4,783         4,951
                                                  ========     ========    ========    ========      ========

      Earnings per common share:
          Basic..............................   $     0.46   $     0.25  $     1.24  $     0.56    $     0.48
          Diluted............................         0.46         0.25        1.23        0.56          0.48
                                                 ==========   ==========  ==========  ==========    ==========
(1)   Includes all shares issued to the Mutual Holding Company and
            contributed to the Charitable Foundation. Excludes RRP shares that
            have not vested and unallocated ESOP shares that have not been
            released or committed to be released to participants.
      (2)   Represents an incremental number of shares computed using the
            treasury stock method.

(16)  FAIR VALUES OF FINANCIAL INSTRUMENTS

      SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,
      requires disclosures for financial instruments for which it is practicable
      to estimate fair value. The definition of a financial instrument includes
      many of the assets and liabilities recognized in the Company's
      consolidated balance sheets, as well as certain off-balance sheet items.
      Fair value is defined in SFAS No. 107 as the amount at which a financial
      instrument could be exchanged in a current transaction between willing
      parties, other than in a forced sale or liquidation.

      Quoted market prices are used to estimate fair values when those prices
      are available. However, active markets do not exist for many types of
      financial instruments. Consequently, fair values for these instruments
      must be estimated by management using techniques such as discounted cash
      flow analysis and comparison to similar instruments. Estimates developed
      using these methods are highly subjective and require judgments regarding
      significant matters such as the amount and timing of future cash flows and
      the selection of discount rates that appropriately reflect market and
      credit risks. Changes in these judgments often have a material effect on
      the fair value estimates. Since these estimates are made as of a specific
      point in time, they are susceptible to material near-term changes. Fair
      values disclosed in accordance with SFAS No. 107 do not reflect any
      premium or discount that could result from the sale of a large volume of a
      particular financial instrument, nor do they reflect possible tax
      ramifications or estimated transaction costs.

                                      F-30
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      The following is a summary of the carrying amounts and estimated fair
      values of the Company's financial assets and liabilities (none of which
      were held for trading purposes):
MARCH 31,
                                                JUNE 30,           ------------------------------------------------
                                                  2002                      2002                      2001
                                          --------------------     ---------------------      ---------------------
                                            CARRYING     FAIR        CARRYING      FAIR        CARRYING     FAIR
                                             AMOUNT      VALUE        AMOUNT       VALUE        AMOUNT      VALUE
                                             ------      -----        ------       -----        ------      -----
                                                                       (IN MILLIONS)
Financial assets:
        Cash and due from banks........    $    6.7   $    6.7       $   6.9    $    6.9      $    5.8    $    5.8
        Federal funds sold and other
          overnight deposits...........        35.4       35.4          19.8        19.8          35.0        35.0
        Other interest-earning assets..         --         --           --          --             2.5         2.5
        Securities.....................       143.8      143.8         150.2       150.2         185.7       185.8
        Loans..........................       437.4      448.1         418.4       426.4         293.8       299.4
        Accrued interest receivable....         3.5        3.5           3.2         3.2           3.4         3.4
        FHLB stock.....................         4.1        4.1           4.1         4.1           3.7         3.7
     Financial liabilities:
        Savings certificate accounts...       324.8      326.8         312.3       313.5         295.7       298.8
        Other deposit accounts.........       219.9      219.9         207.6       207.6         177.8       177.8
        Borrowings.....................        35.0       36.3          34.9        35.4          14.7        15.5
        Mortgage escrow funds..........         4.4        4.4           5.0         5.0           4.5         4.5
                                             ======    =======        ======      ======        ======      ======
The following is a description of the valuation methods used by the
      Company to estimate the fair values of its financial instruments:

      SECURITIES

      The fair values of securities were based on market prices or dealer
      quotes.

      LOANS

      For valuation purposes, the loan portfolio was segregated into its
      significant categories, such as residential mortgage loans and consumer
      loans. These categories were further analyzed, where appropriate, into
      components based on significant financial characteristics such as type of
      interest rate (fixed or adjustable). Generally, management estimated fair
      values by discounting the anticipated cash flows at current market rates
      for loans with similar terms to borrowers of similar credit quality.

      DEPOSIT LIABILITIES

      The fair values of savings certificate accounts represent contractual cash
      flows discounted using interest rates currently offered on certificates
      with similar characteristics and remaining maturities (but are not less
      than the net amount at which depositors could settle their accounts). In
      accordance with SFAS No. 107, the fair values of other deposit accounts
      (those with no stated maturity, such as passbook and money market
      accounts) are equal to the carrying amounts payable on demand. These fair
      values do not include the value of core deposit relationships that
      comprise a significant portion of the Company's deposit base. Management
      believes that these core deposit

                                      F-31
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

      relationships provide a relatively stable, low-cost funding source that
      has a substantial unrecognized value separate from the deposit balances.

      BORROWINGS

      The fair values of securities repurchase agreements and FHLB advances
      represent contractual repayments discounted using interest rates currently
      available on borrowings with similar characteristics and remaining
      maturities.

      OTHER FINANCIAL INSTRUMENTS

      The remaining financial assets and liabilities listed in the preceding
      table have fair values that approximate the respective carrying amounts in
      the consolidated balance sheets because the instruments are payable on
      demand or have short-term maturities and present relatively low credit
      risk and interest rate risk. Fair values of the loan origination
      commitments and unused lines of credit described in Note 12 were estimated
      based on an analysis of the interest rates and fees currently charged to
      enter into similar transactions, considering the remaining terms of the
      instruments and the creditworthiness of the potential borrowers. At June
      30, 2002, March 31, 2002 and March 31, 2001, the fair values of these
      instruments approximated the related carrying amounts.

                                      F-32
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

(17)  PARENT COMPANY CONDENSED FINANCIAL STATEMENTS

      Set forth below are condensed financial statements of Sound Federal
      Bancorp:
MARCH 31,
                                                                               JUNE 30,      -----------------------------
        CONDENSED BALANCE SHEETS                                                 2002             2002             2001
                                                                                 ----             ----             ----
                                                                                            (IN THOUSANDS)
ASSETS
        Interest-bearing deposits at subsidiary bank.................       $      5,075     $      5,229     $      6,116
        Loan receivable from ESOP....................................              1,153            1,153            1,345
        Investment in subsidiary bank................................             57,891           55,082           50,468
        Other assets.................................................                998              931              704
                                                                               ---------        ---------        ---------
                Total assets.........................................       $     65,117     $     62,395     $     58,633
                                                                               =========        =========        =========

        LIABILITIES..................................................       $      1,297     $      1,380     $      1,704
        STOCKHOLDERS' EQUITY.........................................             63,820           61,015           56,929
                                                                               ---------        ---------        ---------
                Total liabilities and stockholders' equity...........       $     65,117     $     62,395     $     58,633
                                                                               =========        =========        =========
THREE MONTHS
                                                                ENDED JUNE 30,                 YEARS ENDED MARCH 31,
                                                          -------------------------  --------------------------------------
       CONDENSED STATEMENTS OF INCOME                         2002          2001         2002         2001          2000
                                                              ----          ----         ----         ----          ----
                                                                                    (IN THOUSANDS)
Interest income..............................      $       52     $      79   $      269    $     345    $      410
       Other expenses...............................             (88)          (41)        (208)         (77)         (221)
                                                              -------      --------      -------     --------    ---------
       (Loss) income before income taxes and
          equity in undistributed earnings of
          subsidiary bank...........................             (36)           38           61          268           189
       Income tax (benefit) expense.................             (14)           44           56           56            48
                                                              -------      -------       ------      -------     ---------
       (Loss) income before equity in undistributed
           earnings of subsidiary bank..............             (22)           (6)           5          212           141
       Equity in undistributed earnings of subsidiary
           bank.....................................           2,183         1,181        5,765        2,447         2,251
                                                              ------       -------       ------      -------      --------
       Net income...................................      $    2,161     $   1,175   $    5,770    $   2,659    $    2,392
                                                              ======       =======       ======      =======      ========
F-33
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)
THREE MONTHS
                                                           ENDED JUNE 30,                   YEARS ENDED MARCH 31,
                                                     --------------------------   -----------------------------------------
       CONDENSED STATEMENTS OF CASH FLOWS                2002          2001           2002          2001           2000
                                                         ----          ----           ----          ----           ----
                                                                                  (IN THOUSANDS)
OPERATING ACTIVITIES
       Net income..............................      $    2,161    $    1,175     $    5,770    $    2,659    $     2,392
       Adjustments to reconcile net income to net
           cash (used in) provided by operating
           activities:
             Equity in undistributed earnings of
               subsidiary bank.................          (2,183)       (1,181)        (5,765)       (2,447)        (2,251)
             (Increase) decrease in other
               assets..........................             (67)          (67)          (227)         (148)            12
             Other.............................              46            24             70            (2)           (70)
                                                         ------        ------         ------        -------       --------
                 Net cash (used in)  provided
                   by operating activities.....             (43)          (49)          (152)           62             83
                                                         ------        -------        -------       ------        -------

       INVESTING ACTIVITIES
       ESOP loan repayments....................              --            --            192           192            192
                                                         ------        ------         ------        ------        -------

       FINANCING ACTIVITIES
       Purchases of treasury stock.............              --          (483)          (483)       (1,798)        (2,069)
       Issuance of stock pursuant to stock
           option plan.........................              27            --             73            --             --
       Payment of cash dividends on common stock...        (138)         (140)          (517)         (580)        (1,004)
                                                         -------       -------        -------   -----------       --------
                 Net cash used in financing
                   activities..................            (111)         (623)          (927)       (2,378)        (3,073)
                                                         -------       -------        -------       -------       --------
       Net decrease in cash and cash
           equivalents.........................            (154)         (672)          (887)       (2,124)        (2,798)
       Cash and cash equivalents at beginning
           of period...........................           5,229         6,116          6,116         8,240         11,038
                                                         ------        ------         ------        ------        -------
       Cash and cash equivalents at end
           of period...........................      $    5,075    $    5,444     $    5,229    $    6,116    $     8,240
                                                         ======        ======         ======         =====        =======
F-34
SOUND FEDERAL BANCORP AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         (INFORMATION WITH RESPECT TO JUNE 30, 2002 AND THE THREE-MONTH
               PERIODS ENDED JUNE 30, 2002 AND 2001 IS UNAUDITED)

(18)  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

      The following is a condensed summary of quarterly results of operations
      for the years ended March 31, 2002 and 2001:
FIRST           SECOND        THIRD          FOURTH
                                                             QUARTER         QUARTER       QUARTER         QUARTER
                                                             -------         -------       -------         -------
                                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED MARCH 31, 2002
      -------------------------
      Interest and dividend income...................      $     9,365     $     9,464   $     9,445      $   9,171
      Interest expense...............................            5,339           4,961         4,650          3,589
                                                           -----------     -----------   -----------      ---------
      Net interest income............................            4,026           4,503         4,795          5,582
      Provision for loan losses......................               25              25            75             50
      Non-interest income............................              196             169           194            172
      Non-interest expense...........................            2,334           2,421         2,535          3,026
                                                           -----------     -----------   -----------      ---------
      Income before income tax expense...............            1,863           2,226         2,379          2,678
      Income tax expense.............................              688             854           914            920
                                                           -----------     -----------   -----------      ---------
      Net income.....................................      $     1,175     $     1,372   $     1,465      $   1,758
                                                           ===========     ===========   ===========      =========

      Basic earnings per common share................      $      0.25     $      0.30   $      0.32      $    0.38
      Diluted earnings per common share..............             0.25            0.29          0.31           0.37
                                                           ===========     ===========   ============     =========

      YEAR ENDED MARCH 31, 2001
      -------------------------
      Interest and dividend income...................      $     5,730     $     8,610   $     9,635      $   9,601
      Interest expense...............................            2,896           4,808         5,701          5,603
                                                           -----------     -----------   -----------      ---------
      Net interest income............................            2,834           3,802         3,934          3,998
      Provision for loan losses......................               50              58            50             50
      Non-interest income............................               55              66           146            115
      Non-interest expense...........................            1,888           2,550         2,868          2,727
                                                           -----------     -----------   -----------      ---------
      Income before income tax expense...............              951           1,260         1,162          1,336
      Income tax expense.............................              356             590           491            613
                                                           -----------     -----------   -----------      ---------
      Net income.....................................      $       595     $       670   $       671      $     723
                                                           ===========     ===========   ===========      =========

      Basic and diluted earnings per common share....      $      0.12     $      0.14   $      0.14      $    0.15
                                                           ===========     ===========   ===========      =========
F-35
--------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY SOUND FEDERAL BANCORP OR SOUND FEDERAL SAVINGS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF SOUND FEDERAL
BANCORP OR SOUND FEDERAL SAVINGS SINCE ANY OF THE DATES AS OF WHICH INFORMATION
IS FURNISHED HEREIN OR SINCE THE DATE HEREOF.

                             UP TO 6,765,910 SHARES
                              (ANTICIPATED MAXIMUM)

                              SOUND FEDERAL BANCORP

                              (HOLDING COMPANY FOR
                   SOUND FEDERAL SAVINGS AND LOAN ASSOCIATION)

                                  COMMON STOCK
                            PAR VALUE $0.01 PER SHARE

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

                                   PROSPECTUS
                               ------------------

                          KEEFE, BRUYETTE & WOODS, INC.

                                NOVEMBER __, 2002
                                ----------------

                  THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
                  AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
                                ----------------

UNTIL DECEMBER __, 2002 OR 25 DAYS AFTER COMMENCEMENT OF THE SYNDICATED
COMMUNITY OFFERING, IF ANY, WHICHEVER IS LATER, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OF SUBSCRIPTIONS.
--------------------------------------------------------------------------------
PART II:    INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.    OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
AMOUNT
*     Legal Fees and Expenses............................................      $      320,000
      *     Printing, Postage, Mailing and EDGAR...............................             190,000
      *     Appraisal and Business Plan Fees and Expenses......................              34,000
      *     Accounting and State Tax Fees and Expenses.........................             100,000
      *     Conversion Agent and Data Processing Fees..........................              60,000
      **    Marketing Agent Fees and Expenses..................................             825,500
      *     Marketing Agent Counsel Fees and expenses..........................              35,000
      *     Filing Fees (OTS, NASD, Nasdaq and SEC)............................              56,767
      *     Other..............................................................              45,733
                                                                                     --------------
      *     Total .............................................................      $    1,682,000
                                                                                     ==============
*     Estimated
**    Sound Federal Bancorp has retained Keefe, Bruyette & Woods, Inc. to assist
      in the sale of common stock on a best efforts basis in the Offerings. Fees
      are estimated at the maximum of the offering range.

ITEM 14.    INDEMNIFICATION OF DIRECTORS AND OFFICERS

      Article TENTH of the Certificate of Incorporation of Sound Federal Bancorp
(the "Corporation") sets forth circumstances under which directors, officers,
employees and agents of the Corporation may be insured or indemnified against
liability which they incur in their capacities as such:

      TENTH:

      A.    Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent or in any other capacity while serving as a Director, Officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as provided
in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.

      B.    The right to indemnification conferred in Section A of this Article
TENTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a Director or Officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections A and B of this Article TENTH shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.

      C.    If a claim under Section A or B of this Article TENTH is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article TENTH or otherwise shall be on the Corporation.

      D.    The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested Directors or otherwise.

      E.    The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.

      F.    The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the advancement
of expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.

ITEM 15.    RECENT SALES OF UNREGISTERED SECURITIES

            Not Applicable.
ITEM 16.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:

            The exhibits and financial statement schedules filed as part of this
registration statement are as follows:

            (A) LIST OF EXHIBITS

1.1   Engagement Letter between the Registrant and Keefe, Bruyette & Woods, Inc.
1.2   Form of Agency Agreement between the Registrant and Keefe, Bruyette &
      Woods, Inc.
2     Plan of Conversion and Reorganization
3.1   Certificate of Incorporation of Sound Federal Bancorp (Included in Exhibit
      2)
3.2   Bylaws of Sound Federal Bancorp (Included in Exhibit 2)
4     Form of Common Stock Certificate of Sound Federal Bancorp
5     Opinion of Luse Gorman Pomerenk & Schick regarding legality of securities
      being registered
8.1   Form of Federal Tax Opinion of Luse Gorman Pomerenk & Schick
10.1  Sound Federal Bancorp 1999 Stock Option Plan**
10.2  Sound Federal Bancorp 1999 Recognition and Retention Plan**
10.3  Employment Agreement with Richard P. McStravick***
10.4  Employee Stock Ownership Plan
21    Subsidiaries of Registrant
23.1  Consent of Luse Gorman Pomerenk & Schick (contained in Opinions included
      as Exhibits 5 and 8.1)
23.2  Consent of KPMG LLP
23.3  Consent of FinPro, Inc.
24    Power of Attorney (set forth on signature page)
99.1  Appraisal and Business Plan Agreement between the Registrant and FinPro,
      Inc.
99.2  Appraisal Report of FinPro, Inc.****
99.3  Marketing Materials
99.4  Order and Acknowledgment Form
99.5  Special Meeting Proxy Statement
99.6  Letter of FinPro, Inc. with respect to Subscription Rights
99.7  Prospectus Supplement
-------------------------------
*     To be filed supplementally or by amendment.
**    Incorporated by reference to the Registration Statement on Form S-8 (File
      No. 333-93215), originally filed with the Commission on December 21, 1999.
***   Incorporated by reference to the Registration Statement on Form S-1 (File
      No. 333-57377), originally filed with the Commission on June 22, 1998.
****  Supporting financial schedules filed pursuant to Rule 202 of Regulation
      S-T.

            (B) FINANCIAL STATEMENT SCHEDULES

            No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated financial
statements or related notes.

ITEM 17.    UNDERTAKINGS

            The undersigned Registrant hereby undertakes:

            (1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement:

            (i)   To include any prospectus required by Section 10(a)(3) of the
      Securities Act of 1933;

            (ii)  To reflect in the prospectus any facts or events arising after
      the effective date of the registration statement (or the most recent
      post-effective amendment thereof) which, individually or in the aggregate,
      represent a fundamental change in the information set forth in the
      registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of
      securities offered (if the total dollar value of securities offered would
      not exceed that which was registered) and any duration from the low or
      high and of the estimated maximum offering range may be reflected in the
      form of prospectus filed with the Commission pursuant to Rule 424(b) if,
      in the aggregate, the changes in volume and price represent no more than
      20 percent change in the maximum aggregate offering price set forth in the
      "Calculation of Registration Fee" table in the effective registration
      statement;

            (iii) To include any material information with respect to the plan
      of distribution not previously disclosed in the registration statement or
      any material change to such information in the registration statement.

      (2)   That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

      (3)   To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.

      Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the questions whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Mamaroneck, State of New
York on September 16, 2002.

                                     SOUND FEDERAL BANCORP

                                     By:  /s/ Richard P. McStravick
                                          ------------------------------------
                                          Richard P. McStravick
                                          President and Chief Executive Officer
                                          (Duly Authorized Representative)

                                POWER OF ATTORNEY

      We, the undersigned directors and officers of Sound Federal Bancorp (the
"Company") hereby severally constitute and appoint Richard P. McStravick as our
true and lawful attorney and agent, to do any and all things in our names in the
capacities indicated below which said Richard P. McStravick may deem necessary
or advisable to enable the Company to comply with the Securities Act of 1933,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the registration statement on Form S-1 relating
to the offering of the Company's Common Stock, including specifically, but not
limited to, power and authority to sign for us in our names in the capacities
indicated below the registration statement and any and all amendments (including
post-effective amendments) thereto; and we hereby approve, ratify and confirm
all that said Richard P. McStravick shall do or cause to be done by virtue
thereof.

      Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signatures                              Title                                 Date
           ----------                              -----                                 ----
/s/ Richard P. McStravick               President, Chief Executive                September 16, 2002
--------------------------------        Officer and Director (Principal
Richard P. McStravick                   Executive Officer)

/s/ Anthony J. Fabiano                  Senior Vice President and Chief           September 16, 2002
--------------------------------        Financial Officer
Anthony J. Fabiano                      (Principal Financial and
                                        Accounting Officer)

/s/ Bruno J. Gioffre                    Chairman                                  September 16, 2002
--------------------------------
Bruno J. Gioffre

/s/ Joseph Dinolfo                      Director                                  September 16, 2002
--------------------------------
Joseph Dinolfo

/s/ Donald H. Heithaus                  Director                                  September 16, 2002
--------------------------------
Donald H. Heithaus

/s/ Joseph A. Lanza                     Director                                  September 16, 2002
--------------------------------
Joseph A. Lanza
Signatures                              Title                                 Date
           ----------                              -----                                 ----
/s/ Eldorus Maynard                     Director                                  September 16, 2002
--------------------------------
Eldorus Maynard

/s/ James Staudt                        Director                                  September 16, 2002
--------------------------------
James Staudt

/s/ Samuel T. Telerico                  Director                                  September 16, 2002
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Samuel T. Telerico
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 2002

                                                   REGISTRATION NO. 333-________
================================================================================

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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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                                    EXHIBITS
                                       TO
                             REGISTRATION STATEMENT
                                       ON
                                    FORM S-1

                              SOUND FEDERAL BANCORP
                              MAMARONECK, NEW YORK

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EXHIBIT INDEX

1.1   Engagement Letter between the Registrant and Keefe, Bruyette & Woods, Inc.
1.2   Form of Agency Agreement between the Registrant and Keefe, Bruyette &
      Woods, Inc.
2     Plan of Conversion and Reorganization
3.1   Certificate of Incorporation of Sound Federal Bancorp (Included in Exhibit
      2)
3.2   Bylaws of Sound Federal Bancorp (Included in Exhibit 2)
4     Form of Common Stock Certificate of Sound Federal Bancorp
5     Opinion of Luse Gorman Pomerenk & Schick regarding legality of securities
      being registered
8.1   Form of Federal Tax Opinion of Luse Gorman Pomerenk & Schick
10.1  Sound Federal Bancorp 1999 Stock Option Plan**
10.2  Sound Federal Bancorp 1999 Recognition and Retention Plan**
10.3  Employment Agreement with Richard P. McStravick***
10.4  Employee Stock Ownership Plan
21    Subsidiaries of Registrant
23.1  Consent of Luse Gorman Pomerenk & Schick (contained in Opinions included
      as Exhibits 5 and 8.1)
23.2  Consent of KPMG LLP
23.3  Consent of FinPro, Inc.
24    Power of Attorney (set forth on signature page)
99.1  Appraisal and Business Plan Agreement between the Registrant and FinPro,
      Inc.
99.2  Appraisal Report of FinPro, Inc.****
99.3  Marketing Materials
99.4  Order and Acknowledgment Form
99.5  Special Meeting Proxy Statement
99.6  Letter of FinPro, Inc. with respect to Subscription Rights
99.7  Prospectus Supplement
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*     To be filed supplementally or by amendment.
**    Incorporated by reference to the Registration Statement on Form S-8 (File
      No. 333-93215), originally filed with the Commission on December 21, 1999.
***   Incorporated by reference to the Registration Statement on Form S-1 (File
      No. 333-57377), originally filed with the Commission on June 22, 1998.
****  Supporting financial schedules filed pursuant to Rule 202 of Regulation
      S-T.