UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q
(Mark one)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
ACT OF 1934

For the quarterly period ended December 31, 2006
                               -------------------------------------------------

                                       or

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from ____________________ to _________________________

Commission File Number:  0-24040
                        --------------------------------------------------------

                        PENNFED FINANCIAL SERVICES, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

            Maryland                                           22-3297339
--------------------------------------------------------------------------------
(State or other jurisdiction of                            (I.R.S. Employer
 incorporation or organization)                             Identification No.)

622 Eagle Rock Avenue, West Orange, New Jersey                  07052-2989
--------------------------------------------------------------------------------
 (Address of principal executive offices)                       (Zip Code)

                                 (973) 669-7366
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

                                       N/A
--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

      Indicate by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.
YES [X]. NO [_].

      Indicate  by check mark  whether  the  registrant  is a large  accelerated
filer,  an accelerated  filer,  or a  non-accelerated  filer.  See definition of
"accelerated  filer and large  accelerated  filer" in Rule 12b-2 of the Exchange
Act. (Check one):

Large accelerated filer [_].  Accelerated filer [X].  Non-accelerated filer [_].

      Indicate  by check mark  whether  the  registrant  is a shell  company (as
defined in Rule 12b-2 of the Exchange Act).
YES [_]. NO [X].

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

      Indicate by check mark whether the  registrant has filed all documents and
reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.
YES [_]. NO [_].

      As of  February  2, 2007,  there were  issued and  outstanding  12,967,111
shares of the Registrant's Common Stock.

                                       1
<page>
                PennFed Financial Services, Inc. and Subsidiaries
                                    Form 10-Q

                               Contents of Report

                                                                            Page
                                                                          Number
                                                                          ------
PART I - FINANCIAL INFORMATION
------------------------------
     Item 1. - Financial Statements
         Consolidated Statements of Financial Condition -
           December 31, 2006 (unaudited) and June 30, 2006                     3
         Consolidated Statements of Income (Loss) (unaudited) -
           For the three and six months ended
            December 31, 2006 and 2005                                         4
         Consolidated Statements of Comprehensive Income (Loss)
           (unaudited) - For the three and six months
            ended December 31, 2006 and 2005                                   5
         Consolidated Statements of Changes in Stockholders' Equity
           (unaudited) - For the six months ended
            December 31, 2006 and 2005                                         6
         Consolidated Statements of Cash Flows (unaudited) -
           For the six months ended December 31, 2006 and 2005                 7
         Notes to Consolidated Financial Statements (unaudited)                9
     Item 2. - Management's Discussion and Analysis of Financial
                Condition and Results of Operations                           13
     Item 3. - Quantitative and Qualitative Disclosures About Market Risk     25
     Item 4. - Controls and Procedures                                        25
PART II - OTHER INFORMATION
---------------------------
     Item 1. - Legal Proceedings                                              27
     Item 1A. - Risk Factors                                                  27
     Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds    27
     Item 3. - Defaults Upon Senior Securities                                27
     Item 4. - Submission of Matters to a Vote of Security Holders            27
     Item 5. - Other Information                                              28
     Item 6. - Exhibits                                                       28
SIGNATURES                                                                    29
----------
EXHIBITS
--------
     Exhibit Index                                                            30
     Exhibit 10.14 - Supplemental Executive Retirement Plan                   32
     Exhibit 10.16 - Outside Directors' Retirement Plan                       50
     Exhibit 10.17 - Amended Form of Consulting Agreement                     63
     Exhibit 31.1 - Certifications Required by Securities Exchange Act
        of 1934 Rule 13a -14 (a)(Chief Executive Officer)                     65
     Exhibit 31.2 - Certifications Required by Securities Exchange Act
        of 1934 Rule 13a -14 (a) (Chief Financial Officer)                    66
     Exhibit 32 - Certifications Required by Section 1350 of Title 18
        of the United States Code                                             67

                                       2
<page>
PART I - Financial Information
Item 1.  Financial Statements

PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Financial Condition

<table>
<caption>
                                                                               December 31,   June 30,
                                                                                  2006          2006
                                                                               -----------   -----------

                                                                            <c>           <c>
                                                                               (unaudited)
                                                                                 (Dollars in thousands)
ASSETS
Cash and cash equivalents ..................................................   $    18,252   $    16,614
Investment securities available for sale, at market value, amortized cost of
     $5,166 and $5,053 at December 31, 2006 and June 30, 2006 ..............         5,165         4,936
Investment securities held to maturity, at amortized cost, market value of
     $424,558 and $420,663 at December 31, 2006 and June 30, 2006 ..........       435,558       440,360
Mortgage-backed securities held to maturity, at amortized cost, market value
     of $56,790 and $60,893 at December 31, 2006 and June 30, 2006 .........        57,703        62,963
Loans held for sale ........................................................            --           217
Loans receivable, net of allowance for loan losses of $5,859 and $5,888
     at December 31, 2006 and June 30, 2006 ................................     1,724,761     1,684,007
Premises and equipment, net ................................................        18,975        20,415
Federal Home Loan Bank of New York stock, at cost ..........................        25,971        27,714
Accrued interest receivable, net ...........................................        11,481        11,145
Bank owned life insurance ("BOLI") .........................................        31,784        31,168
Other assets ...............................................................         8,897         6,971
                                                                               -----------   -----------
                                                                               $ 2,338,547   $ 2,306,510
                                                                               ===========   ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Liabilities:
     Deposits ..............................................................   $ 1,546,756   $ 1,414,588
     Federal Home Loan Bank of New York advances ...........................       480,000       465,465
     Other borrowings ......................................................       124,801       240,193
     Junior Subordinated Deferrable Interest Debentures, net of unamortized
       issuance expenses of $1,151 and $1,174 at December 31, 2006 and
       June 30, 2006 .......................................................        42,148        42,126
     Mortgage escrow funds .................................................        11,516        11,877
     Accounts payable and other liabilities ................................         9,936         8,840
                                                                               -----------   -----------
     Total liabilities .....................................................     2,215,157     2,183,089
                                                                               -----------   -----------


Stockholders' Equity:
     Serial preferred stock, $.01 par value, 7,000,000 shares authorized,
       no shares issued ....................................................            --            --
     Common stock, $.01 par value, 15,000,000 shares authorized, 12,963,201
       and 12,864,047 shares issued and outstanding at December 31, 2006
       and June 30, 2006 ..................................................            130           129
     Additional paid-in capital ............................................        39,061        38,325
     Retained earnings .....................................................        84,199        85,036
     Accumulated other comprehensive loss, net of taxes ....................            --           (69)
                                                                               -----------   -----------
     Total stockholders' equity ............................................       123,390       123,421
                                                                               -----------   -----------
                                                                               $ 2,338,547   $ 2,306,510
                                                                               ===========   ===========
</table>

See notes to consolidated financial statements

                                       3
<page>
PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Income (Loss) (unaudited)

<table>
<caption>
                                                              Three months ended              Six months ended
                                                                  December 31,                   December 31,
                                                          ----------------------------   ---------------------------
                                                              2006            2005           2006           2005
                                                          ------------    ------------   ------------   ------------

                                                                <c>             <c>          <c>            <c>
                                                                (Dollars in thousands, except per share amounts)
Interest and Dividend Income:
     Interest and fees on loans .......................   $     24,106    $     21,112   $     47,811   $     41,568
     Interest and dividends on investment securities ..          6,833           6,329         13,576         12,592
     Interest on mortgage-backed securities ...........            764             909          1,559          1,873
                                                          ------------    ------------   ------------   ------------
                                                                31,703          28,350         62,946         56,033
                                                          ------------    ------------   ------------   ------------
Interest Expense:
     Deposits .........................................         14,860          10,198         28,554         19,455
     Borrowed funds ...................................          8,468           7,619         17,484         14,994
     Junior subordinated deferrable interest debentures          1,009             898          2,014          1,757
                                                          ------------    ------------   ------------   ------------
                                                                24,337          18,715         48,052         36,206
                                                          ------------    ------------   ------------   ------------
Net Interest and Dividend Income Before Provision
     for Loan Losses ..................................          7,366           9,635         14,894         19,827
Provision for Loan Losses .............................             --              --             --             --
                                                          ------------    ------------   ------------   ------------
Net Interest and Dividend Income After Provision
     for Loan Losses ..................................          7,366           9,635         14,894         19,827
                                                          ------------    ------------   ------------   ------------

Non-Interest Income:
     Fees and service charges .........................            778             704          1,503          4,174
     Income on BOLI ...................................            318             219            616            435
     Net gain on sales of loans .......................             70              21             79            143
     Net gain (loss) from real estate operations ......             --               2             22             (1)
     Other ............................................            231             153            649            334
                                                          ------------    ------------   ------------   ------------
                                                                 1,397           1,099          2,869          5,085
                                                          ------------    ------------   ------------   ------------
Non-Interest Expenses:
     Compensation and employee benefits ...............          3,365           3,067          6,355          6,326
     Merger-related expense ...........................          4,576              --          4,576             --
     Net occupancy expense ............................            571             594          1,158          1,179
     Equipment ........................................            548             538          1,141          1,509
     Advertising ......................................            143             165            263            299
     Federal deposit insurance premium ................             44              45             87             87
     Extinguishment of debt ...........................             --              --             --          1,351
     Other ............................................          1,152             979          2,404          2,390
                                                          ------------    ------------   ------------   ------------
                                                                10,399           5,388         15,984         13,141
                                                          ------------    ------------   ------------   ------------

Income (Loss) Before Income Taxes .....................         (1,636)          5,346          1,779         11,771
Income Tax Expense (Benefit) ..........................           (144)          1,892          1,007          4,185
                                                          ------------    ------------   ------------   ------------
Net Income (Loss) .....................................   $     (1,492)   $      3,454   $        772   $      7,586
                                                          ============    ============   ============   ============

Weighted average number of common shares outstanding:
     Basic ............................................     12,878,599      13,086,856     12,870,294     13,175,181
                                                          ============    ============   ============   ============
     Diluted ..........................................     12,878,599      13,509,140     13,185,641     13,604,862
                                                          ============    ============   ============   ============

Net income (loss) per common share:
     Basic ............................................   $      (0.12)   $       0.26   $       0.06   $       0.58
                                                          ============    ============   ============   ============
     Diluted ..........................................   $      (0.12)   $       0.26   $       0.06   $       0.56
                                                          ============    ============   ============   ============
</table>

See notes to consolidated financial statements.

                                       4
<page>

PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss) (unaudited)

<table>
<caption>
                                                                Three months ended     Six months ended
                                                                   December 31,          December 31,
                                                                ------------------    -----------------
                                                                 2006       2005        2006      2005
                                                                -------    -------    -------   -------

                                                             <c>        <c>        <c>       <c>
                                                                             (In thousands)

Net income (loss) ...........................................   $(1,492)   $ 3,454    $   772   $ 7,586

Other comprehensive income (loss), net of tax:
   Unrealized holding gains (losses) arising during period on
    investment securities available for sale, net of tax ....        (2)       (17)        69       (71)
                                                                -------    -------    -------   -------
Comprehensive income (loss) .................................   $(1,494)   $ 3,437    $   841   $ 7,515
                                                                =======    =======    =======   =======
</table>


See notes to consolidated financial statements.


                                       5
<page>

PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity (unaudited)

<table>
<caption>

                                                          For the Six Months Ended December 31, 2006 and 2005
                                                          ---------------------------------------------------

                                                                                                      Accumulated
                                          Serial                      Additional                        Other
                                        Preferred       Common         Paid-In         Retained     Comprehensive
                                          Stock          Stock         Capital         Earnings      Income (Loss)       Total
                                       ------------   ------------   ------------    ------------    --------------   ------------

                                    <c>            <c>            <c>             <c>             <c>              <c>
                                                             (Dollars in thousands, except per share amounts)

Balance at June 30, 2005 ...........   $         --   $        133   $     39,092    $     84,734    $           95   $    124,054
Repurchase of 327,200
  outstanding shares ...............                            (3)          (815)         (5,333)                          (6,151)
Issuance of 62,944 shares of
  stock for options exercised and
  Dividend Reinvestment Plan
  ("DRP") ..........................                                          157             131                              288
Tax benefit from stock option plan .                                          269                                              269
Cash dividends of $0.14 per
  common share .....................                                                       (1,803)                          (1,803)
Unrealized holding losses on
  investment securities available
  for sale, net of income taxes
  of $(50) .........................                                                                            (71)           (71)
Net income for the six months
  ended December 31, 2005 ..........                                                        7,586                            7,586
                                       ------------   ------------   ------------    ------------    --------------   ------------
Balance at December 31, 2005 .......   $         --   $        130   $     38,703    $     85,315    $           24   $    124,172
                                       ============   ============   ============    ============    ==============   ============

Balance at June 30, 2006 ...........   $         --   $        129   $     38,325    $     85,036    $          (69)  $    123,421
Repurchase of 50,400
  outstanding shares ...............                            (1)          (125)           (734)                            (860)
Issuance of 149,554 shares of
  stock for options exercised and
  DRP ..............................                             2            372             886                            1,260
Tax benefit from stock option plan .                                          489                                              489
Cash dividends of $0.14 per
  common share .....................                                                       (1,761)                          (1,761)
Unrealized holding gains on
  investment securities available
  for sale, net of income taxes
  of $47 ...........................                                                                             69             69
Net income for the six months
  ended December 31, 2006 ..........                                                          772                              772
                                       ------------   ------------   ------------    ------------    --------------   ------------
Balance at December 31, 2006 .......   $         --   $        130   $     39,061    $     84,199    $           --   $    123,390
                                       ============   ============   ============    ============    ==============   ============
</table>

See notes to consolidated financial statements.

                                       6
<page>

PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)

<table>
<caption>
                                                                            Six months ended December 31,
                                                                            -----------------------------
                                                                                 2006          2005
                                                                               ---------    ---------

                                                                                 <c>          <c>
                                                                                   (In thousands)
Cash Flows from Operating Activities:
     Net income ............................................................   $     772    $   7,586
     Adjustments to reconcile net income to net cash provided by
       operating activities:
     Net gain on sales of loans ............................................         (79)        (143)
     Proceeds from sales of loans originated for sale ......................       1,773        4,857
     Originations of loans held for sale ...................................      (1,547)      (4,078)
     Net gain on sales of real estate owned ................................         (22)          --
     Net gain on sales of premises and equipment ...........................        (219)          --
     Amortization of investment and mortgage-backed securities
       premium, net ........................................................         162          219
     Depreciation and amortization .........................................         904        1,303
     Tax benefit related to stock options ..................................        (489)        (269)
     Amortization of premiums on loans and loan fees .......................         922        1,007
     Amortization of junior subordinated debentures issuance costs .........          22           22
     Income on BOLI ........................................................        (616)        (435)
     (Increase) decrease in accrued interest receivable, net of accrued
       interest payable ....................................................         234         (921)
     Increase in other assets ..............................................      (1,926)        (846)
     Increase (decrease) in accounts payable and other liabilities .........       1,538       (4,673)
     Decrease in mortgage escrow funds .....................................        (361)        (136)
                                                                               ---------    ---------
     Net cash provided by operating activities .............................       1,068        3,493
                                                                               ---------    ---------

Cash Flows from Investing Activities:
     Proceeds from sales of premises and equipment .........................       1,145           --
     Proceeds from maturities of investment securities held to maturity ....       4,650           --
     Purchases of investment securities held to maturity ...................          --      (14,977)
     Purchases of investment securities available for sale .................        (113)         (97)
     Proceeds from principal repayments of mortgage-backed securities
       held to maturity ....................................................       5,250        9,061
     Net outflow from loan originations net of principal repayments of loans     (41,200)    (123,492)
     Proceeds from loans sold ..............................................       8,239       23,531
     Purchases of loans ....................................................      (8,645)          --
     Purchases of premises and equipment ...................................        (390)        (665)
     Net inflow (outflow) from real estate owned activity ..................          22          (24)
     (Purchases) redemptions of Federal Home Loan Bank of New York stock ...       1,743       (2,637)
                                                                               ---------    ---------
     Net cash used in investing activities .................................     (29,299)    (109,300)
                                                                               ---------    ---------

Cash Flows from Financing Activities:
     Net increase in deposits ..............................................     131,598       47,154
     Proceeds from advances from the Federal Home Loan Bank of New York
       and other borrowings ................................................      45,000      100,000
      Repayment of advances from the Federal Home Loan Bank of New
       York and other borrowings ...........................................     (49,940)     (65,000)
     Increase (decrease) in other short term borrowings ....................     (95,917)      33,818
     Cash dividends paid ...................................................      (1,761)      (1,803)
     Net reissuances (repurchases) of outstanding shares ...................         400       (5,863)
     Tax benefit related to stock options ..................................         489          269
                                                                               ---------    ---------
     Net cash provided by financing activities .............................      29,869      108,575
                                                                               ---------    ---------
Net Increase in Cash and Cash Equivalents ..................................       1,638        2,768
Cash and Cash Equivalents, Beginning of Period .............................      16,614       15,220
                                                                               ---------    ---------
Cash and Cash Equivalents, End of Period ...................................   $  18,252    $  17,988
                                                                               =========    =========
</table>

                                       7
<page>

PennFed Financial Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued) (unaudited)

<table>
<caption>
                                                                                     Six months ended December 31,
                                                                                     -----------------------------
                                                                                          2006         2005
                                                                                       ----------   ----------

                                                                                    <c>          <c>
                                                                                            (In thousands)

Supplemental Disclosures of Cash Flow Information:
     Cash paid during the period for:
     Interest ......................................................................   $   47,229   $   36,151
                                                                                       ==========   ==========
     Income taxes ..................................................................   $    3,234   $    5,563
                                                                                       ==========   ==========

Supplemental Schedule of Non-Cash Activities:
     Transfer of loans receivable to loans held for sale, at lower of cost or market   $    8,169   $   19,583
                                                                                       ==========   ==========
     Transfer of loans receivable to real estate owned, net ........................   $       --   $      477
                                                                                       ==========   ==========
</table>

See notes to consolidated financial statements.


                                       8
<page>

                PENNFED FINANCIAL SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

1. Basis of Presentation

The interim  consolidated  financial  statements of PennFed Financial  Services,
Inc. ("PennFed") and subsidiaries (with its subsidiaries, the "Company") include
the accounts of PennFed and its  subsidiaries  (including  Penn Federal  Savings
Bank (the "Bank")).  These consolidated  financial statements have been prepared
by the Company,  without  audit,  pursuant to the rules and  regulations  of the
Securities and Exchange Commission (the "SEC"). Certain information and footnote
disclosures  normally  included in financial  statements  prepared in accordance
with U.S.  generally  accepted  accounting  principles  have been  condensed  or
omitted  pursuant to such rules and  regulations,  although the Company believes
that  the  disclosures  are  adequate  to make  the  information  presented  not
misleading.  These interim  consolidated  financial  statements  included herein
should be read in conjunction  with the Company's Annual Report on Form 10-K for
the year ended June 30,  2006.  The interim  consolidated  financial  statements
reflect  all normal and  recurring  adjustments  which  are,  in the  opinion of
management,  considered  necessary  for a fair  presentation  of  the  financial
condition  and  results of  operations  for the periods  presented.  The interim
results of operations  presented are not  necessarily  indicative of the results
for the full year. The  preparation of financial  statements in conformity  with
U.S.  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities,  the reported amounts of revenues and expenses during the reporting
period and  disclosure of contingent  assets and  liabilities at the date of the
financial statements. Actual results could differ from those estimates.

2. Supplemental Executive Retirement Plan and Directors' Retirement Plan

The Company  currently  provides for a Supplemental  Executive  Retirement  Plan
("SERP")  and a  Directors'  Retirement  Plan ("DP") for  certain key  executive
employees  and  directors.  Benefits  provided  are based  primarily on years of
service and  compensation  or fees.  Both plans are unfunded and at December 31,
2006, the benefit obligations of $3,145,000 are included in Accounts payable and
other  liabilities in the  Consolidated  Statements of Financial  Condition.  At
December 31, 2006, the assumptions  used in calculating the benefit  obligations
included a 4% compensation  increase rate and a discount rate of 6%. At December
31, 2005, the assumptions used in calculating the benefit obligations included a
4%  compensation  increase  rate and a discount rate of 5%. The  accounting  for
these  postretirement  benefits is in  accordance  with  Statement  of Financial
Accounting  Standards No. 87, "Employers'  Accounting for Pensions." The Company
has not made,  and does not expect to make,  any  contributions  to these  plans
during the fiscal year ending June 30, 2007.

Net periodic  pension cost for the Company's  SERP and DP included the following
components:

                                          Three months ended December 31,
                                     -----------------------------------------
                                            2006                  2005
                                     -------------------   -------------------
                                       SERP        DP        SERP        DP
                                     --------   --------   --------   --------
                                                  (In thousands)

Service cost .....................   $     53   $     12   $     41   $      8
Interest cost ....................         50          7         14          2
Amortization of prior service cost         27          7          6          1
Loss recognized ..................         17          3         --         --
                                     --------   --------   --------   --------
Net periodic pension expense .....   $    147   $     29   $     61   $     11
                                     ========   ========   ========   ========

                                           Six months ended December 31,
                                     -----------------------------------------
                                            2006                  2005
                                     -------------------   -------------------
                                       SERP        DP        SERP        DP
                                     --------   --------   --------   --------
                                                  (In thousands)

Service cost .....................   $     89   $     12   $    314   $     40
Interest cost ....................         90         12         29          4
Amortization of prior service cost         55         14         13          2
Loss recognized ..................         17          4         --         --
                                     --------   --------   --------   --------
Net periodic pension expense .....   $    251   $     42   $    356   $     46
                                     ========   ========   ========   ========

                                       9
<page>

3. Computation of Earnings Per Share ("EPS")

The computation of EPS is presented in the following table.

<table>
<caption>
                                                      Three months ended         Six months ended
                                                         December 31,               December 31,
                                                 --------------------------   -------------------------
                                                    2006            2005         2006          2005
                                                 -----------    -----------   -----------   -----------

                                               <c>            <c>           <c>           <c>
                                                    (Dollars in thousands, except per share amounts)

Net income (loss) ............................   $    (1,492)   $     3,454   $       772   $     7,586
                                                 ===========    ===========   ===========   ===========

Number of shares outstanding:
Weighted average shares issued and outstanding    12,878,599     13,086,856    12,870,294    13,175,181
Plus: Average common stock equivalents .......            --        422,284       315,347       429,681
                                                 -----------    -----------   -----------   -----------
Average diluted shares .......................    12,878,599     13,509,140    13,185,641    13,604,862
                                                 ===========    ===========   ===========   ===========

Earnings (loss) per common share:
        Basic ................................   $     (0.12)   $      0.26   $      0.06   $      0.58
                                                 ===========    ===========   ===========   ===========
        Diluted ..............................   $     (0.12)   $      0.26   $      0.06   $      0.56
                                                 ===========    ===========   ===========   ===========
</table>

There  were  314,199  average  common  stock   equivalents   excluded  from  the
calculation  of average  diluted  shares for the three months ended December 31,
2006 due to their anti-dilutive impact.

4. Stockholders' Equity and Regulatory Capital

During the three months ended December 31, 2006, the Company  repurchased  5,600
shares of its  outstanding  common stock at prices ranging from $16.96 to $17.80
per share, for a total cost of $97,000. During the six months ended December 31,
2006, the Company  repurchased  50,400 shares of its outstanding common stock at
prices ranging from $16.19 to $17.80 per share, for a total cost of $860,000. In
connection with the entering into an Agreement and Plan of Merger (See Note 6 of
the Notes to Consolidated Financial Statements),  the Company may not repurchase
any shares of its common  stock  without the prior  written  consent of New York
Community Bancorp, Inc.

The Bank's regulatory  capital amounts and ratios are presented in the following
table.

<table>
<caption>
                                                                                        To Be Well
                                                                For Minimum         Capitalized Under
                                                              Capital Adequacy      Prompt Corrective
                                            Actual                Purposes          Action Provisions
                                      -----------------      -----------------      -----------------
                                       Amount     Ratio       Amount     Ratio       Amount     Ratio
                                      --------    -----      --------    -----      --------    -----

                                   <c>         <c>        <c>          <c>       <c>         <c>
                                                           (Dollars in thousands)
As of December 31, 2006
Tangible capital, and ratio to
   adjusted total assets ..........   $167,961     7.20%     $ 35,009     1.50%          N/A      N/A
Tier I (core) capital, and ratio to
   adjusted total assets ..........   $167,961     7.20%     $ 93,357     4.00%     $116,696     5.00%
Tier I (core) capital, and ratio to
   risk-weighted assets ...........   $167,961    12.98%          N/A      N/A      $ 77,654     6.00%
Risk-based capital, and ratio to
   risk-weighted assets ...........   $173,186    13.38%     $103,539     8.00%     $129,423    10.00%

As of June 30, 2006
Tangible capital, and ratio to
   adjusted total assets ..........   $168,746     7.33%     $ 34,535     1.50%          N/A      N/A
Tier I (core) capital, and ratio to
   adjusted total assets ..........   $168,746     7.33%     $ 92,094     4.00%     $115,117     5.00%
Tier I (core) capital, and ratio to
   risk-weighted assets ...........   $168,746    13.34%          N/A      N/A      $ 75,871     6.00%
Risk-based capital, and ratio to
   risk-weighted assets ...........   $174,633    13.81%     $101,161     8.00%     $126,451    10.00%

</table>

The previous table reflects  information for the Bank.  Savings and loan holding
companies,  such as PennFed, are not

                                       10
<page>

subject to capital  requirements  for  capital  adequacy  purposes or for prompt
corrective action requirements.  Bank holding companies, however, are subject to
capital  requirements  established  by the  Board of  Governors  of the  Federal
Reserve System.

5. Recently Issued Accounting Standards

In September  2006, the Financial  Accounting  Standards  Board ("FASB")  issued
Statement of Financial  Accounting  Standards No. 157, "Fair Value Measurements"
("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted  accounting  principles and expands disclosures
about  fair  value   measurements.   SFAS  157   applies  to  other   accounting
pronouncements  that  require  or permit  fair value  measurements  but does not
require new fair value  measurements.  SFAS 157 is  effective  for fiscal  years
beginning  after  November 15, 2007. The Company does not expect the adoption of
SFAS 157 to have a material impact on its consolidated financial statements.

In September 2006, the FASB issued Statement of Financial  Accounting  Standards
No.  158,   "Employers'   Accounting  for  Defined  Benefit  Pension  and  Other
Postretirement  Plans" ("SFAS 158"). SFAS 158 requires employers to recognize on
the balance sheet the funded status of pension and other postretirement  benefit
plans.  SFAS 158 will also require fiscal year end  measurements  of plan assets
and  benefit  obligations,  eliminating  the use of  earlier  measurement  dates
currently  permissible;  however,  the measurement  date requirement will not be
effective  until fiscal years beginning after December 15, 2008. SFAS 158 amends
FASB Statements No. 87, 88, 106 and 132(R) but retains most of their measurement
and disclosure guidance and will not change the amounts recognized in the income
statement as net periodic benefit cost.  Recognition on the balance sheet of the
funded status of plans and the related disclosure provisions as required by SFAS
158 are  effective  as of the end of the fiscal year ending  after  December 15,
2006.  The Company  does not expect the  adoption of SFAS 158 to have a material
impact on its consolidated financial statements.

In September 2006, the SEC released SEC Staff Accounting  Bulletin No. 108 ("SAB
108"),  "Considering  the Effects of Prior Year  Misstatements  when Quantifying
Misstatements  in Current Year  Financial  Statements."  SAB 108  addresses  how
uncorrected  errors in previous  years  should be  considered  when  quantifying
errors in current year  financial  statements.  SAB 108 requires  registrants to
consider  the  effect of all carry  over and  reversing  effects  of prior  year
misstatements when quantifying errors in current year financial statements,  but
does not change the SEC staff's previous  guidance on evaluating the materiality
of  misstatements.  The  financial  statements  of a  registrant  would  require
adjustment  if either  approach  resulted in a  misstatement  that is  material,
considering all relevant  quantitative and qualitative  factors.  SAB 108 allows
registrants  to record  the  effect  of  adopting  the  guidance  as a  one-time
cumulative effect adjustment to beginning of the year retained earnings. SAB 108
is  effective in the first  fiscal year ending  after  November  15,  2006.  The
Company does not expect the adoption of SAB 108 to have a material impact on its
consolidated financial statements.

In September 2006, the Emerging Issues Task Force ("EITF") of the FASB discussed
public  comments  received  on EITF Issue No.  06-4,  "Accounting  for  Deferred
Compensation  and  Post-Retirement  Benefit Aspects of Endorsement  Split-Dollar
Life Insurance  Arrangements."  On September 7, 2006, the EITF agreed to clarify
certain  points based on public  comments.  The EITF reached a consensus that an
employer  should  recognize a liability for future benefits under FASB Statement
No.  106,  "Employers'   Accounting  for  Postretirement   Benefits  Other  Than
Pensions," or APB Opinion No. 12,  "Omnibus  Opinion - 1967," for an endorsement
split-dollar  life insurance  arrangement  subject to EITF Issue No. 06-4.  This
liability is to be based on the  substantive  agreement  with the employee.  The
consensus is effective for fiscal years beginning after December 15, 2007. Early
adoption is permitted as of the beginning of an entity's  fiscal year.  Entities
should recognize the effects of applying the consensus on this issue as a change
in  accounting  principle  through a  cumulative-effect  adjustment  to retained
earnings  or to other  components  of equity or net assets in the  statement  of
financial  position as of the  beginning of the year of adoption.  Retrospective
application  to all  prior  periods  is  permitted.  The  Company  is  currently
evaluating the impact of the adoption of EITF Issue No. 06-4 on its consolidated
financial statements.

6. Merger Agreement and Merger-Related Expenses

On November 2, 2006,  the Company  entered into an Agreement  and Plan of Merger
(the  "Merger  Agreement")  with  New York  Community  Bancorp,  Inc.  ("NYCB"),
pursuant to which the Company  will be merged  into NYCB (the  "Merger").  It is
expected that concurrent with or immediately after the Merger,  the Bank will be
merged into New York  Community  Bank, a wholly owned  subsidiary of NYCB.  Upon
completion  of the Merger,  the holders of the  Company's  common  stock will be
entitled to receive,  for each share of Company common stock held,  1.222 shares
of NYCB

                                       11
<page>

common stock,  with cash paid in lieu of fractional  NYCB shares.  The Merger is
subject to the approval of the Company's stockholders, the receipt of regulatory
approvals and the  satisfaction of other  customary  closing  conditions.  It is
currently expected that the Merger will be completed on or about March 31, 2007.
Included in the  Company's  results of  operations  for the three and six months
ended December 31, 2006 is $4.6 million of merger-related expenses, representing
legal fees,  investment  banking fees and  compensation  payments made under the
Merger Agreement.





                                       12
<page>

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

Critical Accounting Policies

The  consolidated  financial  statements  are prepared in  conformity  with U.S.
generally accepted  accounting  principles.  The preparation of the consolidated
financial  statements requires management to make estimates and assumptions that
affect  the  amounts  reported  in the  consolidated  financial  statements  and
accompanying notes. While the Company bases estimates on historical  experience,
current  information  and other factors  deemed to be relevant,  actual  results
could differ from those estimates.  Management  believes the following  policies
are both important to the reported financial condition and results of operations
and  require  subjective  judgments  and  are,  therefore,  considered  critical
accounting policies.

Allowance for Loan Losses - The allowance for loan losses is established through
charges to income based on management's evaluation of the probable credit losses
presently  inherent in the Company's  loan  portfolio.  This  evaluation,  which
includes a review of loans for which full  collectibility  may not be reasonably
assured, considers among other matters, loan classifications, the estimated fair
value of the underlying  collateral,  economic conditions,  historical loan loss
experience,  portfolio  growth and  composition  and other  factors that warrant
recognition in providing for an adequate loan loss allowance.

Loan losses are charged  against the allowance  for loan losses when  management
believes  that the recovery of  principal is unlikely.  If, as a result of loans
charged  off or  increases  in the  size or  risk  characteristics  of the  loan
portfolio,  the  allowance is below the level  considered  by  management  to be
adequate to absorb loan losses on existing loans,  the provision for loan losses
is increased to the level considered necessary to provide an adequate allowance.
The allowance is an amount that  management  believes will be adequate to absorb
probable  losses on  existing  loans  that may  become  uncollectible,  based on
evaluations  of the  collectibility  of the  loans.  The  evaluations  take into
consideration  such  factors  as  changes  in the  nature and volume of the loan
portfolio,  overall  portfolio  quality,  review of specific  problem  loans and
current  economic  conditions  that may  affect the  borrowers'  ability to pay.
Economic conditions may result in the necessity to change the allowance in order
to react to deteriorating  financial conditions of the Company's borrowers. As a
result, additional provisions on existing loans may be required in the future if
borrowers' financial conditions deteriorate or if real estate values decline.

Where  appropriate,  reserves  are  allocated to  individual  loans that exhibit
actual or probable credit  weakness.  For example,  reserves may be specifically
assigned  for loans that are 90 days or more past due,  loans where the borrower
has filed for  bankruptcy or loans  identified as  problematic  by the Company's
internal loan review process.  Reserves are based upon management's  estimate of
the borrower's  ability to repay the loan given the  availability of collateral,
other sources of cash flow and legal options available to the Company. For loans
not subject to specific  reserve  allocations,  loss rates by loan  category are
applied.  A reserve is maintained to recognize the imprecision in estimating and
measuring loss when evaluating  reserves for individual loans or pools of loans.
Reserves on individual  loans are reviewed no less frequently than quarterly and
adjusted as appropriate.

The Company has not substantively  changed any aspect of its overall approach in
its determination of the level of the allowance for loan losses. There have been
no material changes in assumptions or estimation techniques as compared to prior
periods that impacted the determination of the current period allowance.

Although  management  believes  that it uses the best  information  available to
determine  the  allowances,   unforeseen   market  conditions  could  result  in
adjustments and earnings could be significantly affected if circumstances differ
substantially  from the  assumptions  used in making  the  final  determination.
Future  additions to the Company's  allowance may have to be made as a result of
periodic loan,  property and collateral  reviews and thus cannot be predicted in
advance. In addition,  federal regulatory  agencies,  as an integral part of the
examination  process,  periodically  review  the  Company's  allowance  for loan
losses.  These  agencies  may  require the  Company to record  additions  to the
allowance level based upon their assessment of the information available to them
at the time of examination.

Accounting for Income Taxes - In the  accounting  for income taxes,  the Company
records  amounts that  represent  taxes  payable for the current year as well as
deferred  tax  assets  and  liabilities  arising  from  transactions  that  have
differing effects for financial statements and tax returns. Judgment is required
in assessing the future tax effects of transactions that have been recognized in
the Company's consolidated financial statements or tax returns.  Fluctuations in
the actual tax  effects in future  years  could have an impact on the  Company's
consolidated financial condition or results of operations.

                                       13
<page>

Asset Impairment Judgments - The Company periodically  performs analyses to test
for  impairment of various  assets.  When  necessary,  valuation  allowances are
established  to recognize  impairment of assets.  In addition to the  impairment
analyses  related to loans,  additional  impairment  analysis is conducted as it
relates  to the  value of other  than  temporary  declines  in the  value of the
investment and mortgage-backed securities portfolios.

Investments  securities  available  for sale are carried at market  value,  with
unrealized  gains  and  losses,  net of taxes,  reported  as  accumulated  other
comprehensive   income   (loss)  in   stockholders'   equity.   Investment   and
mortgage-backed securities held to maturity are carried at amortized cost as the
Company has both the ability and intent to hold the securities to maturity.  The
Company  conducts  a  periodic  review  and  evaluation  of the  investment  and
mortgage-backed  securities portfolios to determine if the value of any security
has  declined  below its  carrying  value and whether such decline is other than
temporary.

If such  decline is deemed  other than  temporary,  the  carrying  amount of the
security  would be adjusted by writing  down the  security to fair market  value
through  a charge  to  current  period  operations.  The  market  values  of the
Company's investment and mortgage-backed  securities are significantly  affected
by changes in interest  rates.  In general,  as interest  rates rise, the market
value of fixed-rate securities will decrease; as interest rates fall, the market
value of  fixed-rate  securities  will  increase.  With  significant  changes in
interest  rates,  the  Company  evaluates  the  intent  and  ability to hold the
security to maturity or for a sufficient time to recover the recorded  principal
balance.  Estimated fair values for securities are based on quoted dealer market
prices or subscribed pricing services.

Forward-Looking Statements

When used in this Form 10-Q and in future  filings by the Company  with the SEC,
in the Company's  press releases or other public or shareholder  communications,
and in oral  statements  made  with  the  approval  of an  authorized  executive
officer,  the words or phrases  "will likely  result,"  "are expected to," "will
continue," "is anticipated,"  "estimate,"  "project" or similar  expressions are
intended  to  identify  "forward-looking  statements"  within the meaning of the
Private  Securities  Litigation Reform Act of 1995. These statements are subject
to  certain  risks  and  uncertainties,   including,  among  other  things,  the
possibility   that  the  Merger  with  NYCB  will  occur  later  than  currently
anticipated or not at all, changes in economic and competitive conditions in the
Company's  market  area,  changes in laws and  regulations  and in  policies  by
regulatory agencies,  fluctuations in interest rates and demand for loans in the
Company's market area, the credit risks of lending activities, including changes
in the level and direction of loan  delinquencies  and write-offs and changes in
estimates  of the  adequacy of the  allowance  for loan  losses,  the  Company's
ability to attract and retain depositors and to obtain  cost-effective  funding,
the  relationship of short-term  interest rates to long-term  interest rates and
the  Company's  ability  to manage  its  interest  rate  risk,  competition  and
terrorist  acts that  could  cause  actual  results  to differ  materially  from
historical  earnings and those presently  anticipated or projected.  The Company
wishes to caution  readers  not to place undue  reliance on any  forward-looking
statements,  which speak only as of the date made.  The Company wishes to advise
readers that the factors listed above,  as well as other  factors,  could affect
the Company's financial performance and could cause the Company's actual results
for  future  periods  to  differ  materially  from any  opinions  or  statements
expressed with respect to future periods in any current statements.

The Company does not undertake - and  specifically  declines any obligation - to
publicly  release  the  result  of  any  revisions  which  may  be  made  to any
forward-looking  statements to reflect events or circumstances after the date of
these  statements or to reflect the occurrence of  anticipated or  unanticipated
events.

Overview

The  Company  has been,  and  intends to  continue  to be, a  community-oriented
financial institution offering a variety of financial services to meet the needs
of the communities it serves.  The Company  currently has 24 full service branch
offices located in New Jersey.  The Company  attracts  deposits from the general
public and uses these deposits, together with brokered deposits,  borrowings and
other funds, to originate and purchase one- to four-family  residential mortgage
loans,  and, to a lesser extent,  to originate  commercial and multi-family real
estate  and  consumer  loans.  The  Company  also  invests  in   mortgage-backed
securities  secured  by one-  to  four-family  residential  mortgages  and  U.S.
government  sponsored  agency  obligations.   Through  a  relationship  with  an
unaffiliated third party, the Company offers insurance and uninsured non-deposit
investment  products  to the  Company's  customers  and  members of the  general
public. A wholly-owned  subsidiary of the Company  participates in the ownership
of a title insurance agency.

The Company's  loan  portfolio  growth is dependent  primarily on its ability to
provide the products and  services  that meet the needs of the  customers in its
market area. The Company offers fixed rate, adjustable rate and balloon mortgage
loans for residential and commercial purposes, as well as home equity,  consumer
loans and  non-mortgage  business

                                       14
<page>

loans, with a variety of terms. Residential first mortgage loans are the largest
part of the portfolio,  representing  approximately  76.4% at December 31, 2006.
The level of interest rates also has a significant  impact on the ability of the
Company to originate loans and on the amount of prepayment activity  experienced
by the Company.  Since June 30, 2006,  the  Company's net loans  receivable  and
loans  held for sale  increased  $40.5  million.  This  increase  was  primarily
attributable to lower levels of prepayments and the consistent level of consumer
loan originations,  when compared to prior periods.  During the six months ended
December 31, 2006,  the Company sold $9.9 million of primarily  fixed rate loans
as a means to assist in the management of interest rate risk.

The retention and the  recruitment of profitable  deposit  customers is vital to
PennFed's ability to generate liquid funds and to generate  non-interest income.
The number of deposit  accounts at December 31, 2006 was  relatively the same as
the number of deposit  accounts at June 30, 2006;  however,  the average deposit
balances per account, excluding wholesale certificates of deposit, has increased
9.4% since June 30,  2006.  The  Company  offers a number of  different  deposit
products  and uses this  product  mix,  along  with a strong  focus on  customer
service, to attract customers and to build depositor relationships. The level of
interest rates also significantly  affects the level of the Company's  deposits.
Since June 30, 2006,  deposits  increased  $132.2  million,  primarily due to an
increase in certificates of deposit as well as an increase in checking and money
market accounts partially offset by a decrease in savings accounts.

The Company's  future loan and deposit  growth is, to a large  extent,  directly
tied to the level of interest rates.  If long-term  interest rates rise further,
loan origination levels may decline.  Growth in the loan pipeline will depend on
the Company's  ability to successfully seek out customers in spite of the higher
cost of borrowing  for the customer and  competition  from other  lenders.  Loan
growth driven by borrower demand also will depend on the strength of the economy
in the Company's  market area. With rising  interest rates and/or  deteriorating
economic conditions,  loan origination volumes would likely be lower than recent
periods  and a  further  reduction  in the  prepayment  of  loans  currently  in
portfolio  would be expected.  The Company has  continued its loan sale strategy
with respect to new longer term, fixed rate residential loan product in order to
assist in the  management of interest rate risk  associated  with keeping longer
term loans on the balance sheet. With respect to deposits,  while an increase in
interest rates has increased the Company's  cost of funds,  it has also provided
the Company with an additional  opportunity to attract depositors,  some of whom
may  have  sought  higher  returns  with  mutual  funds  and  other  non-deposit
investment  products when market rates were lower. The Company remains confident
that by  offering  appropriately  priced  products  and by  striving  to deliver
superior  service,  it will be able to maintain  profitable  levels of loans and
deposits.

The  Company's  results of operations  are  dependent  primarily on net interest
income,  which  is the  difference  between  the  income  earned  on  its  loan,
mortgage-backed  securities  and  investment  portfolios  and its cost of funds,
consisting of the interest paid on deposits and borrowings. General economic and
competitive  conditions,  particularly  changes in  interest  rates,  government
policies and actions of regulatory  authorities,  also significantly  affect the
Company's results of operations.  Future changes in applicable laws, regulations
or government policies may also have a material impact on the Company.

The Company's future earnings are inherently tied to the level of interest rates
and the  relationship of short to long term rates. If short-term  interest rates
continue to increase,  the Company's  interest expense on deposits and wholesale
borrowings will continue to increase at a faster pace than the effects that will
be seen in the Company's  interest  income on loans,  investment  securities and
mortgage-backed  securities.  This  effect  on  interest  expense  is due to the
short-term repricing  characteristics of a portion of the Company's deposits and
borrowings.  As for interest income,  loan  commitments,  generally locked in at
issuance,  will result in loans closed at below-market  rates if long-term rates
increase.  As  interest  rates  rise,  a  decline  in  loan  prepayments  and in
prepayments on  mortgage-backed  securities will reduce cashflows  available for
reinvestment  at higher rates. By emphasizing the origination of adjustable rate
and biweekly  loan  products and  continuing  the sale of longer term fixed rate
residential  loans,  while  also  focusing  on  increasing  the  balance of core
deposits and longer term  certificates  of deposit and  borrowings,  the Company
will  endeavor  to better  position  itself to  mitigate  the  effects of rising
interest rates.

Financial Condition

Assets.  Total assets  increased $32.0 million to $2.339 billion at December 31,
2006 from total  assets of $2.307  billion at June 30,  2006.  The  increase  at
December 31, 2006 was  primarily  due to a $40.5  million  increase in net loans
receivable and loans held for sale,  reflecting strong consumer loan origination
levels and the lower levels of loan prepayments due to higher long term interest
rates.

Liabilities. Deposits increased $132.2 million to $1.547 billion at December 31,
2006 from $1.415 billion at June 30, 2006. The increase was  attributable  to an
increase in  certificates  of deposit of $153.2 million and an increase of $11.1

                                       15
<page>

million in checking and money market accounts  partially offset by a decrease of
$32.1 million in savings  accounts  since June 30, 2006.  Higher levels of short
term interest  rates,  when  compared to prior year  periods,  has resulted in a
shift of funds to higher  costing  certificates  of  deposit.  The  increase  in
certificates of deposits at December 31, 2006 included a $103.9 million increase
in  municipal  certificates  of  deposit,  a $29.9  million  increase  in retail
certificates  of  deposit  and  the  addition  of  $21.0  million  of  wholesale
certificates of deposit.  At December 31, 2006,  Federal Home Loan Bank ("FHLB")
of New York advances and other borrowings  totaled $604.8 million,  reflecting a
$100.9 million decrease from $705.7 million at June 30, 2006, as a result of the
increase  in deposits as the  primary  source of funds  during the current  year
period.

Stockholders'  Equity.  Stockholders'  equity of $123.4  million at December 31,
2006 remained relatively  unchanged from stockholders'  equity at June 30, 2006.
Activity in equity  included  the net income  recorded  for the six months ended
December 31, 2006,  unrealized holding gains on investment  securities available
for sale, net of taxes, and the exercise of stock options, including the related
tax effect, partially offset by the repurchase of 50,400 shares of the Company's
outstanding stock at an average price of $17.07 per share and the declaration of
cash dividends.

Results of Operations

General.  For the three  months  ended  December  31,  2006,  a net loss of $1.5
million  was  reported,  or a loss of $0.12 per diluted  share,  compared to net
income of $3.5 million,  or $0.26 per diluted share,  for the  comparable  prior
year  period.  For the six  months  ended  December  31,  2006,  net  income was
$772,000,  or $0.06 per diluted  share.  These results  compare to net income of
$7.6 million,  or $0.56 per diluted share, for the six months ended December 31,
2005.  Included in the  Company's  results of  operations  for the three and six
months  ended  December  31, 2006 is $4.6  million of  merger-related  expenses,
representing legal fees,  investment banking fees and compensation payments made
under the Merger Agreement.

Interest and Dividend Income. Interest and dividend income for the three and six
months ended  December 31, 2006  increased to $31.7  million and $62.9  million,
respectively,  from $28.4 million and $56.0 million for the three and six months
ended  December 31,  2005.  In general,  the  increases in interest and dividend
income  reflect a higher level of  interest-earning  assets due to  consistently
sustained  loan  origination  levels  over  most  of  the  past  twelve  months,
particularly in consumer loans,  coupled with the lower levels of prepayments in
the Company's loan and mortgage-backed  securities portfolios during the current
year periods compared to the prior year periods. Average interest-earning assets
were  $2.250  billion  and $2.244  billion  for the three and six  months  ended
December 31, 2006,  respectively,  compared to $2.067 billion and $2.042 billion
for the three and six months ended  December 31, 2005.  The average yield earned
on  interest-earning  assets  increased to 5.61% and 5.59% for the three and six
months ended December 31, 2006, respectively, from 5.46% and 5.47% for the three
and six months ended December 31, 2005, primarily reflective of increases in the
yield earned on consumer loans and investment securities.

Interest income on residential one- to four-family  mortgage loans for the three
and six months ended  December 31, 2006 increased $1.8 million and $3.9 million,
respectively, when compared to the prior year periods. The increases in interest
income on residential  one- to four-family  mortgage loans for the three and six
months ended December 31, 2006 were partially  attributable  to increases in the
average balance of residential one- to four-family mortgage loans outstanding of
$106.7  million  and  $124.8  million,  respectively,  due  to  consistent  loan
origination  levels over most of the past twelve month period coupled with lower
levels of prepayments. For the three and six months ended December 31, 2006, the
residential one- to four-family  mortgage loan portfolio averaged $1.321 billion
and $1.319 billion, respectively,  compared to $1.215 billion and $1.194 billion
for the prior year periods.  Additionally,  the increases in interest  income on
residential one- to four family mortgage loans were also due to increases in the
average yield earned on this loan portfolio to 5.34% and 5.33% for the three and
six months ended December 31, 2006, respectively,  from 5.23% for both the three
and six months ended  December 31,  2005,  reflecting  the increase in long-term
interest rates over the last twelve months.

Interest  income on  commercial  and  multi-family  real estate loans  increased
$12,000 for the three months ended December 31, 2006, when compared to the prior
year period.  For the six months ended  December  31, 2006,  interest  income on
commercial and multi-family real estate loans decreased $9,000, when compared to
the prior year period.  The average yield earned on commercial and  multi-family
real  estate  loans  decreased  to 6.67% and 6.66% for the three and six  months
ended  December 31, 2006,  respectively,  from 6.71% and 6.77% for the three and
six months ended December 31, 2005. The payoff of higher  yielding loans and the
origination  of loans at relatively  lower market  interest  rates resulted in a
decline  in the  yield on the  commercial  and  multi-family  real  estate  loan
portfolio.  Somewhat  offsetting  the  decreases in the average  yield earned on
commercial  and  multi-family  real estate  loans were  increases in the average
balance  outstanding on this loan portfolio of $1.7 million and $2.3 million for
the three and six months

                                       16
<page>

ended December 31, 2006, respectively, when compared to the prior year periods.

Interest  income on consumer  loans  increased $1.2 million and $2.4 million for
the three and six months ended December 31, 2006, respectively, when compared to
the prior year periods.  The increases in interest income on consumer loans were
partially  attributable to increases in the average balance  outstanding of this
loan  portfolio of $66.0  million and $64.9 million for the three and six months
ended December 31, 2006, respectively,  when compared to the prior year periods,
due  primarily  to higher  origination  levels  and  reduced  prepayments.  Also
contributing  to the  increases  in  interest  income  on  consumer  loans  were
increases in the average  yield earned on these loans to 6.17% and 6.14% for the
three and six months ended December 31, 2006, respectively, from 5.78% and 5.70%
for the three and six months ended December 31, 2005, as a result of strong loan
originations at higher market interest rates.

Interest  income on  investment  securities  and other  interest-earning  assets
increased  $504,000 and $984,000 for the three and six months ended December 31,
2006,  respectively,  when compared to the prior year periods.  The increases in
interest income on these securities were partially  attributable to increases of
$20.6 million and $22.7 million in the average balance outstanding for the three
and six months ended December 31, 2006, respectively, when compared to the prior
year  periods,  due to the absence of callable  securities  being called  before
maturity  as a result of the  increase  in  interest  rates.  Additionally,  the
increases in interest income on investment securities and other interest-earning
assets were also partially attributable to increases in the average yield earned
on these securities. The average yield earned on investment securities and other
interest-earning  assets  increased  to 5.77%  and  5.72%  for the three and six
months ended  December 31, 2006,  respectively,  compared to 5.59% and 5.58% for
the three and six months ended December 31, 2005.

Interest income on the mortgage-backed  securities  portfolio decreased $145,000
and $314,000 for the three and six months ended December 31, 2006, respectively,
when  compared to the prior year periods.  The  decreases in interest  income on
mortgage-backed  securities  were  primarily  due to  decreases  in the  average
balance  outstanding of these  securities.  The average  balance  outstanding on
mortgage-backed  securities  decreased  $12.0  million and $13.1 million for the
three and six months  ended  December 31,  2006,  respectively,  compared to the
three and six months ended December 31, 2005.  Somewhat offsetting the decreases
in the average balance outstanding on mortgage-backed  securities were increases
in the average  yield earned on this  portfolio to 5.16% and 5.15% for the three
and six months ended December 31, 2006,  respectively,  from 5.10% and 5.09% for
the three and six months ended December 31, 2005.

Interest Expense.  Interest expense increased to $24.3 million and $48.1 million
for the three and six months ended December 31, 2006,  respectively,  from $18.7
million and $36.2 million for the comparable  prior year periods.  A significant
rise in short term  interest  rates  combined  with an  increase  in the average
balance of deposits,  FHLB of New York  advances and other  borrowings  were the
primary factors  responsible for the increase in interest expense in the current
year  periods  when  compared to the prior year  periods.  The  average  rate on
deposits and  borrowings  was 4.40% and 4.36% for the three and six months ended
December 31, 2006, respectively,  an increase from 3.70% and 3.63% for the prior
year periods. Total average deposits and borrowings increased $188.3 million and
$207.9   million  for  the  three  and  six  months  ended  December  31,  2006,
respectively, when compared to the three and six months ended December 31, 2005.

For the three and six months ended  December 31, 2006,  the average rate paid on
deposits  increased to 3.88% and 3.79%,  respectively,  from 2.95% and 2.85% for
the three and six months ended  December 31,  2005,  reflecting  the effect of a
rise in short term market  interest rates and the highly  competitive New Jersey
market.  Average deposit balances increased $149.1 million and $137.8 million to
$1.519  billion and $1.494  billion for the three and six months ended  December
31,  2006,  respectively,  from  $1.370  billion  and  $1.356  billion  for  the
comparable prior year periods.

The average cost of FHLB of New York advances for the three and six months ended
December  31, 2006  decreased to 5.42% and 5.44%,  respectively,  from 5.57% and
5.65% for the three and six months ended December 31, 2005, primarily due to the
addition of new advances and the  replacement of maturing or called  advances at
relatively  lower rates.  For the three and six months ended  December 31, 2006,
the average  balance of FHLB of New York  advances  increased  $49.1 million and
$48.6  million,  respectively,  when  compared to the three and six months ended
December 31, 2005.  For the three  months ended  December 31, 2006,  the average
balance of other borrowings decreased $10.0 million,  when compared to the prior
year period.  For the six months ended December 31, 2006, the average balance of
other  borrowings  increased  $21.4  million,  when  compared  to the prior year
period.  The average rate paid on other borrowings  increased to 5.03% and 5.06%
for the three and six months ended December 31, 2006,  respectively,  from 3.84%
and 3.68% for the  comparable  prior year  periods,  since the vast  majority of
other borrowings had maturities within one year, reflecting the higher levels of
short term interest rates.

                                       17
<page>

Interest  expense  on junior  subordinated  debentures  increased  $111,000  and
$257,000  for the three and six months ended  December  31, 2006,  respectively,
when compared to the prior year periods.  The increases in interest expense were
primarily due to increases in the average cost of these  borrowings to 9.43% and
9.41% for the three and six months ended December 31, 2006,  respectively,  from
8.41% and  8.23% for the three and six  months  ended  December  31,  2005.  The
average balance of junior subordinated debentures increased $45,000 for both the
three and six months ended December 31, 2006, respectively, when compared to the
prior year periods.

Net Interest  and Dividend  Income.  Net  interest  and dividend  income  before
provision  for loan losses for the three and six months ended  December 31, 2006
was $7.4 million and $14.9 million,  respectively,  compared to $9.6 million and
$19.8 million recorded in the prior year periods.  Average net  interest-earning
assets  decreased  $5.3  million  and $6.3  million for the three and six months
ended December 31, 2006, respectively,  when compared to the prior year periods.
The net interest rate spread and net interest  margin for the three months ended
December 31, 2006 were 1.21% and 1.34%, respectively,  a decrease from 1.76% and
1.89% for the three  months ended  December  31, 2005.  For the six months ended
December 31, 2006,  the net  interest  rate spread and net interest  margin were
1.23% and  1.36%,  respectively,  a  decrease  from  1.84% and 1.97% for the six
months ended  December 31, 2005.  The decline in the net interest  margin during
the current year periods has been the result of the prolonged  flat and at times
inverted  yield  curve,  with  longer term  interest  rates  reflecting  minimal
movement  but with  continual  increases in shorter term  interest  rates.  As a
result, the Company's deposit and borrowing costs rose at a significantly faster
pace than the interest  rates offered on real estate  mortgage  loans within the
Company's lending market.

Provision for Loan Losses.  There was no provision for loan losses  recorded for
the three and six  months  ended  December  31,  2006 and 2005,  reflecting  the
Company's  historically  low levels of non-accruing  loans and loan  chargeoffs.
Management  believed  that the  allowance  for loan  losses  at both  dates  was
adequate  to absorb  probable  losses on  existing  loans  that may have  become
uncollectible.  The  allowance  for loan losses of $5.9  million at December 31,
2006 remained  relatively  unchanged  from the allowance for loan losses at June
30, 2006. However, the allowance for loan losses as a percentage of non-accruing
loans was 238.66% at December  31,  2006,  compared to 330.79% at June 30, 2006.
Non-accruing  loans were $2.5  million at  December  31,  2006  compared to $1.8
million at June 30, 2006. The allowance for loan losses as a percentage of total
gross loans at December  31, 2006 was 0.34%  compared to 0.35% at June 30, 2006,
primarily due to the increase in the balance of the overall loan portfolio.  See
the  discussion  on the  allowance  for loan  losses  in this  Form  10-Q  under
"Critical Accounting Policies."


                                       18
<page>

Analysis of Net Interest Income

The  following  tables set forth certain  information  relating to the Company's
Consolidated  Statements of Financial Condition and the Consolidated  Statements
of Income  for the three and six months  ended  December  31,  2006 and 2005 and
reflects  the average  yield on assets and average cost of  liabilities  for the
periods  indicated.  Such  yields  and  costs are  derived  from  average  daily
balances.  The average balance of loans receivable includes  non-accruing loans.
The yields and costs include fees, which are considered adjustments to yields.

<table>
<caption>
                                                                    Three Months Ended December 31,
                                             ----------------------------------------------------------------------------
                                                             2006                                    2005
                                             ------------------------------------   -------------------------------------
                                               Average     Interest                   Average      Interest
                                             Outstanding    Earned/      Yield/     Outstanding     Earned/      Yield/
                                               Balance       Paid       Rate (1)      Balance        Paid       Rate (1)
                                             ----------   ----------   ----------   -----------   ----------   ----------

                                           <c>             <c>            <c>      <c>             <c>            <c>
                                                                         (Dollars in thousands)
Interest-earning assets:
    One- to four-family mortgage
       loans .............................   $1,321,384   $   17,701         5.34%   $1,214,725   $   15,906         5.23%
    Commercial and multi-family real
       estate loans ......................      168,832        2,877         6.67       167,177        2,865         6.71
    Consumer loans .......................      226,771        3,528         6.17       160,771        2,341         5.78
                                             ----------   ----------                 ----------   ----------
       Total loans receivable ............    1,716,987       24,106         5.58     1,542,673       21,112         5.44

    Investment securities and other ......      473,600        6,833         5.77       452,996        6,329         5.59
    Mortgage-backed securities ...........       59,242          764         5.16        71,246          909         5.10
                                             ----------   ----------                 ----------   ----------
       Total interest-earning assets .....    2,249,829   $   31,703         5.61     2,066,915   $   28,350         5.46
                                                          ==========                              ==========

Non-interest earning assets ..............       81,129                                  70,534
                                             ----------                              ----------
       Total assets ......................   $2,330,958                              $2,137,449
                                             ==========                              ==========

Deposits and borrowings:
    Money market and demand deposits .....   $  311,796   $    2,059         2.62%   $  255,958   $    1,044         1.62%
    Savings deposits .....................      272,845        1,823         2.65       346,862        2,278         2.61
    Certificates of deposit ..............      934,368       10,978         4.66       767,065        6,876         3.56
                                             ----------   ----------                 ----------   ----------
       Total deposits ....................    1,519,009       14,860         3.88     1,369,885       10,198         2.95

    FHLB of New York advances ............      477,581        6,609         5.42       428,530        6,100         5.57
    Other borrowings .....................      144,736        1,859         5.03       154,698        1,519         3.84
    Junior subordinated debentures .......       42,143        1,009         9.43        42,098          898         8.41
                                             ----------   ----------                 ----------   ----------
       Total deposits and borrowings .....    2,183,469   $   24,337         4.40     1,995,211   $   18,715         3.70
                                                          ==========                              ==========

Other liabilities ........................       23,471                                  17,705
                                             ----------                              ----------
       Total liabilities .................    2,206,940                               2,012,916
Stockholders' equity .....................      124,018                                 124,533
                                             ----------                              ----------
       Total liabilities and stockholders'
           equity ........................   $2,330,958                              $2,137,449
                                             ==========                              ==========

Net interest income and net
    interest rate spread .................                $    7,366         1.21%                $    9,635         1.76%
                                                          ==========    ==========                ==========   ==========

Net interest-earning assets and net
    interest margin ......................   $   66,360                      1.34%   $   71,704                      1.89%
                                             ==========                ==========    ==========                ==========

Ratio of interest-earning assets to
    deposits and borrowings ..............                                 103.04%                                 103.59%
                                                                       ==========                              ==========
</table>

(1) Annualized.

                                       19
<page>
<table>
<caption>
                                                                    Six Months Ended December 31,
                                             ----------------------------------------------------------------------------
                                                             2006                                   2005
                                             ------------------------------------   -------------------------------------
                                               Average     Interest                   Average      Interest
                                             Outstanding    Earned/      Yield/     Outstanding     Earned/      Yield/
                                               Balance       Paid       Rate (1)      Balance        Paid       Rate (1)
                                             ----------   ----------   ----------   -----------   ----------   ----------

                                           <c>             <c>            <c>      <c>             <c>            <c>
                                                                        (Dollars in thousands)
Interest-earning assets:
    One- to four-family mortgage
       loans .............................   $1,319,183   $   35,231         5.33%   $1,194,433   $   31,335         5.23%
    Commercial and multi-family real
       estate loans ......................      169,195        5,757         6.66       166,868        5,766         6.77
    Consumer loans .......................      220,455        6,823         6.14       155,562        4,467         5.70
                                             ----------   ----------                 ----------   ----------
       Total loans receivable ............    1,708,833       47,811         5.56     1,516,863       41,568         5.45

    Investment securities and other ......      474,379       13,576         5.72       451,700       12,592         5.58
    Mortgage-backed securities ...........       60,520        1,559         5.15        73,636        1,873         5.09
                                             ----------   ----------                 ----------   ----------
       Total interest-earning assets .....    2,243,732   $   62,946         5.59     2,042,199   $   56,033         5.47
                                                          ==========                              ==========

Non-interest earning assets ..............       79,901                                  70,156
                                             ----------                              ----------
       Total assets ......................   $2,323,633                              $2,112,355
                                             ==========                              ==========

Deposits and borrowings:
    Money market and demand deposits .....   $  312,327   $    4,107         2.61%   $  242,817   $    1,722         1.41%
    Savings deposits .....................      280,874        3,763         2.66       361,527        4,699         2.58
    Certificates of deposit ..............      900,455       20,684         4.56       751,501       13,034         3.44
                                             ----------   ----------                 ----------   ----------
       Total deposits ....................    1,493,656       28,554         3.79     1,355,845       19,455         2.85

    FHLB of New York advances ............      471,471       13,111         5.44       422,858       12,217         5.65
    Other borrowings .....................      169,168        4,373         5.06       147,772        2,777         3.68
    Junior subordinated debentures .......       42,138        2,014         9.41        42,093        1,757         8.23
                                             ----------   ----------                 ----------   ----------
       Total deposits and borrowings .....    2,176,433   $   48,052         4.36     1,968,568   $   36,206         3.63
                                                          ==========                              ==========
Other liabilities ........................       23,320                                  18,517
                                             ----------                              ----------
       Total liabilities .................    2,199,753                               1,987,085
Stockholders' equity .....................      123,880                                 125,270
                                             ----------                              ----------
       Total liabilities and stockholders'
           equity ........................   $2,323,633                              $2,112,355
                                             ==========                              ==========

Net interest income and net
    interest rate spread .................                $   14,894         1.23%                $   19,827         1.84%
                                                          ==========   ==========                 ==========   ==========

Net interest-earning assets and net
    interest margin ......................   $   67,299                      1.36%   $   73,631                      1.97%
                                             ==========                ==========    ==========                ==========

Ratio of interest-earning assets to
    deposits and borrowings ..............                                 103.09%                                 103.74%
                                                                       ==========                              ==========
</table>

(1) Annualized.

                                       20
<page>

Rate/Volume Analysis

The following  table  presents the extent to which changes in interest rates and
changes in the volume of  interest-earning  assets and deposits  and  borrowings
have  affected the Company's  interest  income and interest  expense  during the
periods indicated.  Information is provided in each category with respect to (1)
changes attributable to changes in volume (changes in volume multiplied by prior
rate),  (2) changes  attributable to changes in rate (changes in rate multiplied
by prior volume), (3) changes attributable to changes in rate/volume (changes in
rate multiplied by changes in volume) and (4) the net change.

<table>
<caption>
                                                    Six Months Ended December 31, 2006 vs. 2005
                                                ----------------------------------------------------
                                                             Increase (Decrease) Due to
                                                ----------------------------------------------------
                                                                                            Total
                                                                               Rate/       Increase
                                                  Volume         Rate         Volume      (Decrease)
                                                ----------    ----------    ----------    ----------

                                                    <c>         <c>             <c>         <c>
                                                                    (In thousands)
Interest-earning assets:
     One- to four-family mortgage loans .....   $    3,237    $      597    $       62    $    3,896
     Commercial and multi-family real
       estate loans .........................           79           (87)           (1)           (9)
     Consumer loans .........................        1,871           342           143         2,356
                                                ----------    ----------    ----------    ----------
            Total loans receivable ..........        5,187           852           204         6,243

     Investment securities and other ........          652           316            16           984
     Mortgage-backed securities .............         (332)           22            (4)         (314)
                                                ----------    ----------    ----------    ----------

            Total interest-earning assets ...   $    5,507    $    1,190    $      216    $    6,913
                                                ==========    ==========    ==========    ==========

Deposits and borrowings:
     Money market and demand deposits .......   $      490    $    1,478    $      417    $    2,385
     Savings deposits .......................       (1,049)          145           (32)         (936)
     Certificates of deposit ................        2,562         4,254           834         7,650
                                                ----------    ----------    ----------    ----------
            Total deposits ..................        2,003         5,877         1,219         9,099

     FHLB of New York advances ..............        1,389          (444)          (51)          894
     Other borrowings .......................          394         1,054           148         1,596
     Junior subordinated debentures .........            2           255            --           257
                                                ----------    ----------    ----------    ----------
            Total deposits and borrowings ...   $    3,788    $    6,742    $    1,316    $   11,846
                                                ==========    ==========    ==========    ==========

 Net change in net interest income ..........   $    1,719    $   (5,552)   $   (1,100)   $   (4,933)
                                                ==========    ==========    ==========    ==========
</table>

Non-Interest  Income.  For the three and six months  ended  December  31,  2006,
non-interest income was $1.4 million and $2.9 million, respectively, compared to
$1.1  million  and $5.1  million  for the prior year  periods.  The  increase in
non-interest  income for the three months ended  December 31, 2006 was primarily
due to  increases  in  fees  and  service  charges,  income  on BOLI  and  other
non-interest  income,  when  compared to the prior year period.  The decrease in
non-interest income for the six months ended December 31, 2006 was primarily due
to a decrease  in fees and  service  charges,  when  compared  to the prior year
period.

Fees and  service  charges for the three  months  ended  December  31, 2006 were
$778,000,  reflecting an increase of $74,000 from the $704,000  recorded for the
prior year period.  The increase in the current three month period was primarily
due to an increase in service  charges,  when compared to the three months ended
December 31, 2005. For the six months ended December 31, 2006,  fees and service
charges were $1.5  million,  reflecting a decrease of $2.7 million from the $4.2
million recorded for the prior year period. Fees and service charges for the six
months  ended  December 31, 2005  included a prepayment  premium of $2.7 million
earned on the payoff of a large-balance commercial real estate loan.

During the three and six months ended  December 31, 2006,  the net gain on sales
of loans was $70,000 and $79,000, respectively, compared to $21,000 and $143,000
for the three and six months ended December 31, 2005. Approximately $7.1 million
and $9.9  million  of  primarily  fixed  rate  one- to  four-family  residential
mortgage  loans  were  sold into the  secondary  market  and to other  financial
institutions   during  the  three  and  six  months  ended  December  31,  2006,
respectively.  During  the  three  and  six  months  ended  December  31,  2005,
approximately  $7.4 million and $28.2  million of  primarily  fixed rate one- to
four-family  residential  mortgage loans were sold into the secondary market and
to other  financial  institutions,  respectively.  The  reduction  in loan sales
during the current year periods when compared to

                                       21
<page>

the prior  year  periods  can be  partially  attributed  to a  reduction  in the
origination  of longer  term,  fixed  rate  products,  as  borrowers  have shown
increased interest in adjustable rate and bi-weekly loans, which are retained in
the portfolio.

Income on BOLI for the three and six months ended December 31, 2006 was $318,000
and  $616,000,  respectively,  an  increase  of $99,000  and  $181,000  from the
$219,000 and $435,000  recorded for the three and six months ended  December 31,
2005.  The  increases  in the current year periods  reflect an  additional  $7.0
million investment in BOLI during the three months ended March 31, 2006.

Other  non-interest  income for the three and six months ended December 31, 2006
was $231,000  and  $649,000,  respectively,  an increase of $78,000 and $315,000
when compared to the $153,000 and $334,000 recorded for the three and six months
ended December 31, 2005. The increases in other non-interest  income were due to
increases in earnings  from the  Investment  Services at Penn  Federal  program.
Through  this   program,   customers   have   convenient   access  to  financial
consulting/advisory  services and related uninsured  non-deposit  investment and
insurance products.  In addition,  the increase in other non-interest income for
the six months ended  December 31, 2006 included a gain of $219,000  recorded on
the sale of the Bloomfield Avenue branch property in Montclair, New Jersey.

Non-Interest Expenses.  Non-interest expenses for the three and six months ended
December 31, 2006 were $10.4  million and $16.0  million,  or 1.78% and 1.38% of
average   assets,   respectively.   For  the  comparable   prior  year  periods,
non-interest expenses were $5.4 million and $13.1 million, or 1.01% and 1.24% of
average assets,  respectively.  Through  December 31, 2006, the Company incurred
professional  fees and costs amounting to $4.6 million  directly  related to the
Merger, comprised of investment banking and legal fees of $1.4 million and costs
under certain  employee  agreements  of $3.2  million.  The prior year six month
period expenses  reflected a $1.4 million  prepayment penalty on certain FHLB of
New York advances,  $259,000 of increased  obligations  under certain  long-term
benefits  plans and  $372,000  of  accelerated  depreciation  expense for branch
automation system software that was no longer used.

Income Tax Expense (Benefit).  The income tax benefit was $144,000 for the three
months ended  December 31, 2006,  compared to income tax expense of $1.9 million
for the three  months  ended  December  31,  2005.  Income tax  expense was $1.0
million for the six months ended December 31, 2006, compared to $4.2 million for
the six months ended December 31, 2005. The effective tax rate for the three and
six months ended December 31, 2006 was 8.8% and 56.6%, respectively, compared to
35.4% and  35.6% for the three and six  months  ended  December  31,  2005.  The
effective tax rates for the three and six months ended December 31, 2006 reflect
the non-deductibility of $1.4 million of merger-related expenses.

                                       22
<page>

Non-Performing Assets

The  table  below  sets  forth  the   Company's   amounts  and   categories   of
non-performing  assets and restructured  loans.  Loans are placed on non-accrual
status when the collection of principal or interest becomes delinquent more than
90 days.  There  are no loans  delinquent  more  than 90 days  which  are  still
accruing  interest.   Real  estate  owned  represents  assets  acquired  in  the
settlement of loans  (generally  through  foreclosure  or a deed in lieu) and is
shown net of valuation allowances.

<table>
<caption>
                                                       December 31,   June 30,
                                                          2006          2006
                                                        ---------    ---------

                                                         <c>            <c>
                                                        (Dollars in thousands)
Non-accruing loans:
     One- to four-family ............................   $     925    $   1,025
     Commercial and multi-family ....................       1,430          731
     Consumer .......................................         100           24
                                                        ---------    ---------
         Total non-accruing loans ...................       2,455        1,780

Real estate owned, net ..............................          --           --
                                                        ---------    ---------

         Total non-performing assets ................   $   2,455    $   1,780
                                                        ---------    ---------

Restructured loans ..................................          61           61
                                                        ---------    ---------

         Total risk elements ........................   $   2,516    $   1,841
                                                        =========    =========

Non-accruing loans as a percentage of total loans ...        0.14%        0.11%
                                                        =========    =========

Non-performing assets as a percentage of total assets        0.10%        0.08%
                                                        =========    =========

Total risk elements as a percentage of total assets .        0.11%        0.08%
                                                        =========    =========
</table>

Interest Rate Sensitivity

Interest  Rate  Sensitivity  Gap. The interest  rate risk inherent in assets and
liabilities  may be  determined by analyzing the extent to which such assets and
liabilities  are "interest  rate  sensitive"  and by measuring an  institution's
interest  rate  sensitivity  "gap." An asset or liability is said to be interest
rate  sensitive  within a defined  time period if it matures or reprices  within
that period.  The difference or mismatch between the amount of  interest-earning
assets  maturing  or  repricing  within  a  defined  period  and the  amount  of
interest-bearing  liabilities  maturing or  repricing  within the same period is
defined as the interest rate  sensitivity  gap. An  institution is considered to
have a negative gap if the amount of  interest-bearing  liabilities  maturing or
repricing within a specified time period exceeds the amount of  interest-earning
assets maturing or repricing  within the same period.  If more  interest-earning
assets than  interest-bearing  liabilities  mature or reprice within a specified
period, then the institution is considered to have a positive gap.  Accordingly,
in a rising interest rate  environment,  in an institution  with a negative gap,
the cost of its rate sensitive  liabilities would theoretically rise at a faster
pace than the yield on its rate sensitive assets, thereby diminishing future net
interest income.  In a falling interest rate  environment,  a negative gap would
indicate that the cost of rate sensitive  liabilities  would decline at a faster
pace than the yield on rate  sensitive  assets and improve net interest  income.
For an institution with a positive gap, the reverse would be expected.

At December 31, 2006, the Company's  total  deposits and borrowings  maturing or
repricing within one year exceeded its total interest-earning assets maturing or
repricing  within one year by $612.0  million,  representing a one year negative
gap of 26.17% of total  assets,  compared to a one year  negative  gap of $622.8
million, or 27.02%, of total assets at June 30, 2006. The Company's gap position
changed  slightly from June 30, 2006. A decline in the  estimated  cash flows of
the  Company's  short-term  interest-bearing  liabilities,  due to a decrease in
retail and wholesale  funding  balances  maturing within one year, was partially
offset by a decline  in  short-term  interest-earning  asset cash flows due to a
decrease in loan related prepayment estimates.

In evaluating the Company's exposure to interest rate risk, certain  limitations
inherent in the method of interest  rate gap

                                       23
<page>

analysis  must  be  considered.   For  example,   although  certain  assets  and
liabilities may have similar maturities or periods to repricing,  they may react
in different  degrees to changes in market  interest  rates.  Also, the interest
rates on certain  types of assets and  liabilities  may  fluctuate in advance of
changes in market  interest  rates,  while interest rates on other types may lag
behind changes in market rates. Additionally, certain assets, such as adjustable
rate  mortgages,  have features which restrict  changes in interest rates in the
short-term and over the life of the asset. Furthermore, in the event of a change
in  interest  rates,   prepayment  and  early  withdrawal   levels  may  deviate
significantly from those assumed in calculating the gap position.  Finally,  the
ability of many  borrowers to service their debt may decrease in the event of an
interest rate increase. The Company considers all of these factors in monitoring
its exposure to interest rate risk.

Net Portfolio  Value.  The  Company's  interest  rate  sensitivity  is regularly
monitored by management through additional  interest rate risk ("IRR") measures,
including an IRR "Exposure Measure" or "Post-Shock" NPV ratio and a "Sensitivity
Measure."  A low  Post-Shock  NPV ratio may  indicate  greater  exposure to IRR.
Greater  exposure  can result  from a high  sensitivity  to changes in  interest
rates. The Sensitivity  Measure is the change in the NPV ratio, in basis points,
caused by a 2%  increase  or  decrease  in rates,  whichever  produces  a larger
decline.  Office of Thrift Supervision  ("OTS") guidelines would characterize an
institution with a Post Shock ratio of less than 4% to have "high" interest rate
risk if the  Sensitivity  Measure is greater  than 2%. At least  quarterly,  and
generally  monthly,  management models the change in net portfolio value ("NPV")
over a variety of interest rate scenarios.  NPV is the present value of expected
cash flows from assets,  liabilities and  off-balance  sheet  contracts.  An NPV
ratio,  in any  interest  rate  scenario,  is  defined  as the NPV in that  rate
scenario divided by the market value of assets in the same scenario. Assumptions
used in calculating  interest rate  sensitivity  are  periodically  reviewed and
modified as appropriate.

As of December 31, 2006, the Bank's  internally  generated initial NPV ratio was
8.48%.  Following a 2% increase in interest  rates,  the Bank's  Post-Shock  NPV
ratio was 5.12%. The change in the NPV ratio, or the Bank's Sensitivity Measure,
was negative 3.36%. As of December 31, 2006, the Company's  internally generated
initial NPV ratio was 8.29%, the Post-Shock ratio was 4.82%, and the Sensitivity
Measure was negative 3.47%. As of June 30, 2006, the Bank's Post-Shock NPV ratio
and  Sensitivity  Measure were 5.02% and negative 3.64%,  respectively,  and the
Company's Post-Shock NPV ratios and Sensitivity Measures were 4.34% and negative
4.13%,  respectively.  Both the Post-Shock NPV ratio and the Sensitivity Measure
improved from June 30, 2006.  The  improvements  are  primarily  attributed to a
decline in asset duration.  Lower longer-term  market interest rates resulted in
an increase in estimated loan related  prepayments  and the early  redemption of
certain  callable U.S.  government  agency  securities.  Liability  duration was
relatively  unchanged  from June 30,  2006,  as a decline in  short-term  market
interest rates,  which lengthens  liability  duration,  was primarily  offset by
growth in  short-term  funding  balances.  Variances  between the Bank's and the
Company's  NPV  ratios  are  attributable  to  balance  sheet  items  which  are
eliminated during consolidation,  such as investments,  intercompany  borrowings
and capital.

Internally  generated NPV  measurements  are based on simulations  which utilize
institution  specific  assumptions,  including  discount  and decay  rates,  and
generally  result  in lower  levels  of  presumed  interest  rate  risk than OTS
measurements indicate.

The OTS  measures  the  Bank's  IRR on a  quarterly  basis  using  data from the
quarterly Thrift Financial  Reports filed by the Bank with the OTS, coupled with
non-institution specific assumptions which are based on national averages. As of
September 30, 2006 (the latest date for which  information  is  available),  the
Bank's  initial  NPV  ratio,  as  measured  by the OTS,  was  6.30%,  the Bank's
Post-Shock  ratio was 1.93% and the  Sensitivity  Measure  was  negative  4.37%,
placing the Bank's IRR profile in the "high risk" category under OTS guidelines.

In addition to monitoring NPV and gap,  management also monitors the duration of
assets and  liabilities  and the effects on net interest  income  resulting from
parallel and non-parallel increases or decreases in rates.

At December 31, 2006, based on its internally  generated  simulation models, the
Company's  consolidated net interest income projected for one year forward would
decrease  28.7%  from  the base  case,  or  current  market,  as a result  of an
immediate and sustained 2% increase in interest rates.

Liquidity and Capital Resources

The  Company's  primary  sources of funds are  deposits,  principal and interest
payments on loans and mortgage-backed  securities,  and borrowings from the FHLB
of New York.  While  scheduled  loan  repayments  and maturing  investments  are
relatively  predictable,  deposit  flows  and  early  loan  repayments  are more
influenced by interest rates,  general economic conditions and competition.  The
Company sets rates on deposit  products for selected terms and, when

                                       24
<page>

necessary,   has  supplemented  deposits  with  longer-term  or  less  expensive
alternative sources of funds.

The Bank  maintains  appropriate  levels of liquid  assets.  The Company's  most
liquid assets are cash and cash equivalents,  U.S.  government  sponsored agency
securities  and  mortgage-backed  securities.  The  levels of these  assets  are
dependent on the Bank's operating,  financing,  lending and investing activities
during any given period.

In the event  that the  Company  should  require  funds  beyond  its  ability to
generate them internally,  additional sources of funds are available through the
use of FHLB of New York  advances,  reverse  repurchase  agreements  and various
overnight  repricing  lines of credit.  The  Company  uses its liquid  resources
principally to fund maturing certificates of deposit and deposit withdrawals, to
purchase loans and securities, to fund existing and future loan commitments, and
to meet operating  expenses.  Management believes that loan repayments and other
sources of funds will be adequate to meet the  Company's  foreseeable  liquidity
needs.  Future  liquidity  requirements  are not  expected  to be  significantly
different from historical experience.

The Company's  cash inflows for the six months ended  December 31, 2006 included
$10.0 million of proceeds from the sale of loans, a $131.6  million  increase in
deposits (net of accrued interest payable),  a $45.0 million increase in FHLB of
New York  advances,  $4.7  million of proceeds  from  maturities  of  investment
securities   held  to   maturity   and   principal   repayments   of  loans  and
mortgage-backed  securities.  During the six months ended December 31, 2006, the
cash  provided  was used to repay  $145.9  million of maturing  FHLB of New York
advances and other  borrowings,  including  short term  borrowings,  and to fund
investing activities, which included the origination and purchase of loans.

The Company's  cash inflows for the six months ended  December 31, 2005 included
$28.4  million of proceeds from the sale of loans,  a $47.2 million  increase in
deposits (net of accrued interest payable), a $133.8 million increase in FHLB of
New York advances and other  borrowings,  including short term  borrowings,  and
principal  repayments of loans and  mortgage-backed  securities.  During the six
months  ended  December  31,  2005,  the cash  provided  was used to repay $65.0
million of maturing FHLB of New York advances and other  borrowings  and to fund
investing  activities,  which included the origination of loans and the purchase
of $15.0 million of investment securities. In addition, $5.9 million of the cash
provided was used to repurchase outstanding common shares, net of reissuances.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company's most significant form of market risk is interest rate risk, as the
majority  of its assets and  liabilities  are  sensitive  to changes in interest
rates.  See the  discussion  in this  Form  10-Q  under  "Item  2.  Management's
Discussion    and   Analysis   of   Financial    Condition    and   Results   of
Operations-Interest Rate Sensitivity."


Item 4. Controls and Procedures

(a)     Evaluation of Disclosure Controls and Procedures:

An evaluation of the Company's disclosure controls and procedures (as defined in
Rule  13a-15(e)  under the  Securities  Exchange  Act of 1934 (the  "Act"))  was
carried  out as of  December  31,  2006  under  the  supervision  and  with  the
participation of the Company's Chief Executive Officer,  Chief Financial Officer
and several  other  members of the Company's  senior  management.  The Company's
Chief  Executive  Officer and Chief  Financial  Officer  concluded  that,  as of
December  31, 2006,  the  Company's  disclosure  controls  and  procedures  were
effective  in ensuring  that the  information  required to be  disclosed  by the
Company in the reports it files or submits under the Act is (i)  accumulated and
communicated to the Company's management  (including the Chief Executive Officer
and Chief Financial Officer) as appropriate to allow timely decisions  regarding
required disclosure and (ii) recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms.

(b)     Changes in Internal Controls:

During the quarter ended December 31, 2006, no change  occurred in the Company's
internal control over financial  reporting that has materially  affected,  or is
reasonably  likely to materially  affect,  the Company's  internal  control over
financial reporting.

The Company  does not expect that its  disclosure  controls and  procedures  and
internal control over financial  reporting will prevent all error and all fraud.
A control procedure, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control procedure
are met.  Because of the  inherent

                                       25
<page>

limitations  in all control  procedures,  no  evaluation of controls can provide
absolute  assurance  that all control  issues and  instances  of fraud,  if any,
within the Company have been detected.  These inherent  limitations  include the
realities that judgments in  decision-making  can be faulty, and that breakdowns
can occur  because of simple  error or mistake.  Additionally,  controls  can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by override of the control.  The design of any control procedure also
is based in part upon certain assumptions about the likelihood of future events,
and there can be no  assurance  that any design will  succeed in  achieving  its
stated goals under all  potential  future  conditions;  over time,  controls may
become inadequate because of changes in conditions,  or the degree of compliance
with the  policies  or  procedures  may  deteriorate.  Because  of the  inherent
limitations in a cost-effective control procedure, misstatements due to error or
fraud may occur and not be detected.



                                       26
<page>

PART II - Other Information

Item 1.    Legal Proceedings
           None.

Item 1A.   Risk Factors.
           There have been no material  changes in the  Company's  risk  factors
           from  those  previously disclosed in Part I, Item 1A of the Company's
           Form 10-K for the year ended June 30, 2006.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

           The  following  table   summarizes  the  Company's  stock  repurchase
           activity for each month  during the three  months ended  December 31,
           2006. All shares  repurchased  during the three months ended December
           31, 2006 were repurchased in the open market.
<table>
<caption>
                                                                                   Total Number         Maximum Number
                                                 Total Number      Average     of Shares Purchased   of Shares that May
                                                   of Shares      Price Paid   as Part of Publicly    Yet Be Purchased
                                                  Repurchased     Per Share      Announced Plan        Under the Plan
                                                  -----------     ----------   -------------------   -------------------

                                               <c>             <c>                   <c>                <c>
           Repurchases for the Month
           -------------------------
           Oct. 1 - Oct. 31, 2006..............         5,600     $    17.26            5,600              364,300
           Nov. 1 - Nov. 30, 2006..............            --             --               --              364,300
           Dec. 1 - Dec. 31, 2006..............            --             --               --              364,300
                                                    ---------     ----------        ---------
           Total repurchases...................         5,600     $    17.26            5,600
                                                    =========     ==========        =========
</table>

           At December 31, 2006,  the Company had a repurchase  plan under which
           it had not yet completed all approved  repurchases.  This  repurchase
           plan was  publicly  announced  January  25, 2006 and  authorized  the
           Company to repurchase up to 5%, or 650,000, of its outstanding shares
           over the  following  18 months.  The  Merger  Agreement  between  the
           Company and NYCB  entered into on November 2, 2006 (see Note 6 of the
           Notes to Consolidated Financial Statements) provides that the Company
           may not repurchase any shares of its common stock prior to the Merger
           without the prior written consent of NYCB.

Item 3.    Defaults Upon Senior Securities
           None.

Item 4.    Submission of Matters to a Vote of Security Holders

           (a)    The Annual Meeting of Stockholders  (Annual  Meeting) was held
                  on October 26, 2006.

           (b)    Directors elected at          Directors whose terms continued
                  the Annual Meeting:           after the Annual Meeting:
                  Joseph L. LaMonica            William C. Anderson
                  Mario Teixeira, Jr.           Amadeu L. Carvalho
                                                Patrick D. McTernan
                                                Marvin D. Schoonover

           (c)    At the Annual Meeting,  the stockholders  considered:
                  (i)   the election of two directors,
                  (ii)  the  ratification  of the  appointment  of  KPMG  LLP as
                        independent auditors for the Company for the fiscal year
                        ending June 30, 2007.

                  The vote on the election of two directors was as follows:

                                                          FOR          WITHHELD
                                                       ----------      ---------
                  Joseph L. LaMonica                   10,442,677      1,276,424
                  Mario Teixeira, Jr.                  10,382,459      1,336,642

                  There were no broker non-votes with respect to the proposal.

                  The vote on the ratification of the appointment of KPMG LLP as
                  independent  auditors  for the  Company  for the  fiscal  year
                  ending June 30, 2007 was as follows:

                                       27
<page>

                        FOR                AGAINST           ABSTAIN
                     ----------            -------           -------
                     11,557,973            104,699            56,431

                  There were no broker non-votes with respect to the proposal.

Item 5.    Other Information
           None.

Item 6.    Exhibits
           See Exhibit Index.






                                       28
<page>


                                   SIGNATURES


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


                                PENNFED FINANCIAL SERVICES, INC.
                                --------------------------------



Date: February 9, 2007          By: /s/ Joseph L. LaMonica
                                    --------------------------------------------
                                    Joseph L. LaMonica
                                    President and Chief
                                    Executive Officer
                                    (Principal Executive Officer)





Date: February 9, 2007          By: /s/ Claire M. Chadwick
                                    --------------------------------------------
                                    Claire M. Chadwick
                                    Senior Executive Vice President,
                                    Chief Financial Officer and
                                    Controller
                                    (Principal Financial and Accounting Officer)


                                       29
<page>
<table>
<caption>

                                                EXHIBIT INDEX
  Regulation                                                                                          Reference to
     S-K                                                                                              Prior Filing
   Exhibit                                                                                             or Exhibit
    Number                                         Document                                              Number
-------------------------------------------------------------------------------------------------------------------

             <c>                                                                                     <c>
    2         Agreement Plan of Merger, dated as of November 2, 2006 (the "Merger Agreement"),
              between the Company and New York Community Bancorp, Inc. ("NYCB")                           (e)
    3 (i)     Articles of Incorporation                                                                   (a)
    3 (ii)    Bylaws                                                                                      (a)
    4         Instruments defining the rights of security holders, including indentures                   (b)
    4 (i)     Stockholder Protection Rights Agreement                                                     (c)
    10        Material contracts:
              (i)      1994 Amended and Restated  Stock Option and Incentive Plan                         (d)
              (ii)     Employment Agreement Cancellation Agreement among the Company, NYCB and
                         Joseph L. LaMonica                                                               (e)
              (iii)    Employment Agreement Cancellation Agreement among the Company, NYCB and
                         Patrick D. McTernan                                                              (e)
              (iv)     Employment Agreement Cancellation Agreement among the Company, NYCB and
                         Jeffrey J. Carfora                                                               (e)
              (v)      Employment Agreement Cancellation Agreement among the Company, NYCB and
                         Claire M. Chadwick                                                               (e)
              (vi)     Employment Agreement Cancellation Agreement among the Company, NYCB and
                         Maria F. Magurno                                                                 (e)
              (vii)    Retention Agreement between New York Community Bank and Joseph L.
                         LaMonica                                                                         (e)
              (viii)   Retention Agreement between New York Community Bank and Patrick D.
                         McTernan                                                                         (e)
              (ix)     Retention Agreement between New York Community Bank and Jeffrey J.
                         Carfora                                                                          (e)
              (x)      Retention Agreement between New York Community Bank and Claire M.
                         Chadwick                                                                         (e)
              (xi)     Retention Agreement between New York Community Bank and Maria F.
                         Magurno                                                                          (e)
              (xii)    Noncompetition Agreement between NYCB and Joseph L. LaMonica                       (e)
              (xiii)   Noncompetition Agreement between NYCB and Patrick D. McTernan                      (e)
              (xiv)    Amended and Restated Supplemental Executive Retirement Plan                       10.14
              (xv)     Amended and Restated Supplemental Executive Death Benefit Plan                     (f)
              (xvi)    Amended and Restated Outside Directors' Retirement Plan                           10.16
              (xvii)   Form of Consulting Agreement                                                       (g)
                         (a) Form of Amendment to  Consulting  Agreement                                 10.17
              (xviii)  Description of Named  Executive  Officer Salary and Bonus Arrangements             (h)
              (xix)    Description  of  Director  Fees                                                    (h)
              (xx)     Description of Long-Term Care Insurance Program                                    (h)
    11        Statement re: computation of per share earnings                                             (i)
    15        Letter re: unaudited interim financial information                                          None
    18        Letter re: change in accounting principles                                                  None
    19        Report furnished to security holders                                                        None
    22        Published report regarding matters submitted to vote of security holders                    None
    23        Consents of independent registered public accounting firm and counsel                       None
    24        Power of Attorney                                                                           None
    31.1      Certifications Required by Securities Exchange Act of 1934 Rule 13a-14(a)
                (Chief Executive Officer)                                                                 31.1
    31.2      Certifications Required by Securities Exchange Act of 1934 Rule 13a-14(a)
                (Chief Financial Officer)                                                                 31.2
    32        Certifications Required by Section 1350 of Title 18 of the United States Code                32
    99        Additional Exhibits                                                                    Not applicable
</table>
--------------------

      (a)   Included as an appendix to the Company's  definitive proxy statement
            under the Securities Exchange Act of 1934, filed with the Securities
            and Exchange  Commission on September  22, 2003 (File No.  0-24040).
            Such previously  filed document is hereby  incorporated by reference
            in accordance with Item 601 of Regulation S-K.

      (b)   The Company  hereby  agrees to furnish the  Securities  and Exchange
            Commission, upon request, the instruments defining the rights of the
            holders of each issue of the Company's long-term debt.

                                       30
<page>

      (c)   Filed as an exhibit to the Company's  Registration Statement on Form
            8-A  under  the  Securities  Exchange  Act of 1934,  filed  with the
            Securities  and Exchange  Commission on March 28, 1996 as amended on
            Form 8-A/A (the "Form 8-A/A") filed with the Securities and Exchange
            Commission on February 11, 1998, as further  amended on Form 8-A/A-2
            (the  "Form   8-A/A-2")  filed  with  the  Securities  and  Exchange
            Commission on October 14, 1998,  as further  amended on Form 8-A/A-3
            (the  "Form   8-A/A-3")  filed  with  the  Securities  and  Exchange
            Commission  on March 1, 2004 and as further  amended on Form 8-A/A-4
            filed with the  Securities  and Exchange  Commission  on November 8,
            2006.  The First  Amendment to the  Stockholders  Protection  Rights
            Agreement  is filed as an  exhibit  to the Form  8-A/A,  the  Second
            Amendment to the Stockholders  Protection  Rights Agreement is filed
            as an  exhibit  to the Form  8-A/A-2,  the  Third  Amendment  to the
            Stockholders  Protection  Rights Agreement is filed as an exhibit to
            the  Current  Report  on Form  8-K  filed  by the  Company  with the
            Securities  and  Exchange  Commission  on October  29,  2003 and the
            Fourth Amendment to the Stockholder  Protection  Rights Agreement is
            filed as an exhibit to the Form  8-A/A-3 and the Fifth  Amendment to
            the Stockholder  Protection  Rights Agreement is filed as an exhibit
            to the  Current  Report  on Form 8-K filed by the  Company  with the
            Securities  and  Exchange  Commission  on  November  8, 2006.  These
            documents are hereby  incorporated  by reference in accordance  with
            Item 601 of Regulation S-K.

      (d)   Filed as an exhibit to the Company's  Form 10-K under the Securities
            Exchange  Act of  1934,  filed  with  the  Securities  and  Exchange
            Commission on September 24, 2001 (File No. 0-24040). Such previously
            filed  document is hereby  incorporated  by reference in  accordance
            with Item 601 of Regulation S-K.

      (e)   Filed as an  exhibit  to the  Company's  Current  Report on Form 8-K
            under the Securities Exchange Act of 1934, filed with the Securities
            and Exchange Commission on November 8, 2006 (File No. 0-24040). Such
            previously  filed  document is hereby  incorporated  by reference in
            accordance with Item 601 of Regulation S-K. The Retention Agreements
            and Noncompetition  Agreements were entered into on November 2, 2006
            but are effective immediately following the completion of the merger
            of the Company into NYCB pursuant to the Merger Agreement.

      (f)   Filed as an  exhibit  to the  Company's  Current  Report on Form 8-K
            under the Securities Exchange Act of 1934, filed with the Securities
            and Exchange  Commission  on February  14, 2005 (File No.  0-24040).
            Such previously  filed document is hereby  incorporated by reference
            in accordance with Item 601 of Regulation S-K.

      (g)   Filed as an exhibit to the Company's  Form 10-K under the Securities
            Exchange  Act of  1934,  filed  with  the  Securities  and  Exchange
            Commission on September 22, 2003 (File No. 0-24040). Such previously
            filed  document is hereby  incorporated  by reference in  accordance
            with Item 601 of Regulation S-K.

      (h)   Filed as an exhibit to the Company's  Form 10-K under the Securities
            Exchange  Act of  1934,  filed  with  the  Securities  and  Exchange
            Commission on September 13, 2005 (File No. 0-24040). Such previously
            filed  document is hereby  incorporated  by reference in  accordance
            with Item 601 of Regulation S-K.

      (i)   Refer to Footnote 3.,  "Computation  of Earnings Per Share  ("EPS")"
            included in the December 31, 2006 Form 10-Q.


                                       31